The impact of poor procurement decisions

by FM Media
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STEVE RONSON from the Fair Work Ombudsman explains the impact of always selecting the lowest-cost contractor.

It is important for large private and public sector organisations making procurement decisions to ensure they devote sufficient attention to compliance with workplace laws. The issue is a priority for the Fair Work Ombudsman, whose role it is to foster and promote productive, harmonious and fair Australian workplaces.

Our experience suggests that the selection of the lowest-cost contractor in a procurement process can sometimes result in the contractor’s employees being underpaid their minimum lawful entitlements. As such, increasing awareness among the senior managers of large organisations about the consequences of their procurement decisions has become a focus of ours in recent times. And, cleaning services is one area in which facilities managers need to be alert to the non-compliance risks associated with selecting low-cost providers.
Cleaning services is a very competitive sector and cleaning contractors face pressure to keep costs low to enable them to win tenders. The cleaning industry employs many vulnerable workers, including migrants, international students and young workers, who are dependent on the minimum conditions in the Cleaning Services Award 2010.
Cleaning contractors are obviously obligated to ensure they provide these employees with their minimum lawful entitlements, but we argue that the responsibility for ensuring the workplace rights of these workers is not theirs alone. The Fair Work Ombudsman submits that it is not acceptable for organisations to outsource work to the lowest-cost contractor and turn a blind eye to the fact that the contract price may result in unfair treatment of low-paid workers. Such behaviour can be detrimental to an organisation’s reputation and may also be considered unlawful.

Contracting can be a positive business practice when performed lawfully and correctly, providing flexibility and efficiency in resource allocation. All parties, however, should undertake due diligence when outsourcing work to contractors, particularly to lowest-cost providers, to ensure lower costs are attributable to the contractors’ efficiencies and not due to the potential exploitation of workers.
Procurement decisions must enable minimum lawful entitlements to be met and the Fair Work Ombudsman will hold non-compliant parties to account. The Fair Work Ombudsman commenced three legal matters in the 2011/2012 financial year, in which procurement chain liability related breaches of workplace laws have been alleged. In these matters, the Fair Work Ombudsman relies upon a provision in the Fair Work Act that treats a person “involved” in a contravention as having themselves contravened the Act.
It is not acceptable to be indifferent to the treatment of people who work for and within an organisation just because they are not directly employed by you. Compliance with these conditions benefits employers by ensuring a level playing field and ensuring that employers who are paying workers correctly are not placed at a competitive disadvantage.
Employers and facilities managers should be aware of the detail of the Cleaning Services Award 2010, which is the modern award covering the majority of contract cleaning industry employers. They should find out information about whether the Cleaning Services Award covers their staff and, if it does, they should make themselves aware of the classifications, wage rates, penalty rates, loadings and allowances that apply to their employees. Additionally, employers and facilities managers should be informed of the ordinary hours of work and what happens when there is a change of contract.
Dedicated cleaning industry information and resources, such as the detail of the Cleaning Services Award 2010, can be found on the Fair Work Ombudsman’s website, The website also features Cleaning Services Award calculators (which can assist in determining pay and penalty rates), free templates, letters, forms and checklists that can be used to keep proper employment records, issue payslips correctly and hire, dismiss and manage employees.

Steve Ronson is the executive director of dispute resolution and compliance for the Fair Work Ombudsman.

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