How can municipalities avoid exploitation of foreign cleaners in their public procurement contracts?
Municipalities exercise economic power when they procure cleaning services from private companies. According to Assistant Professor Kirsi-Maria Halonen, municipalities master the basics of tendering, but may not be so good when it comes to the discretionary influence they can have.
Some alarming cases have been publicised revealing widespread social dumping in cleaning services procured by municipalities (Helsingin Sanomat 10.1.2020).
The fact that various forms of exploitation of workers who lack Finnish language skills are being funded with taxpayers’ money is unacceptable. How can municipalities ensure that their schools and hospitals are being cleaned properly?
This question is answered by Kirsi-Maria Halonen, who is an assistant professor in public procurement at the University of Lapland. She has researched and worked within public procurement regulation for 15 years and wrote her PhD thesis on the subject.
“Municipal procurement units know the law and comply with the minimum requirements, but do not necessarily reflect on what voluntary steps they could take on top of this”, Halonen says.
“If it is known that there is a risk of exploitation in a particular sector, this should be factored into the contracts that are put out to tender.”
Monitoring of tendered cleaning contracts is very important. Halonen stresses the importance of the mindset and communications in the municipality.
“For instance, a municipality could stress in its invitation to tender that legal requirements and generally binding collective agreements must be complied with at all its locations. The municipality could also require its contracting partners to provide regular reports detailing the subcontractors and workers they use, and their terms of employment. To back this requirement up, various penalties could be added to the contract. This would demonstrate that the municipality takes workers’ rights seriously”, Halonen says and continues:
“If a cleaning company then breaches the requirements or gives false information in its reports, this would justify terminating the contract and excluding the provider from the next tender. If it is known that the performance of the work is monitored during the contract period, this helps to prevent abuses.”
It is not up to procurement units to monitor terms of employment in general terms, says Halonen, rather to monitor individual contracts. For this reason she stresses the importance of labour inspections.
“We should be looking at increasing labour inspections and introducing administrative penalties”, she says.
The Contractor’s Liability Act applies to work carried out on the customer’s premises, for example. Among other things, this requires municipalities to check the terms of employment that their future contracting partners to their workers.
Halonen says that if work is done in chains of subcontractors, the procurement unit can request information on the entire chain, even though the Contractor’s Liability Act only requires this to be done for the first contracting partner.
Also, under the Act on Public Contracts, suppliers must report to the customer details of the subcontractors (at least name, contact details and legal representatives) working on the customer’s premises.
“Municipalities mustn’t be kept in the dark as to who is providing cleaning services in their schools. Under the Act on Public Contracts, the names of the company and its representatives must be reported to the customer”, Halonen states.
Whilst the trade union movement is proposing closing the gaps in the Act on Public Contracts, Halonen finds more possibilities in legislation that municipalities could already use if they were willing. For example, they could exclude companies that operate incorrectly from their tenders.
Procurement units must exclude companies offering unusually low prices based on non-compliance with legislation or collective agreement obligations.
A supplier must also be excluded if a final judgment for shadow economy crime has been issued against a company manager. It is astonishing that even if there is a district court judgment against a company that has been appealed, the company can continue to tender.
Halonen urges municipalities to use their discretion here too.
“If there are serious failings in a company’s professional activities, such as breaches of employment legislation or generally binding collective agreements, then a municipality can exclude a company from an invitation to tender even if a judgment isn’t final”, Halonen says.
The trade union movement has called for the Act on Public Contracts be strengthened so that neglect of collective agreements would be a mandatory basis for exclusion. No wonder. In cleaning work, for example, labour costs represent the bulk of a company’s expenditure, which can tempt firms to compete by compromising on employment conditions.
The councillors who are elected in the municipal elections will have a say on municipalities’ approach to procurement.
Halonen says that, if they want, councillors can influence municipal procurement in many ways. Councils draw up their municipalities’ procurement strategy and guidelines, where stricter obligations than those in legislation can be imposed, for example in municipal tenders in the cleaning sector.
“Elected representatives in councils and committees also decide on major procurement contracts, which enables them to directly influence individual contracts”, Halonen says.
Assistance in spotting human rights risks
Social sustainability is a theme in the national public procurement strategy drawn up within the Hankinta-Suomi programme of the Ministry of Finance and the Association of Finnish Municipalities. One of the actions in that theme is to devise a tool to help procurement units to spot human rights risks in their contracts. Among other things, key risk sectors are identified. I hope municipalities will use the tool once it is ready.
The cases that have been publicised are unpleasant. Procurement units should actively use the means in the Act on Public Contracts to check the background of providers and the prices they submit and also think about what sort of checks and contractual terms could be used alongside the Act on Public Contracts.
Resources for monitoring
I agree with Kirsi-Maria Halonen: even the most blatant offences of underpayment cannot be tackled because the resources devoted to monitoring, both by regional authorities and main contractors, are small.
Also, as I see it, many municipalities haven’t even considered that monitoring compliance with employment terms in contracts is their job. Maybe municipal procurers would be more attentive if they had to add employment terms as a mandatory item in the specific conditions of their contracts. At present this obligation only applies to state procurement contracts. The Act on Public Contracts should be amended to include these changes, as well as setting quality criteria, meaning that tendering should focus on service quality rather than price.