Generally protected: a government’s capacity to regulate enterprise bargaining via procurement policy

Key Points:

All commercial contract negotiations (both public and private) must carefully consider the impact of industrial laws if the contract involves a labour supply.

The extent to which a government can pursue industrial relations objectives through procurement has come into question following two recent judgments of the Federal Court: Construction, Forestry, Mining and Energy Union (CFMEU) v Victoria1 and Construction, Forestry, Mining and Energy Union (CFMEU) v McCorkell Constructions Pty Ltd (No 2).2

In both cases, Bromberg J found that the State of Victoria contravened the general protections provisions of the Fair Work Act 2009 (Cth) (FW Act) when it attempted to enforce its industrial relations policy with respect to its own procurement, contained in the Implementation Guidelines to the Victorian Code of Practice for the Building and Construction Industry.

The decisions not only impair a government's capacity to influence enterprise bargaining through its commercial leverage, they also confirm the expansive operation of the FW Act's general protections provisions.

Industrial regulation through government procurement: a brief background

The notion that governments can pursue industrial relations objectives when contracting is not a new or surprising phenomenon.3 Governments are significant purchasers of labour, and their purchasing power places them in a position to "set an example by acting as model employers".4 In Australia, this opportunity has been particularly explored in building and construction procurement, first commencing in 1992 when the NSW Government's Code of Practice for the Construction Industry was introduced on the recommendation of the Gyles Royal Commission.

Since then, separate procurement policies for the building and construction industry have been developed by all Australian States and Territories (except the ACT). In general terms, the majority of the jurisdictions have a "code" containing motherhood statements that express the intended design of industrial relationships on publicly funded building and construction work. These codes are given content through "guidelines" promulgated by the relevant government departments. A national federal code (originally negotiated by the Commonwealth and all States and Territories) sits at the apex,5 and most State and Territory codes and guidelines are expressed to be in conformity with the national federal code.

The "model employer" that governments have sought to uphold through these codes and guidelines has waxed and waned according to government policy of the day.

The Victorian Code and Guidelines

In July 2012, the recently elected Victorian Government introduced a new iteration of the guidelines to sit under the Victorian Code of Practice for the Building and Construction Industry (Code).

Revised guidelines

Compliance evidence

The revised Victorian guidelines require those submitting a tender or expression of interest (EOI) for publicly funded building and construction work in Victoria to provide documentation evidencing their compliance with the terms of the guidelines. Compliance is not just required for the work subject to the tender or EOI, but must also be demonstrated with respect to their business more generally (including their privately funded work). Importantly, bidders are required to ensure that their subcontractors and related entities are also Code-compliant.

Content of enterprise agreements, Construction Code Compliance Unit and its powers

Among other things, the July revisions to the Victorian guidelines:

sought to regulate the content of enterprise agreements by identifying certain types of clauses to be considered noncompliant; established the Construction Code Compliance Unit (CCCU) to review the content of enterprise agreements and investigate compliance with the Code more generally; and commissioned the CCCU with a number of sanction powers, including the power to exclude noncompliant entities from bidding for Victorian Government projects for a specified time. Enterprise agreements entered into prior to 1 July 2012 were deemed compliant by the CCCU, irrespective of their content. However, enterprise agreements entered into by bidders, their related entities, and subcontractors after 1 July 2012 were liable to inquiry.

The Guidelines in practice: the Bendigo Hospital and Circus Oz projects

In late 2012, the CCCU was asked to scrutinise enterprise agreements relevant to the Victorian Government's Bendigo Hospital and Circus Oz projects. The following occurred in relation to the Bendigo Hospital project:

The Victorian Government initiated a tender process for the construction, facility management and maintenance of the Bendigo Hospital. It had shortlisted two consortia for the project. Lend Lease was a member of the consortium that was later earmarked as the preferred bidder. In the concluding stages of the tender process, Lend Lease negotiated an enterprise agreement with its employees and the Construction, Forestry, Mining and Energy Union (CFMEU), which was approved by (then) Fair Work Australia to commence on 20 September 2012. This agreement was brought to the attention of the CCCU as part of the evaluation phase of each consortium. The following occurred in relation to the Circus Oz project:

The Victorian Government concluded a tender process and appointed McCorkell Constructions to build and refurbish a premises to be the permanent site of a circus. McCorkell then initiated its own tender process for the demolition works to be undertaken on the site. Eco Recycling (Eco) responded to McCorkell's request for tender. During McCorkell's tender process, Eco concluded an enterprise agreement that commenced on 2 November 2012. McCorkell advised Eco of the requirement that subcontractors for the project must demonstrate...