The public sector is not entirely innocent

“A developer had chosen a principal contractor for a site based on who promised to complete the contract the fastest. The completion time specified in the second-place tender was 4 months longer. The developer saw no risk in the short time promised, and selected that company as principal contractor. The principal contractor then selected a subcontractor that was a foreign-owned company established in Finland, which tendered the particular contract for 1 million euros. The second-place contractor’s tender was over half a million euros more expensive.

The Finnish Construction Trade Union’s international labour unit began investigations after being contacted by workers. The investigations requested information from the subcontractor and the principal contractor. The investigative work was hindered by the principal contractor’s lack of competence or unwillingness to provide the requested information. The principal contractor had difficulty explaining who worked for which company. There were also notable ambiguities when verifying workers’ rights to work.

The union’s investigations revealed that many foreign nationals were owed significant amounts in unpaid wages. The subcontractor company did not comply with the generally binding collective agreement for the construction industry. Workers did not receive the hourly pay specified in their employment contracts, general wage increases were not paid, overtime pay was not provided, and over a two-week period they were paid for 80 hours despite working 100 hours. Additionally, the subcontractor had secretly brought to the site its own subcontractors, who had illegal personal identification cards containing tax numbers issued in a different company’s name. In turn, this subcontractor had further subcontracted the work to foreign “light entrepreneurs”, who had no idea of the situation they had unwittingly found themselves in. Some of the work was carried out on a volunteer basis and without pay, as the most vulnerable workers were required to sign an IOU stating that the employer would pay them for the work at a later date.

Ultimately, the work performed by the people who were illegally on the site was suspended, and the principal contractor had to pay tens of thousands of euros in substitute payments for the subcontractor’s workers’ wages, as their own employer was unable to do so. As well as failing to pay wages, the exploitative company also neglected to pay taxes and pension payments.

Work on the site was significantly delayed beyond the promised completion date. There are also problems concerning the payment of wages by the new contractor hired to replace the exploitative company.”

A lack of competence or a lack of interest?

How familiar are public-sector actors with the signs of labour exploitation in their construction projects, senior specialist at the Finnish Construction Trade Union’s international labour unit, Toni Malmström?

– Very unfamiliar. When we have met with decision-makers in construction development, the forms and methods of exploitation always come as a surprise to them. When these cases occur, the explanation is always ‘We have to choose the cheapest option’, even though that’s not true, explains Malmström.

When cases do arise, how easy is it to investigate them together with a public-sector developer?

– Usually quite easy if the developer is made aware of the problems on the site. In this specific case, however, it was difficult to get both the developer and the principal contractor to deal with them.

Malmström mentions the City of Helsinki’s Asuntotuotanto ATT as an example of a good public-sector actor, as it takes action and independently initiates investigations when it hears of issues on its site.

– They investigate things, and their contracts are all in order with regard to labour exploitation and the grey economy. They are able to obligate principal contractors to act under threat of sanctions, for example. It’s easy to take action when demands for an investigation into a situation come from both us at the Finnish Construction Trade Union and the developer, says Malmström.

What could public-sector developers do better?

“The competitive tendering process should more clearly include criteria besides the lowest price, as that is precisely where the risk of exploitation is highest. A quality-based scoring system should be incorporated so that companies aren’t forced to select the absolute cheapest contractor.”

According to Malmström, those who are responsible for procurement should have an understanding of what labour exploitation is and where the risks of it are highest.

– If even the authorities say that there are ambiguities on one in two sites, it’s a certainty that anyone involved in development to any meaningful degree will encounter problems on one of their sites.”

In public-sector construction projects, developers very rarely supervise or audit their own construction sites.

– In these cases, supervision falls to the authorities and the Finnish Construction Trade Union. The number of actors who self-supervise can be counted on one hand. It would be good if developers were also aware of what happens on construction sites and were able to investigate problems themselves, and ensure that victims of labour exploitation don’t have to suffer any longer, Malmström adds.

In spring, Malmström’s team met with almost all the political parties to talk about the grey economy and labour exploitation.

– The parties are aware of the issues and admit that something needs to be done.

Municipal decision-makers play a key role in the public sector.

– A good step would be to review Rakennustieto’s instruction card on combatting labour exploitation in the construction industry (RT 103923 Työvoiman hyväksikäytön torjunta rakennusalalla) and implementing it in contract guidelines. The idea is to communicate that ‘we develop in compliance with these instructions’. Some public-sector actors have already incorporated it into their contracts.