Contractor concerns over IR policy

At a budgeted cost of $1.09 billion, the long-awaited Tonkin Highway extension and Thomas Road upgrade will add 14 kilometres to one of the city’s major arterial roads, connecting it to the South Western Highway.

The largest road investment in Perth’s south-east corridor, according to Transport Minister Rita Saffioti, will improve road freight efficiency and ease congestion on local roads.

The road project will be a critical link in the vision for the Westport container terminal at Kwinana and will alleviate some of the pressure on roads in an area likely to feel the strain of activity in the years ahead.

Two consortia – Tonkin Extend Alliance (comprising Laing O’Rourke, Garli, WSP and Arcadis) and the similarly named Tonkin Extension Alliance (Georgiou, BMD, Civcon, GHD and BG&E) – will pitch for the work, with a contract to be awarded late in 2024.

However, one detail in the tender documents attracted interest from industry groups late last year: the pilot trial of a new industrial relations policy referred to as Western Australian Best Practice Industry Conditions (WA BPIC).

Adapted from the conditions of an enterprise agreement between an Acciona-led consortium and the CFMEU on the Victoria Park-Canning level crossing removal project, and based in principle on a contentious Queensland IR policy, WA BPIC sets in stone a series of conditions the government says will ensure workers are treated and paid fairly.

They include pay rates 25 per cent higher than the industry standard with a guaranteed 5 per cent annual wage increase, mandated to be passed through to subcontractors.

“These changes are about ensuring subcontractors and small businesses are not being undercut and levelling the playing field by providing greater transparency around wages and conditions,” a state government spokesperson told Business News.

Industry groups, including the WA arm of the Civil Contractors Federation and the Chamber of Commerce and Industry WA, are less enthusiastic about the change.

The federation fears the policy will drive up costs on government projects, create a culture of haves and have nots among workforces within the state, and drive down productivity on public works.

CCF chief executive Andy Graham told Business News the policy, if deemed a success and widely adopted, could hinder government progress on major infrastructure projects.

“Our members rely on work from the government,” Mr Graham said.

“If construction costs increase, which they must under the WA BPIC, then that means less work.

“There’s not a money tree out the back, so they won’t be able to deliver as much infrastructure.”

He said the CCF’s views were guided by the Queensland experience with its own BPIC policy, which was adopted two years ago on projects over $100 million and has coincided with major blowouts in cost on public projects.

The Queensland branch of the CCF has attributed cost blowouts on projects in the Sunshine State to the BPIC and the union influence that has come because of it.

“Depending on the labour profile of the project, it added seventeen to thirty per cent onto the project alone,” Queensland CCF chief executive Damian Long told Business News.

“The general inflation we had out of COVID was higher than that, but you don’t need that on top of it. It’s horrific, it’s unbelievable.

“We don’t begrudge anyone getting paid really well, it’s just the productivity and the cost issues that have come with it.”

Mr Graham said the CCF was concerned similar blowouts could take place in WA.

“If we apply that to the Tonkin Highway extension, then the cost of that project goes from $1.1 billion to $1.3 billion,” he said.

The WA pilot does not apply the conditions imposed by the Queensland policy, and the WA government has taken issue with the CCF’s numbers, which it says are based on unsubstantiated claims from the east coast.

“Some of the Civil Contractors Federation’s claims are tenuous at best, and trying to draw connections to the current public sector bargaining is opportunistic and simply trying to put construction workers against public sector workers,” the government spokesperson said.

“The commentary and position of the CCF are incredibly disappointing given the government’s unwavering support for civil contractors in recent years, particularly keeping major projects in the face of supply chain disruptions and significant cost escalations.”

The government said the trial aimed to crack down on exploitation of subcontractor workers and make sure favourable conditions were passed down the chain.

“The government wants to ensure workers on our transport infrastructure projects receive fair pay and conditions, and that the same pay and conditions set for head contractors filter further down the subcontracting chain,” the spokesperson said.

“That is what this pilot is all about.”

Culture fears

The CCF’s claims against the WA BPIC go beyond cost escalations.

Mr Graham said members were concerned that the policy could lead to a culture of haves and have nots within their workforce by mandating higher pay, and that it would risk productivity.

“If you read the reports from Queensland, the policy has had a two-pronged effect,” he said.

“It has increased labour costs and decreased productivity, because it’s a union agreement.

“Straight away it goes from a thirtyeight-hour week to a thirty-six-hour week as union enterprise agreements do, and then there’s the consultation, the strong union presence on site which can slow projects down.”

Mr Graham said the ultimate outcome of the pilot trial – if applied across the board – could be a reluctance from contractors and subcontractors to engage with government jobs.

The policy does not appear to have affected the tendering process for the Tonkin Highway job, however, with five consortia representing 23 companies understood to have expressed their interest in formally tendering for the work before the final two were shortlisted.

The government spokesperson said the ultimate cost of any additional wages would be worked into the details of a finalised contract, and that prescribed pay increases changed from EBA to EBA.

But the Tonkin Highway extension conditions have drawn the ire of the Chamber of Commerce and Industry WA as well.

CCI WA chief economist Aaron Morey said the chamber was concerned about the flow-on effects that could be seen regardless of whether the BPIC was applied across the sector.

“When you see new benchmarks set in one part of the economy, that can easily flow through to other parts of the economy,” Mr Morey told Business News.

“Our fundamental concern is that it embeds within the broader market a much more cost-prohibitive set of rights for civil construction more broadly, and some conditions that really set a poor precedent for union interventions in the operations of civil contractors within the state.

“We have an enormous pipeline of civil works in the state and we need to be as cost efficient as we can be.

“The upshot of all this is that we can see those higher rates of pay, and those conditions being embedded within the broader market, creating an environment of concern for the budget and also for the economy more broadly.”

The Tonkin Highway extension will be carried out in two simultaneous stages, with the larger stage one to extend the highway from Thomas Road to Mundijong Road as a four-lane dual carriageway, as well as upgrading Thomas Road to the South Western Highway.

Expressions of interest are open on stage two of the project, which will extend Tonkin Highway from Mundijong Road to the South Western Highway.