In Search of the Magic Pudding
New Zealand Major Projects---A Ray of Light
Sheldon R L Young
Bearing in mind the current ego-related aberrations
of the incumbent Australian Government, the Conference
theme of 'In Search of the Magic Pudding' deserves
some examination of the words 'magic' and 'pudding'.
My subjective selection of preferred definitions are
to be found in Webster's Dictionary:
'Magic'---Any occult art or science of producing wonderful
effects by the aid of superhuman being or of departed
'Pudding'---An intestine stuffed with meat and fruit and
commonly cooked by boiling; or a rare piece of good
luck, or a 'snap'.
With some interpretive licence, Webster's recipe for
magic pudding could perhaps be:
'Superhuman beings producing wonderful effects in
a boiled intestine, with luck'.
The effects of this recipe are indeed similar to the
manner in which the Australian Government behaves,
and the effects are not wonderful but illusionary.
If we Australians live in the expectation that superhumans
and mother luck will pull us through, then we are heading
down the road to becoming an economic wilderness.
On the contrary, the Government of the day, be it
Labor or Conservative, cannot build a strong sustainable
economy by itself---it is industry which must lead
the way with fearless courage and an intractable conviction
to make Australia survive in this fiercely competitive
world. The role of government is to provide the type
of framework in which industry can be encouraged and
The most obvious area in any thinking political economy
where total support is needed is labour---not just
from an industrial relations point but from an overall
productivity basis. For example the United States is
battling hard against global competition and deficit
control and that is with full trade union support!
What possible chance would they have without effective
To highlight my point, let us briefly examine Victoria's
July labour crisis which saw industry reeling under
the impact of widespread labour disputes. Approximately
one-quarter of Australia's productive capacity was
dramatically hamstrung by labour. The magnitude of
the Victorian disputes was such that had it occurred
in the United States, 60 million people could have
been potentially affected the equivalent of twelve-and-a-half
Therefore one does not have to be the proverbial Rhodes
scholar to work out that Australia is in big trouble
again. The 'pink warm glow' of the early and mid 1970s
is returning to the Australian labour scene with riveting
When invited to participate in this forum, I was advised
that a trans-Tasman theme would be appropriate. In
picking up that theme it is first relevant to point
out that the three English-speaking countries with
a history of serious labour problems are the United
Kingdom, Australia and New Zealand. However, despite
our earlier catch-cry in Australia and New Zealand
that we inherited all our soft labour practices from
the United Kingdom, the pendulum of evolution has now
swung back. The United Kingdom (the teacher) has long
ago turned the corner, while Australia and New Zealand
(the students) are still actively campaigning on the
campus. Where is Australia's equivalent of the indomitable
Margaret Thatcher? Or, as some say, Margaret the magnificent!
It is now time to move closer to the specific theme
of my paper, 'New Zealand Major Projects---A Ray of
Light'. The specific case-study selected for examination
is the upcoming Kinleith Pulp and Paper modernisation
project in New Zealand for the NZFP Pulp and Paper
To understand the task facing Forest Products, it
is necessary to understand the history of major resource
project work in that country.
Firstly, a trans-Tasman comparison is appropriate
to set the scene. We in Australia recall with shell-shock
reality the notoriety of industrial relations in the
building industry in the early 1970s with the green
bans imposed by Gallagher/Mundy and their cult followers.
We also recall classic construction areas of the resource
sector of the industry, such as Gladstone in the early
1970s and, later, the Latrobe Valley which became known
as the 'Valley of Death' in industrial relations circles.
However, over a similar period there were even worse
experiences in the resource sector of New Zealand.
For example, the construction of the Bank of New Zealand
building in Wellington was shut down for six years
over structural steel demarcation and other complications.
Another example is the Mangere Bridge in Auckland,
which was shut down for two years over timekeeping
and redundancy payment disputes. The expansion of the
Kamerau Pulp and Paper Plant near Rotorua was notoriously
bad industrially, with the Ministry of Labour finally
opening an office on the job site.
Similarly, in the early and mid 1980s the expansion
of the Marsden Point Refinery at Whangerei became a
household name because of the orgy of industrial delinquency
on the project. The construction of the Glenbrook Steel
Mill near Auckland also attained the level of horror
status in industrial disruption. Four of the five projects
mentioned here were located in what is commonly referred
to as the Northern Industrial District. This district
has deservedly gained the reputation as the New Zealand
homeland for industrial relations blood sports.
There were, however, two major projects executed successfully
in New Zealand during this period: the expansion of
Tiwai Point Aluminium Smelter near Invercargill in
Southland (1980-82) and the huge gas and gasoline project
near New Plymouth in the Taranaki (1982-85). The latter
project, gas to gasoline, has in fact been heralded
as the most successful major construction project in
the history of the New Zealand resource industry. This
project is often referred to as 'the ray of light'.
David Bedford was part of the team on that project.
However, irrespective of the success and impact of
the gas to gasoline project, it is fair to say that
it was not located in the hell zone of the Northern
In late 1983, the Kinleith Pulp and Paper expansion
project commenced near the company town of Tokoroa.
The owner, New Zealand Forest Products, faced all of
the traditional labour problems of the Northern Industrial
District. Major features of the project's industrial
relations environment included:
- soft labour practices handed down almost from father
to son in the belief that the 'boss is always fair
- battling to build a plant with historically unsolved
- a job control or site control situation exacerbated
by disorderly union leadership;
- overlap between construction and operations labour
- a labour force mixture of militant local Maori and
- contractors who had become frustrated if not 'punch
drunk', to the extent that contractual claims became
the priority of the day rather than executing the obligations
of their contracts;
- dispute mediators who too often went for the soft
option rather than decisively dealing with key issues;
- the presence of the time-honoured cloth cap syndrome
of 'them and us'.
In these circumstances, both budget and schedule were,
of course, critically impacted.
Add these ingredients together and it is evident why
the owner finally decided to enlist some outside assistance
in completing the project.
In mid-1986 Bechtel Pacific Corporation was engaged
by Forest Products to stabilise the project with a
small select project management team, with an emphasis
on effective industrial relations. The alternative
facing the owner at that time was to shut the job down
indefinitely until trade union and workforce sanity
The first decision for Bechtel, as incoming project
manager, was either to put up with 'more of the same'
or else to 'bite the bullet' and take on the workforce
and the unions on their own terms.
The recommendations from Bechtel to the owner were
- identify all major dispute items, both current and
- convene meetings with all parties concerned, including
contractors, unions, job delegates and owners representatives;
- establish an industrial relations roundtable for
the project to meet regularly on major issues;
- take whatever action was needed in the circumstances
in the overall interest of the project, irrespective
of the immediate downside risk.
In the first several months many major disputes were
settled. Productivity increased, the new marriage looked
good and the injection of decisive management seemed
However, the traditional and time-honoured syndrome
of 'them and us' prevailed, the workforce took on the
boss and the project became coagulated with a number
of old wounds that would not heal. Facing a return
to the bad old days and ways, the decision was taken
to shut the project right down for one month. During
this employer-initiated closure, Bechtel chaired a
series of negotiations addressed to strict compliance
to the procedure for disputes clause. A code of conduct
was in fact established, pivoting on the need for the
unions to support the project by arresting the job
control environment on the job site.
The project was reopened, the workforce resumed work,
and productivity increased to such an extent that over
the next several months the lost month was made up
At this stage, at the risk of being logical, it appeared
that the big problems were behind us and that we all
may yet live happily ever after! These sentiments could
be described as looking on the bright side or having
a false sense of security!
The unions responded remarkably well but the workforce,
through a group of the militant minority, hung in there
to the point that it became untenable to employ them
any longer so they were fired. Industrial warfare
broke out quickly, and again Bechtel supported by their
client took the hard decision to shut the project down
for the second time.
Even tighter dispute procedures were put in place,
but this time stipulating that the industrial employee
was liable for dismissal if the rules were broken.
In the post-resumption period, history indeed repeated
itself, productivity jumped sharply and the shutdown
period was made up on the schedule, to the point of
finally maintaining the post-takeover schedule.
Looking back on the experience of the expansion project,
it was obvious that progress had been made and the
valve had been turned, maybe 60-70 per cent. In reality,
it was not far enough to justify another injection
of capital for the next and larger modernisation program
without some front-end guarantees of workforce performance.
It was against this background that hard decisions
had to be taken before committing further major capital
expenditure at Kinleith.
During the 1987 feasibility stage of the current planned
modernisation program Bechtel recommended that a pre-project
'heads of agreement' be put in place as part of the
NZFP decision-making process of project approval.
The Forest Products Board, now a joint company with
Elders Resources (ERN), took the decision that:
'a heads of agreement has to be negotiated with the
construction unions covering codes of behaviour, guarantees
of productivity improvement prior to any consideration
by the board for project approval and allocation of
funds. Further, that if a heads of agreement is achieved
it will not in itself ensure approval, however the
project will not be approved without such an agreement.'
Bechtel, the selected project manager, was instructed
accordingly and established a strategy for negotiation,
knowing that the reality was 'no agreement, no project'!
(There is nothing like a bit of incentive to succeed!)
The basis of the negotiation strategy was to use an
awesome weapon called the truth: to tell the unions
exactly what the Board dictum was and why; To show
the unions by factual presentation exactly what the
budget and schedule overruns were on the overall performance
of the last expansion.
The construction unions, although represented by the
toughest representatives of the Northern Industrial
District responded both positively and professionally.
However, it should be made clear that in this type
of situation the risk is always that the unions will
sign anything put in front of them to get a project
off the ground.
Therefore the point was made clearly at the negotiating
table that they should not sign the heads of agreement
unless they could live with it and stand behind their
After two sessions of negotiations in Auckland in
April and May and after some considerable blood-letting
among the unions, a heads of agreement was signed in
precisely the terms sought. The pleasing factor of
this negotiation was that both parties, union and employer,
were satisfied with the outcome and said so publicly.
In other words, it was an effective result in that
it was a 'win win' negotiation. The key to achieving
this position was the strategic approach of not just
blaming the unions for past bad performance but to
accepting joint responsibility for that performance.
I don't intend to bore you with a detailed examination
of the document (which is reproduced below); however,
the theme of the restrictive dictum is reflected in
the compliance clause:
'The unions and Bechtel shall mutually require compliance
with this agreement by their officers, employees, members,
representatives and contractors and all other persons
or organisations associated with the project'.
Again, the theme is spelt out in this extract from
a clause covering the most absurd and crippling dispute
area in the construction industry---demarcation:
'It is agreed that demarcation disputes are unacceptable.
Unions and Bechtel agree that there will be no lost
time, bans or limitations on work whatsoever in respect
of demarcation issues because any such issues arising
will be resolved by an agreed orderly process.'
Again the commitments here were joint commitments
not merely using a baseball bat on the unions' heads.
The negotiation was a satisfying experience working
with my client's professional team and demonstrating
that right can prevail over might.
Of course, the cynics will say that the heads of agreement
is only the written word, not delivery---that is accepted.
However, this document will optimise the opportunity
for success. The national press in New Zealand has
described the agreement as a 'landmark' and 'milestone',
but it must stand the test of time after project approval.
Probably the most significant feature of the Kinleith
heads of agreement is that it was not negotiated by
the peak body of the union movement but the local union
officials negotiating the fate of their membership
by responsibly facing reality.
I sincerely believe this feature is 'a ray of light'
and a message for us all.
Combined Construction Unions and
Bechtel Pacific Corporation Limited
Kinleith Modernisation Program---Heads of Agreement
In recognition of the need to satisfy the Board of
Directors of NZ Forest Products Ltd that the Budget
and Schedule objectives of the Modernisation Program
will be supported by the combined construction unions
and the workforce, Bechtel Pacific Corporation Ltd
(Bechtel) and the combined construction unions signatory
hereto, hereby expressly agree to the following matters
to ensure that good industrial behaviour and improved
work practices are achieved. To meet the common objective
of good industrial behaviour all parties give their
clear and unreserved commitment to ensure that all
agreements reached are adhered to.
This Heads of Agreement (Agreement) and Agreements
subsequently reached will apply only to the Kinleith
Modernisation Program and will not be used by any party
as a precedent in respect of any other project.
Unions and Bechtel recognise that there were serious
management and labour deficiencies in respect of the
No 5 Recovery Boiler Project at Kinleith resulting
in unacceptable overruns in both Schedule and Budget.
A repetition of such circumstances will lead to cessation
of work on the Project and will jeopardise the future
of the Kinleith Mill and of Tokoroa.
Unions and Bechtel therefore agree that this Agreement
reflects the basic relationship on the Program and
the mutual commitment to the satisfactory completion
of the Project within Budget and Schedule.
Specific Agreements will be entered into between unions
and Bechtel to support, implement and give effect to
the principles contained in this Agreement.
Unions and Bechtel shall mutually require compliance
with this Agreement by their officers, employees, members,
representatives and contractors and all other persons
or organisations associated with the Project.
In recognition of the importance of communication in
the achievement of satisfactory industrial relations,
unions and Bechtel are committed to open and frank
communication. In particular, each party to this Agreement
shall operate on the basis of 'no surprises' in its
activity in respect of the Project.
Unions and Bechtel expressly agree to reinstitute
the Project Industrial Relations Roundtable as the
principle official communication forum between them.
The Roundtable will be held as required, but no less
than quarterly throughout the field construction phase
of the Project, and shall be co-chaired by an elected
senior construction union official and a senior representative
To assist Representatives in attending these meetings
the General Meeting dates will be set 12 months ahead.
A jointly agreed agenda will be distributed to all
parties at least 7 days before the meeting. (This will
not prohibit urgent matters being raised at the meeting.)
It is recognised that parties to this Agreement have
various 'policies'; it is further recognised that these
various policies may from time to time conflict.
Unions and Bechtel therefore agree that these policies
meet in this Agreement, in the Project Site Agreement/s
and in other Agreements which may be specifically negotiated,
and, other than in project Work Rules to be established
by Bechtel, not otherwise.
6. Management of Project Work
Unions and Bechtel agree that Bechtel shall manage
and direct the Project in accordance with legal requirements;
this Agreement and Agreements made subsequently to
and/or arising from this Agreement; and otherwise in
accordance with good construction practice.
Bechtel's contract with NZFP will involve responsibility
for engineering procurement and construction management.
It is not intended that any work will be performed
by Bechtel on a direct hire basis, rather to manage
the work of contractors.
Bechtel will act as manager and agent for NZFP in
the administration of all contracts. Specifically,
Bechtel will act as the sole and central point of contact
for the contractors in the execution of the modernisation
This Heads of Agreement, the construction industrial
agreements and other industrial regulations will be
incorporated in all contracts and be strictly administered.
In relation to industrial relations Bechtel will be
responsible, therefore will be 'in the driver's seat'
acting for and on behalf of all contractors. However
the contractors will be responsible for their own day
by day domestic industrial relations but co-ordinated
Bechtel shall be responsible for compliance by all
contractors with matters negotiated and agreed between
construction unions and Bechtel.
7. Work Practices
It is expressly agreed that work practices outside
of 6 above will not be imposed, supported or condoned
by any party to this Agreement. Unacceptable work practices
initiated by the workforce will not be accepted or
complied with by Bechtel or supported by unions.
8. Site Agreement
Unions and Bechtel agree to enter into a Site Agreement
governing wages and conditions of employment of all
manual construction personnel to be engaged on the
This Site Agreement shall alone determine all wages
and conditions of employment for eligible personnel
engaged on the project, with no recourse to any other
Award or Agreement.
It is agreed that the Site Agreement will apply to
all work which is contained in the Bechtel Scope of
Work performed on the Kinleith job site.
A separate site agreement will apply to the operation
of the construction village and the site construction
take-away catering facility.
Employees transferred to the project by their employer
shall have their non-project benefits 'frozen'; these
benefits shall have no application on the project.
(This provision may be qualified in respect of personnel
engaged on the project either occasionally or for short
Other than in respect of 'set up' work which may be
done under an interim arrangement, it is agreed that
site construction activities shall not commence until
the site agreement has been negotiated.
9. Project Work Rules
It is acknowledged that Bechtel will establish a set
of project work rules, in consultation with construction
unions, applicable to all involved in project work.
These rules will be issued to new hires at time of
employment and will form part of each employee's Contract
It is agreed that demarcation disputes are unacceptable.
Unions and Bechtel agree that they will not promote
demarcation issues and there will be no lost time,
bans or limitations on work whatsoever in respect of
demarcation issues because any such issues will be
resolved by an agreed orderly process.
Bechtel agrees, whenever practicable to do so, to
implement demarcation resolutions achieved within the
Unions acknowledge that Bechtel will, in the absence
of acceptable resolution of demarcation issues from
the union movement, direct the work in accordance with
the industry clauses of National Awards.
11. Demarcation pre-Construction Resolution
Unions and Bechtel acknowledge that resolution of the
following potential demarcation disputes is required
prior to the commencement of field construction activities:
- 'peggies' or 'teaboys'
It is acknowledged that Bechtel will implement the
following processes to achieve resolution of these
i The unions concerned shall meet to reach agreement
in respect of demarcation on the project, or
ii Other processes within the Union movement,
iii If no acceptable resolution is achieved in a timely
manner Bechtel shall convene a meeting with the unions
involved to reach an Agreement, or
iv If an acceptable resolution is not achieved in a
timely manner, Bechtel may implement proceedings pursuant
to the Labour Regulations Act 1987.
Parties to this Agreement acknowledge that field construction
work will not commence unless and until acceptable
resolution of the above issues is achieved.
12. Vendor Selection
It is acknowledged that Bechtel will select experienced
and competent vendors to engage in supply and pre-fabrication
work, regardless of geographic base and current areas
13. Contractor Selection
It is acknowledged that Bechtel will select experienced
and competent construction contractors to engage in
project work, regardless of geographic base and current
areas of operation.
All things being equal, New Zealand Vendors and Contractors
will have preference for work.
14. Contractor's Employment Facility
It is agreed that Bechtel will staff and operate a
Project Contractor's Employment Facility (CEF) in Tokoroa
which will be the sole source of labour to the project.
All persons seeking employment on the Project shall
apply to the CEF, and contractors seeking to engage
labour shall select candidates for interview from applications
held by the CEF. The CEF will ensure candidates are
advised of the results of interviews, and that successful
applicants receive Site Agreement entitlements and
are members of the appropriate Union, and are issued
with photo I.D. Badge. Union officials will have access
to the CEF and its functions.
It is acknowledged that Bechtel will require contractors
to employ experienced and competent labour for the
execution of the work. Labour will not be recruited
from outside New Zealand without the prior agreement
of the union/s concerned.
16. Construction Village
In recognition of 15 above, Bechtel shall supply
and operate a Construction Village to provide, free
of charge, accommodation and meals to eligible personnel
whose usual place of residence is an agreed distance
outside of the bussing area. There will be no alternative
arrangements entered into by either party. Residents
of the Village shall be required to adhere to Village
Rules established by Bechtel and the Combined Unions.
It is agreed that Bechtel will supply clothing strictly
in accordance with the Site Agreement.
It is agreed that Bechtel will supply transportation
to construction personnel within a 'bussing area' to
19. Dispute Resolution
Unions and Bechtel agree to enter into a Dispute Resolution
Process similar to that which operated on the No 5
Recovery Boiler Project, which ensures the continuity
It is accepted that failure by workers to comply with
the requirements of this process may jeopardise their
employment on the Project.
20. Construction Equipment
It is acknowledged that contractors will utilise construction
equipment (eg: scissor lifts, cherry pickers, JLG's
etc.). Their use will be in accordance with guidelines
to be agreed between Bechtel and construction unions.
21. Definition of Construction Work
Due to the sensitivities associated with constructing
within an operating mill, unions and Bechtel agree
- 'Construction Work' is defined as work under Bechtel
Scope of Work on the Kinleith Mill Site.
- This Agreement and the negotiated Site Agreement
shall apply in respect of Work as defined above.
- In the event of any dispute in respect of the allocation
of work between construction and production/maintenance,
the determining factor shall be Bechtel Scope of Work.
Dated at .................................this......................................day
Signed for and on behalf of:
- The Auckland District Boilermakers, Structural Metal
Fabricators and Assemblers Metal Ship and Bridge Builders,
Industrial Union of Workers.
- The New Zealand Labourers, General Workers and Related
Trades Industrial Union of Workers (Northern Branch)
- The New Zealand Building Workers' Union
- The Northern Clerical Administrative and Related
Workers Industrial Union of Workers
- The Northern Caretakers, Cleaners, Lift Attendants
and Watchmen's Industrial Union of Workers
- The Northern Hotel, Hospital, Restaurant and Related
Trades Industrial Union of Workers
- The Northern Distribution Workers Union (Driving
- The New Zealand (except Canterbury and Westland)
Electrical, Electronics and related Trades Industrial
Union of Workers
- The New Zealand Amalgamated Engineering and Related
Trades Industrial Union of Workers
- The New Zealand (except Hawkes Bay and Wanganui,
Westland and Otago and Southland Districts Painters
and Decorators, Glaziers and Signwriters Industrial
Union of Workers
- The New Zealand Plumbers, Gasfitters and Related
Trades Industrial Union of Workers
- The Northern Distribution Workers Union (Stores Division)
- Bechtel Pacific Corporation Limited