Employment Minister Eric Abetz has warned the CFMEU that if they are not prepared to change their ways others will do it for them.
Senator Abetz told a building conference that Australia cannot afford to have an unproductive building sector and has flagged revised building laws.
He said in the light of recent corruption allegations unions continue to deny the undeniable.
"If they won't do what is necessary to clean up their union then it will inevitably fall to others to do so," Senator Abetz told the Master Builders Association of Victoria conference.
He said employers and contractors who co-operate in illegality will also be dealt with.
"Feeding the crocodile hoping to be eaten last is neither smart nor ethical," Senator Abetz said.
Under the revised building laws, any construction or building firm that wants a contract with the federal government would have to abide by certain conditions.
"They would have to make a commercial decision as to whether they want to be in the mix for Commonwealth work and abide by certain standards or forgo the opportunity and then be part of a separate world," Senator Abetz told reporters after his speech.
"If they want to do deals that in the past we have found unpalatable that is up to them, but they won't be the beneficiary of the taxpayers' money."
Senator Abetz was not prepared to go into further detail about the policy but said, during public questions following his speech, it would be greatly similar to the last building code.
He said the government would do everything in its power to clean up the building industry.
"Australia cannot afford to have a building and construction sector which is inefficient and unstable" Senator Abetz said.
"The restoration of the ABCC (the Australian Building and Construction Commission) and the building code which supports its work is a critical reform for Australia and I look forward to continuing this vital work with your help."