Heathrow Terminal 5 was supposed to mark a new phase in modern industrial relations. And as the trades compete ever more fiercely to wring money out of their employers, it seems that, unfortunately, it has. Olympic Delivery Authority please take note …

The signs that trouble was brewing on Heathrow Terminal 5 were there in February last year when electricians and their employers squared up over a matter of principle. "The workers are not going to put up with this," said one union official, struggling to master his emotions. "The contractors on the project have gone back on an agreement, and the men are suffering. This issue has to be resolved now, or there'll be uproar."

The issue of contention? The distance the workers had to walk, unpaid, between the site gate and their clocking-on points.

The workers' picket line

The workers' picket line

Just when it seemed that the two sides were about to embark on a full-scale exchange of hostilities, the employers' nerve snapped and they gave in to demands, agreeing to move the clocking-on points a few metres towards the gate. Union officials were satisfied: BAA and the site's contractors agreed to stick exactly to the established maximum distance between gate and clocking-on point. Employers were, for the most part, irritably bemused by the demand: the handsomely paid, £55,000-a-year workforce had apparently been holding them to ransom over a matter of paces.

T5 was intended to be the ultimate demonstration project for the modernised British construction industry, and that included its approach to industrial relations. But over the past year unions have been involved in a spate of disagreements on site, which the employers have complained are unjustified. This week, the civil engineering workers on the project launched the third of a series of strikes in an attempt to win a top-up bonus on their landmark £55,000-a-year wages. The bonus, if granted, would mean wage costs for civils, electrical and steel work have risen by more than £2000 an hour in the past year: a rise for Britain's best-paid builders that many feel is a mark of increasing union greed.

The scenario is a warning for those planning other megaprojects, notably the Olympics. David Higgins, chief executive of the ODA, has openly stated that he wants "T5-style agreements" on the project. But cultural secretary Tessa Jowell has made it clear she will not tolerate poor industrial relations or spiralling costs on the construction programme, and with Olympic chiefs currently engaged in talks with unions about initial agreements on the project, a compromise will need to be found fast.

It will not be simple: employers think the wages on offer have escalated enough, but unions are driving costs still further upwards as they are determined to iron out disparities over pay.

The employers' case

BAA, for one, thinks the unions are becoming greedy. "We are not prepared to countenance unjustified claims," it said this week. The statement confirmed off-the-record reports that the airline operator had told Laing O'Rourke it would not entertain any further claims under its "actual cost"-based contract. BAA's determination to stem the flow of bonus payments, according to project sources, has been instrumental in the decision to offer civil engineering workers increases of less than the £1 demanded. Originally the offer was 67p - as Building went to press it was understood to have been increased to 80p.

BAA's opposition to the bonuses partly stems from the fact that they fall outside the national agreements for the electrical, civils and steel sectors. At the commencement of T5 in 2001, it was agreed that frameworks such working rule agreement and the NAECI "blue book" would form the basis for all pay deals on the project. This agreement was central to T5's whole wages, conditions and safety package; essentially, it was BAA's guarantee that it could get enjoy the fruits of industrial harmony without paying for them nasally.

In the eyes of employers, unions have jeopardised this harmony by pushing claims that go beyond the boundaries of those national frameworks. The award of an extra £1 an hour to steelworkers, which was made by an arbitrator in November, was condemned by BAA as unjustified. It said at the time: "We remain of the position that this is an unjustified claim, but having agreed to arbitration, T5 will honour the ruling." Steel employers on the site, including Watson Steel and Fast Track, also fought the award as it fell outside the NAECI agreement they had signed up to at the project's inception.

The demand for parity

Wage costs for civils, electrical and steel work have risen by about £2000 an hour in the past year

According to the T&G and UCATT, two of the unions involved in the recent civils dispute, the workers never sought to break the national agreements. That breach, they claim, came about as a result of the decision by BAA to introduce the Major Projects Agreement for electrical workers a year after the project began on site. The Amicus-led deal, which replaced the NAECI on the M&E side, gave electricians the chance to earn the magic figure of £55,000 a year, which was then increased still further with the award of an extra £1 an hour last year - and set off a familiar chain reaction.

Alan Ritchie, UCATT's general secretary, said the civils dispute was "not of our making under the agreement we have". He continued: "The effects of the MPA have spilt into the civils. Once the client had decided to go down that road, we were left to pick up the pieces."

T&G regional officer Alan Brkljac agrees that the decision to award more money to the electrical sector has forced unions in other trades to push for parity. "There is a natural marking among the workforce when different trades come on. In future we will have to learn the lessons of Terminal 5 and mitigate against them."

Steve Brawley, secretary of the MPA forum, rejects these claims. He said: "People can present facts to suit a case, but I don't see any real link between the MPA agreement and other trades wanting an increase."

But many union representatives are adamant that the root cause of unrest among other sectors is the MPA. They accuse Amicus, the union that negotiated it, of "greed". Officials within the T&G and UCATT even admit they they tried to talk BAA out of accepting the deal for fear of the impact on other trades.

"We tried to persuade BAA not to employ the MPA a year into the contract," says one source, despairingly. "Employers and the other unions involved in the NAECI felt they had been dumped. Once you change an agreement in favour of something else, everyone wants more."

Many union representatives privately blame the fact that the MPA was negotiated by a single union for the subsequent problems: the drive by Amicus to make T5's electrical workers the highest paid in the country broke the solidarity of the unions on the site, and it was that solidarity, they argue, that gave them their bargaining power and held extreme claims in check.

Amicus, of course, sees it differently. For one thing, the pay level set in the MPA reflected Laing O'Rourke's 2003 offer to skilled building workers. And the union has on occasions struggled to restrain its members. The project's 1300 electricians almost walked out in sympathy with steelworkers, who were taking action over their claim for a £1 bonus last November, against the advice of regional officer Frank Westerman.

The solution for other large projects, such as the Olympics, seems to be not to give way to any changes once the initial deals have been done.

"If you do have agreements and abide by them, they can deliver improvements," says a senior source at the T&G. "Everyone's got to sign up to them and stick to them. T5 had three years of good industrial relations, but you could always do anything better with hindsight. This will be a valuable learning lesson."

UCATT's Ritchie agrees. "We need to make sure there are channels of communication open. That may mean discussing points some people regard as niggly, but these are far outweighed by the benefits agreements can bring to everyone." Even if T5's lesson is learned, don't necessarily expect to see unions conceding any ground on the positioning of those clocking-in points.