Any contractor that has done a government job will be familiar with training targets. These policies require that a certain percentage of hours worked on government projects (usually 10%) be completed by apprentices, trainees or cadets.
Most jurisdictions have them. Victoria has the Major Projects Skills Guarantee. Queensland has the Building and Construction Training Policy. NSW has the 10 Point Commitment. South Australia has the Industry Participation Policy. You get the idea.
Now, enter the federal government.
From 1 July 2024, the Australian Skills Guarantee (ASG) will apply to any construction project directly funded by the Commonwealth and valued at more than $10 million.
The ASG is much like the state and territory policies, with an overarching target of 10% of all labour hours to be undertaken by apprentices (or trainees).
But there are some bonus extras in the ASG.
It will also contain targets specifically for women. A minimum of 6% of all apprentice hours must be undertaken by women. And a minimum of 4% of trade apprentice hours must be undertaken by women.
Now it’s hard to argue with the merits of these policies. Governments have enormous market power. They are the single biggest buyer of construction projects and are unencumbered by the sorts of financial constraints faced by private developers.
If anyone is going to leverage their construction dollar to achieve social outcomes, it should be the government. And who would argue with the need for more apprenticeships?
But that doesn’t mean these policies are perfect. At first blush, a ‘training target’ sounds clean and simple – 10% of all labour hours worked on a project must be worked by an apprentice. But how to calculate those hours?
Contractors and subcontractors price projects in dollars, not hours. So it’s not straightforward to translate, say, a $5 million glazing package into labour hours. Add to that most work on a project is completed by many independent firms, with their own HR and accounting systems, and it quickly becomes clear this is not a straightforward accounting exercise.
To get around these issues, a fairly crude approach is typically used to set the training hours requirement on any given project:
- Start with the contract value – say, $100 million
- Apply some fixed average hourly labour rate – say, $70 per hour
- Back out the estimated total labour hours for the project – call it 1,400,000 hours
- Apply the training target (say 10%) to determine how many hours on the project need to be completed by an apprentice – 140,000 hours
It’s then somebody’s job to count-up all the apprentice hours performed by all the subcontractors to make sure the target is achieved.
If that sounds like an administrative nightmare to you, you’re not alone. Large contractors often dedicate entire teams to running this process and reporting to government.
There is much that program designers can do to ease the implementation burden on industry. For example, rather than simply outsourcing the problem to head contractors, governments could establish an online system for collecting, collating and submitting data from contractors and subcontractors alike.
There are also some hidden traps in these policies.
For example, it is well known that construction costs spiked during COVID and contract values quickly followed. What used to be a $100 million project became a $180 million project. The problem was that the hourly labour rate (step 2, above) didn’t rise to match the cost increase.
This meant that, while the actual number of hours worked on the now $180 million job didn’t change—still 1.4 million—the estimated labour hours blew out to 2.5 million. The 10% training target effectively became an 18% target.
Now these problems are solvable. Simply index the labour rate to construction cost inflation to make sure 10% stays 10%. This would be fairly easy to achieve using publicly available ABS data.
The point I am making is not that these policies are without merit, just that they can be deceptive in their complexity. They require careful thought and design to avoid unintended consequences.
BuildSkills is working closely with the Department of Employment and Workplace Relations to ensure the ASG is rolled out with a minimum of disruption to industry.
