On Tuesday morning this week, CEO Radley de Silva was quoted in an article that appeared on the front page of the Herald Sun. The article explained that union workers on the Metro Tunnel and West Gate Tunnel projects had been granted site allowances of $9.20 per hour and $8.90 per hour respectively, rocketing the additional annual cost of the projects to around $25 million.

Mr de Silva said the allowance decisions were highly contentious. 3AW’s Neil Mitchell agreed and interviewed Mr de Silva on his morning radio program to elaborate.

“These sorts of site allowance outcomes, on top of already extraordinarily high EBA wages, are contributing to cost blow-outs that are costing taxpayers and the Victorian community,” Mr de Silva said.

By 9am, television stations were requesting on-camera interviews, which Mr de Silva conducted in the boardroom later that day. The media attention is a reflection of the seriousness of the problem of runaway building and construction costs at a time when Victoria can scarcely endure it.

Master Builders Victoria has highlighted the risk of massive cost blowouts on public infrastructure projects if site allowances continue to be calculated at current rates.

Expenditure on public infrastructure projects can differ significantly from estimates if costs overrun on key line items like labour. Site allowances are a well-known payment, included in a vast majority of EBAs and intended generally to compensate for “disabilities” on site such as confined spaces, fumes, wet work and dirty work. The site allowance decisions by the Victorian Building Industry Disputes Panel, however, calculate site allowances on the entire value of the project. This appears to go disproportionately beyond the ordinary reasonable needs to compensate for difficult circumstances on site.  It means that the higher the value of the project, the more potential there is for site allowances to inflate. Master Builders thinks this approach is flawed and pushes site allowances out of reasonable proportion. 

Deloitte research conducted for Master Builders in 2016 showed that union EBA carpenters and entry-level labourers are paid very well. At that time, unskilled labourers were earning around $144,506 per year and carpenters around $155,961 per year – more than double the salary of the average police officer, fire fighter, soldier, teacher or nurse.

Back in 2016, Master Builders expressed considerable concern over the general CFMMEU EBA agreement for annual 5 per cent wage increases, which the Deloitte research estimated would have cost taxpayers an increase of $806 million to deliver the Government’s 4-year infrastructure plan – representing a lost opportunity to Victorians of ten schools and three hospitals.

These new site allowances decisions, which add an extra $9.20 or $8.90 per hour on top of existing wage rates on projects where the Victorian taxpayer is the ultimate client, will further the cost the Victorian community.

Given the government has committed to more than $10 billion to infrastructure for at least the next four years, if site allowances continue to be calculated based on the whole project value, the costs to Victorian taxpayers will only continue to increase. 

As a result, site allowance is likely to be a major focal point for any future industry-led negotiations leading to a successor to the current CFMMEU Pattern EBA 2016-2018.