Business Spectator: Lend Lease shows that cartel bans do pay Robert Gottliebsen, 9 September 2014
What a difference a good chairman can make. Lend Lease shareholders can be grateful that their chairman, David Crawford, decided to move the Lend Lease construction activities from a cartel-ridden business to proper trading.
Partly as a result of that, the Lend Lease consortium was able to be the preferred bidder for the first stage of the Victoria’s East West Link project.
And Victoria has already reaped big gains from the Crawford decision. Lend Lease, using non-cartel style labour agreements, was able to build the Box Hill Hospital substantially under the costs projected when it was believed the hospital would be built under the cartel rules.
When it saw the hospital was being built so much more cheaply than expected, the Victorian Government then added an extra floor or two at no extra cost.
Back some three years ago, Lend Lease was one of the worst companies in Australia in its cartel-style agreements with the building unions. Its sub-contractors had to be approved by the union and, as we now see in the Royal Commission into unions, there were all sorts of kickback payments as the unions virtually controlled the sites. The costs to building owners were inflated by 15 to 30 per cent by these agreements.
So bad was Lend Lease management that they were banned by the Victorian Government and then publicly lied about the nature of their union agreements. When management breaks down in such a way it’s time for a chairman and board to say “enough” (Lend Lease’s about turn leaves the unions seething, July 3).
Victoria has been a pioneer in banning cartel-style agreements between big builders and unions in government contracts. Their stand has been embraced by NSW and Queensland, but because it was the first mover Victoria is now getting the early benefits of lower building costs.
However, the Victorian opposition says it wants the cartel-style agreements restored by abolishing the codes that stop them, and the Opposition in government is prepared to pay the higher prices.
However, if an ALP Victorian government were to abolish the anti-cartel codes there would be no Commonwealth government money, although the required Commonwealth legislation has yet to get through the Senate mire. This will be a major issue in the Victorian election in November.
As it happens, the savings in the first stage of the East West Link are not as great as in a building like a hospital because there is so much tunnelling that involves heavy machinery rather than labour.
Nevertheless, the Box Hill Hospital experience put Lend Lease in the pole position.
Lend Lease’s big rival, Leighton, has still to adjust to the new rules and re-do its labour agreements. The Spaniards who now control Leighton must wonder what they have struck.
David Crawford and Lend Lease think it’s marvellous. When they understand the implications, so will taxpayers in the three eastern states.