Fighting Corruption in the Australian Construction Industry: The National Code of Practice
Publication: Leadership and Management in Engineering
Volume 9, Issue 3
Abstract
The Australian building and construction industry has experienced its share of bad and anti-competitive practices, especially related to industrial and workplace practices and to occupational health and safety. As a result, the commonwealth (federal) and state governments agreed in the early 1990s to adopt a National Code of Practice for the Construction Industry to establish a set of principles and standards of behavior that would apply to all dealings between clients, their representatives, and members of the construction industry. The code applies to construction activity and building refurbishments and extends to clients, head contractors, subcontractors, project managers, consultants, material suppliers, and trade unions. All parties wishing to do business with governments or work on government construction projects must be compliant with the code. Sanctions may be imposed where a party fails to meet its code obligations and sanctions may range from a warning to preclusion from bidding on government work for up to six months. The code has set clear and firmly enforced ground rules regarding expected behavior and standards on construction projects and appears to have been successful, with measurable decreases in unacceptable practices such as collusive tendering and increases in productivity for the industry as a whole.
The building and construction industry in Australia is a critical component of the national economy and contributes much to the nation’s welfare and prosperity. In 2004–2005, the latest year for which comprehensive data is available, the value of the industry’s total production was assessed at A$84.5 billion, or around 5.5 percent of Australia’s gross domestic product (at the time that this article was written, A$1.00 was approximately equal to US$0.70). The industry employed almost 820,000 workers, representing about 7.5 percent of the Australian workforce (Australian Bureau of Statistics 2007).
Although large, the industry has not been noted for its efficiency and has had a history of bad practices and anti-competitive behavior. During the past , a program of micro-economic reform and structural adjustment, driven by successive Australian commonwealth governments, has seen significant improvements in productivity across almost all industry sectors. However, this has not been true of the building and construction industry. (The Commonwealth of Australia is a federation of six states and two self-governing territories. The term “commonwealth government” refers to the federal government. The term “Australian governments” refers collectively to all governments at the commonwealth, state, and territory levels.) Economic modeling in 2003 estimated that, were productivity growth in the industry to match that of the market sector, the accumulated gain in real gross domestic product between 2003 and 2010 would approximate A$12 billion. Further, it was estimated that all industries would benefit from an increase in output as a result of a reduction in building and construction cost (Royal Commission into the Building and Construction Industry 2003).
The lack of productivity in the building and construction industry has been of concern to all Australian governments for some time. Apart from the overall economic impact, governments represent a major funding source for construction activity. A lack of productivity and efficiency in the industry prevents governments from making the best use of taxpayer funds.
By the early 1990s, Australian governments recognized the need for reform and in 2001 a retired judge of the New South Wales (NSW) State Supreme Court, the Honorable Terence Cole was appointed by the commonwealth government to head a Royal Commission into the Building and Construction Industry. The Royal Commission reported in February 2003 and made a range of recommendations aimed at improving productivity in the industry and reforming its industrial and safety practices (Royal Commission into the Building and Construction Industry 2003). The National Code of Practice for the Construction Industry, which is the main subject of this article, embodies many of those recommendations.
Corruption in the Australian Building and Construction Industry
In general, Australia is a mature nation with a sound foundation in law and a low incidence of corruption, especially in government circles. It therefore comes as a surprise to many Australians when an industry such as building and construction is considered to be corrupt. Certainly, incidents of gross corruption, such as payoffs to government officials in return for special considerations in project approval or tender award, are rare (although they do exist).
More common within the Australian building and construction industry are bad and anti-competitive practices, especially related to industrial and workplace practices and to occupational health and safety. These practices have included:Many of the practices highlighted by the Royal Commission relate to the workplace. Although Australia—at both the commonwealth and state levels—has comprehensive legislation to control industrial practices, the Royal Commission noted many examples of threatening behavior, disregard of contractual obligations, inappropriate payments, and inappropriate industrial pressure. While this may not fit the traditional definition of corruption, such behavior is nevertheless a departure from the norms of reasonable behavior and can result in illegal, or at least inappropriate, payments.
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Collusive tendering, where bidders collude on price for major projects, driving up construction costs and creating a situation where contractors win because it is their turn, not because they offer best value for money;
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Lack of honesty and fairness in business relationships, both between the client and the contractor and between the contractor and subcontractors;
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Bad industrial and workplace practices, which have driven up the cost of labor, institutionalized inefficiencies, and sometimes resulted in intimidation of employers by union officials; and
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Poor or nonexistent occupational health and safety practices, which in many instances have cost lives or livelihoods.
In the final report of the Royal Commission, Justice Cole stated that “there needs to be recognition by all participants that the rule of law applies within the industry…at present [there is] not.” He emphasized the need for cultural change to ensure freedom of choice in joining a union, to provide a “level playing field” in business relationships, and to ensure that all parties honor their obligations and do not simply seek to obtain benefits. He was particularly scathing with regard to safety practices, stressing that attitudinal change was necessary from all parties to implement a paradigm where safety is paramount. Justice Cole also stressed the need for an independent body to ensure that participants comply with all applicable industrial, civil, and criminal laws.
The Cole Royal Commission stated the case for reform of the building and construction industry clearly and compellingly. Governments, in particular the commonwealth, recognized that the best way to drive reform was to lead it, by ensuring that construction work undertaken for governments meets the highest ethical, industrial, and safety standards. The National Code of Practice for the Construction Industry is a cornerstone of this approach.
The National Code of Practice for the Construction Industry
The unsatisfactory state of the construction industry in Australia had been recognized well before the Cole Royal Commission. As a result, the commonwealth and state governments agreed in the early 1990s to adopt a National Code of Practice for the Construction Industry to establish a set of principles and standards of behavior that would apply to all dealings between clients, their representatives, and members of the construction industry.
The first version of the code was adopted by Australian governments in 1997. However, it was revised in the light of the Cole Royal Commission’s recommendations. In addition, an independent commonwealth agency, the office of the Australian Building and Construction Commissioner (the ABCC), was created to oversee the application of the code. This independent body arose out of the Royal Commission’s recommendations and is intended to ensure that all players in the industry operate on a level playing field, including not only contractors and unions but government agencies who may be the clients for major construction work.
At the commonwealth level, the code applies to Australian building and construction projects that are:The code applies to construction activity and building refurbishments. It applies to clients, head contractors, subcontractors, project managers, consultants, material suppliers, and trade unions. All parties wishing to do business with governments or work on government construction projects must be compliant with the code. Only code-compliant parties can bid for government construction work. Sanctions may be imposed where a party fails to meet its code obligations and sanctions may range from a warning to preclusion from bidding on government work for up to six months. At the end of that period, parties who are still not code compliant will be precluded from bidding.
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directly funded by the commonwealth government;
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indirectly funded by the commonwealth, where the value of that funding represents at least 50 percent of the construction value between A$5 million and A$10 million; and
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indirectly funded by the commonwealth, where the value of that funding exceeds A$10 million regardless of percentage value.
The code emphasizes the maintenance of the highest ethical standards in all construction-related activities. The principles on which the code is founded follow (National Procurement and Construction Council 1997).
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Clients have a right to choose with whom they do business and to determine and communicate the standards of performance and behavior that they expect from all industry participants.
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Business relationships and contracts must reflect trust, cooperation, equity, honesty, and high standards of behavior.
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Principles of ethical behavior must be adhered to at all times and at all levels. Bidding processes must be honest and fair. Anticompetitive behavior or any other practice which denies participants legitimate business opportunities are unacceptable.
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All participants must commit to best practices and continuous improvement.
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Workplace and management practices must be flexible, equitable, responsive, and competitive. They must provide for improved productivity and value.
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All parties must demonstrate commitment to occupational health and safety principles and outcomes.
Exactly how parties achieve compliance with these principles is a complex matter which is beyond the scope of this paper (see www.abcc.gov.au for implementation guidelines to the code).
What Does Code Compliance Mean?
In practice, compliance with the national code means that all bidding for work must be open and competitive, without collusion. Bidders must sign a statement that they have not participated in collusion with other parties and all relevant business relationships within contractor teams (including subcontractors, project managers, and consultants) must be declared. Government agencies who conduct the tender process normally employ legal probity advisors who will oversee this requirement and provide advice on any questions relating to business relationships.
Contracts must be equitable for all parties and must contain reasonable allocations of risk and reward. The ABCC has developed model contracts for suggested use and these can be found on their Web site.
Industrial agreements and workplace agreements must be fair and equitable for both workers and employers. For example, they must not contain provisions that:Parties that are not code compliant are ineligible to bid for commonwealth government building and construction work. The compliance process is a complex one that involves a review of all relevant systems, industrial agreements, personnel and workplace procedures by the Department of Employment and Workplace Relations (DEWR). Commonwealth bidding documents normally include a questionnaire that contractors must complete and submit to DEWR for assessment, along with copies of all relevant documents as outlined above. The DEWR will assess compliance and advise both the bidder and the client of the compliance status of the party. If the party is considered noncompliant, their bid will be set aside.
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force a worker to join a union;
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force or encourage inequitable payments or arrangements such as overtime; and
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enable unions to dictate workplace practices, employee numbers, etc.
However, it is increasingly the practice that parties involved in commonwealth government construction work have their code compliance assessed and certified by DEWR as a normal business practice, as they would seek assessment and certification of their ISO 9000 Quality Systems or ISO 14000 Environmental Management Systems. This assessment can be done online in about . (Further information on the process can be found at www.workplace.gov.au.) Compliant parties receive a letter from DEWR certifying their compliance and this letter can then be attached to bids as evidenced of compliance. Noncompliant parties are advised as to where they are noncompliant, so that action can be undertaken to achieve compliance.
Compliance is also audited by the ABCC in the field, in much the same way as quality audits may be conducted during projects. The ABCC officers will call for all relevant company documents and systems and will visit construction sites to review site documents and instructions and to observe on-site practices. I have been involved in such an audit and they are extremely thorough, examining in detail such documents as supplier order forms and procedures, and forms used to issue site instructions to personnel.
What Happens If a Party Is Noncompliant?
If a party is found to be noncompliant, sanctions can apply. These sanctions can range from a warning to being disqualified from bidding for government work for a period of up to six months. The ability to bid after that depends on the party having achieved compliance, so a sanction can be a “big stick.” Bidding parties must also declare if they have ever been sanctioned and this fact may be taken into account in assessing the risk profile of the bidder. Past sanctions remain on the DEWR Web site indefinitely.
There are currently no parties under sanction in Australia although there have been in the past. The fact that there are no current sanctions is an example of the seriousness with which the industry takes compliance.
Benefits of the National Code
The introduction of the code has resulted in a significant improvement in performance in the Australian construction industry. Collusive bidding is much less of a problem and construction firms go to some lengths to demonstrate the probity of their practices. Unfair, and in some instances illegal, union practices have been greatly reduced and now stand out as obvious if they are attempted. Occupational health and safety practices have greatly improved.
In August 2008 the ABCC released its 2008 economic analysis of building industry productivity. That report noted a 10.5 percent outperformance in construction industry labor productivity compared with predictions based on historical performance in the five-year period up to 2002. The report found a 10 percent increase in labor productivity due to the ABCC and associated reforms (including the national code) and indicated an annual economic welfare gain of A$5.1 million (ABCC 2008). The National Code of Practice for the Construction Industry is a very good example of what can be achieved in combating corruption when governments set and enforce an appropriate benchmark.
Other Examples of Anticorruption Measures
Although this article has concentrated on one anticorruption measure in place in Australia (the National Code of Practice for the Construction Industry), there are others. The scope of the code is limited, in that it focuses on new building and construction activity and contracts let by the commonwealth, state, and territory governments. It does not cover the activities of local government (i.e., town and city councils), nor does it cover private sector activities or the development and building approval processes conducted by Australia’s 565 local government bodies for private development projects.
All state and territory governments in Australia have bodies charged with investigating allegations of fraud and corruption at the state and local government level. When a case is found, these bodies can then make recommendations regarding necessary action and can refer matters to the police and the judicial system where a case for criminal investigation and prosecution may exist. All states, territories, and the commonwealth have an ombudsman who can investigate public complaints, as well as an audit office that is charged with auditing public sector activities and programs. Three states also have specific, higher level quasi-judicial bodies that are specifically charged with investigating matters relating to public sector corruption. These are the New South Wales Independent Commission Against Corruption (ICAC; www.icac.nsw.gov.au), the Queensland Criminal Justice Commission (www.cjc.qld.gov.au), and the Western Australia Anti-Corruption Commission.
The activities and recent findings of ICAC exemplify the work of these agencies. After a wide-ranging investigation into allegations of corruption within the NSW state-owned railway corporation RailCorp, ICAC made 96 corrupt conduct findings against 31 people, including RailCorp employees and contractors. This included corruption and fraud in the awarding of contracts, failure to declare conflicts of interest, and improperly accessing RailCorp financial allowances. In this investigation ICAC has sought the advice of the NSW director of public prosecutions with respect of 663 possible criminal charges against 33 people (NSW ICAC 2008a).
In another investigation, ICAC made 24 corrupt conduct findings against 10 people after an investigation into corruption allegations affecting the city council of the coastal city of Wollongong. These allegations related to the improper approval of applications for excessive development, providing monetary concessions, and leaking confidential council information. The ICAC has also sought the advice of the director of public prosecutions with respect to prosecuting 11 individuals for 139 criminal offences (NSW ICAC 2008b).
Conclusion
In spite of some of the matters discussed in this paper, Australia is generally regarded as a country with a high reputation for integrity. The Transparency International 1999 Corruption Perceptions Index rated Australia 12th out of 99 countries (Grabosky and Larmour 2000). Nevertheless, corruption does exist and examples have been found of persistent and entrenched corruption in some areas.
Australian federal, state, and territory governments have acted firmly in recent years to deal with corruption, in particular within the building and construction industry. The National Code of Practice for the Construction Industry, first put in place in 1997 but upgraded after a Royal Commission into the construction industry in 2003, has set clear and firmly enforced ground rules regarding expected behavior and standards on construction projects. This appears to have been successful, with measurable decreases in unacceptable practices such as collusive tendering and increases in productivity for the industry as a whole.
In other areas, dedicated anticorruption bodies in a number of states have been very active in identifying and acting against corruption within the public sector, including the building, construction, and contracting industries. The activities of these bodies are not only identifying and dealing with existing corruption, but they are fulfilling a valuable role in education and in imbedding in the community the cultural shifts necessary to eliminate corruption.
References
Australian Building and Construction Commissioner (ABCC). (2008). Construction industry productivity: 2008 report card, Canberra.
Australian Bureau of Statistics. (2007). Year book Australia 2006, Canberra.
Grabosky, P., and Larmour, P. (2000). “Public sector corruption and its control.” Trends and issues in crime and criminal justice, Australian Institute of Criminology, Canberra.
National Procurement and Construction Council (later the Australian Building and Construction Commissioner). (1997, amended 2006). National code of practice for the construction industry, Canberra.
New South Wales Independent Commission Against Corruption (NSW ICAC). (2008a). Investigation into Bribery and Corruption in Railcorp—Seventh Report, Sydney.
New South Wales Independent Commission Against Corruption (NSW ICAC). (2008b). Report on an Investigation into Corruption Allegations Affecting Wollongong City Council, Sydney.
Royal Commission into the Building and Construction Industry. (2003). Final Report, ⟨http://www.royalcombci.gov.au⟩.
Biographies
Rolfe Hartley is the commissioner for ethics and discipline for Engineers Australia and is a fellow of that organization. He can be reached by e-mail at [email protected].
Information & Authors
Information
Published In
Leadership and Management in Engineering
Volume 9 • Issue 3 • July 2009
Pages: 131 - 135
Copyright
© 2009 ASCE.
History
Received: Jan 7, 2009
Accepted: Feb 11, 2009
Published online: Jun 15, 2009
Published in print: Jul 2009
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