Australia: Proposed Federal Building and Construction Code - where does it leave building contractors now?

Key Points:

A number of the clauses that would be prohibited content under the draft Federal Building and Construction Code, if approved, are standard clauses in enterprise agreements in the building industry.

The Federal Government has published a much anticipated new Federal Building and Construction Code (Draft Code).

Once the Draft Code commences, contractors will no longer have to comply with potentially conflicting Commonwealth and State building and construction codes and State Guidelines.

However, the introduction of the Draft Code will not remove all uncertainties and conflicts. In particular, and a matter of likely concern for contractors, is the apparent divide between what is allowable content for an enterprise agreement under the Fair Work Act 2009 (Cth) and what is permissible content for funding purposes under the Draft Code. The terms of the Draft Code appears to introduce greater restriction on contractors than the Fair Work Act.

For example, the following types of provisions (explained in more detail below) will be prohibited under the Draft Code:

• one-in all in type arrangements;
• requirements to seek union approval as to worker resourcing on projects and the terms offered; and
• limits on a contractor's rights to make decisions about redundancy.

The Draft Code will apply retrospectively to enterprise agreements made by contractors from 24 April 2014. Therefore, contractors currently negotiating the terms of their enterprise agreements must carefully look at the terms being negotiated to ensure that they will not fall foul of the permissible content rules under the Draft Code, even though it is yet to be implemented.

If the Draft Code is implemented in its current form and a contractor's enterprise agreement is not compliant, the contractor will not be eligible for and be awarded Commonwealth-funded building work. This can have significant business impacts.

The Commonwealth Building Code

The current Commonwealth Building Code 2013 came into operation on 1 February 2013. Its introduction sparked significant controversy and political debate between State and Federal Government, unions and businesses because it purported to operate to the exclusion of the State Codes and Guidelines. This has since been rectified by a recent amendment to the Building Code 2013 which removed provisions that attempted to "cover the field" and exclude application of State Codes.

The introduction of a new Federal Building and Construction Code

The Draft Code will come into force when the Building and Construction Industry (Improving Productivity) Bill 2013 (which will also reintroduce the ABCC) commences. Given the current composition of the Senate, this is unlikely to occur before 1 July 2014. The Draft Code will replace the existing Building Code 2013.

The Draft Code sets out the standard of workplace relations conduct expected from contractors who want to perform Commonwealth-funded work.

Employment Minister Senator Abetz has stated that the Draft Code would "undo the regrettable changes" made by the Labour party. He also stated that the Government has worked together with the State Governments to ensure "a broad consistency in approach" in relation to the construction codes.

According to Senator Abetz the Draft Code "together with the stronger ABCC, will help get the building and construction industry back on track".

As outlined above the Draft Code if and when approved will apply retrospectively to enterprise agreements made from 24 April 2014. The other aspects of the Building Code however will only take effect from the first time a contractor tenders for Commonwealth-funded building work on or after the date on which the Draft Code commences. However, once a contractor is covered by the Draft Code they will be required to act consistently with it, including on future privately funded work. They will also be required to ensure that their subcontractors comply with the Draft Code requirements.

Key changes introduced by the Draft Federal Building and Construction Code

Right of entry (ROE)

Strict compliance with ROE laws by all building industry participants. The Building Code 2013 allows parties to agree to ROE provisions that are broader than those in current legislation. This would be a breach under the Draft Code. For example, inviting a union official to enter site other than permitted under ROE requirements would be a breach of the Draft Code.

Enterprise agreement content and prohibited freedom of association provisions

The Draft Code outlines prohibited content that is not permissible in enterprise agreements, including:

• one-in all in type arrangements – for example clauses where if one person is offered overtime, all employees must be offered overtime;
• requiring contractors to employ a non-working shop steward or job delegate;
• "jump up" provisions that prevent subcontractors from being engaged unless they have certain project terms or conditions;
• requiring contractors to obtain approval from union entities over the source, number and type of employees that it can employ on a project and the types of employment offered; and
• limits on a contractor's rights to make decisions about redundancy, demobilisation, or redeployment of employees based on operational requirements eg. where employees are selected for redundancy based on service alone.

The Draft Code also prohibits conduct which is contrary to freedom of association and provides a list of non-exhaustive examples. A number of these examples are contained in the Building Code 2013 but there are several new examples including:

• prohibitions on the use of employee representatives, site delegates or other union representatives to administer site inductions;
• prohibitions on employers unlawfully encouraging or discouraging employees to join a union;
• signs that seek to vilify or harass employees who participate, or do not participate, in industrial activities must not be displayed; and
• employees must be provided freedom of choice in whether to be represented in grievance or dispute procedures.

Dispute resolution

The Draft Code removes the requirement to have mandatory arbitration clauses in enterprise agreements.

Safety

The Building Code 2013's detailed work health, safety and rehabilitation (WHSR) requirements, including the requirement to develop a WHSR plan to improve safety over time have been removed. However the Draft Code requires that a code-covered entity must comply with work health and safety laws to the extent that they apply to the entity in relation to building work.

The Bill also contemplates that the Government may introduce a code in relation to WHSR matters relating to building work.

The Building Code 2013's express prohibition of sham contracting, sometimes linked to safety issues, has also been removed.

Requirement to have WRMPs on certain Commonwealth funded projects

The Draft Code requires a contractor to have a Workplace Relations Management Plan (WRMP) approved by the ABCC included in all expressions of interest and tender documents for certain types of building work.

Matters the WRMP must cover include an explanation of the systems, processes and procedures that the Code covered entity has in place (or will put in place) to comply with the Code, provide a fair, lawful and productive workplace and deliver the project on time and within budget.

Requests for information from the ABCC, notification and sanctions

If the Draft Code is approved there will be a requirement to notify the ABCC as soon as "reasonably practicable but no later than 24 hours after becoming aware of the threat or action" of any threatened or actual industrial action. For Commonwealth-funded building work the requirement to notify includes both protected and unprotected industrial action.

There is also a requirement to respond to requests for information made by the ABCC concerning matters relating to the Draft Code.

There are two prohibitions:

• a code-covered entity cannot enter into an agreement with a subcontractor that could be required to comply with the Code if that subcontractor is subject to an exclusion sanction or from undertaking work funded by a state or territory government unless approved by the ABC Commissioner; and
• a funding entity cannot entering into a contract with a code-covered entity that "has had an adverse decision, direction or order made by a court or tribunal for a breach of a designated building law, work health and safety law or competition and consumer law".

The consequences of breaching the Draft Code are, essentially, exclusion from Commonwealth-funded work.

Issues for building contractors to consider right now

A number of the clauses that would be prohibited content under the Draft Code, if approved, are standard clauses in enterprise agreements in the building industry.

There has been significant union outcry over the Draft Code, with the national secretary of the CFMEU's construction and general division Dave Noonan stating that it is an attempt by the Government to implement "Work Choices through procurement policy".

A note under the relevant provisions in the Draft Code states that the prohibited content provisions do not authorise action that would constitute a contravention of the Fair Work Act and should be read in a manner that ensures consistency with the Fair Work Act.

However, it is difficult to see how this could occur in some instances as there appears to be a divide between what is allowable content for an enterprise agreement under the Fair Work Act and what is permissible content for funding purposes under the Draft Code. These issues will have to be worked through sensitively as it remains to be seen how far the Commonwealth and State Governments will go to enforce non-compliance with the relevant building codes.

Any building contractors who are currently negotiating new enterprise agreements should therefore seek advice to ensure that the agreements comply with both the new Draft Code and the Fair Work Act provisions and avoid what may become protracted bargaining disputes over what were standard agreement terms.

Further, until the Draft Code is implemented, if certain funding levels are met, contractors may be required to comply with both State Guidelines and the Building Code 2013 in relation to a project. This will continue to cause practical difficulties, because there are inconsistencies between the State Codes and Guidelines and the Building Code 2013, which means that in some instances compliance with one code may result in a breach of the other.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.