The core focus for the inquiry was the treatment of workers in the retail cleaning sector.
As the Australian Council of Trade Unions (ACTU) argued, the rise of fragmented employment and the current legal framework allows large corporations to retain all the power but none of the responsibility. Although corporations at the head of a supply chain essentially control the wages and conditions of cleaners through the prices they set for their contracting arrangements, many turn a blind eye to the workplace realities of the workers performing the service. This is made possible by virtue of the legal separation between large, head-of-chain corporations and the workers that provide their labour.
The behaviour of Woolworths in relation to the cleaning arrangements of its stores in Tasmania was a prime example of this attitude in the private sector.
However, the committee also received evidence of similar behaviour in the public sector.
United Voice drew the committee's attention to a complex contracting arrangement involving the Commonwealth Department of Finance and head contractor Broadspectrum.
In the 2016-17 Budget, the Government announced Property Services Coordinated Procurement (PSCP) arrangements to cover leasing services and facilities management services, including cleaning services, for Commonwealth domestic office accommodation and shopfronts.
According to the Department of Finance, the PSCP arrangements seek to 'improve the efficiency of property services across the Commonwealth and maximise the value for money that can be achieved by consolidating the Commonwealth's purchasing power'.
Under the PSCP arrangements, the Department of Finance engaged Broadspectrum as a Property Service Provider to provide core leasing services and facilities management services to entities, and additional services as negotiated.
Broadspectrum then subcontracted to a number of companies for the provision of cleaning services to Commonwealth office buildings. For example, cleaning services for the Department of Jobs and Small Business offices in the Australian Capital Territory, New South Wales and Tasmania were subcontracted to a cleaning company called Jarrah Integrated Services (Jarrah).
The Department of Jobs and Small Business summarised the arrangement for the committee:
Broadspectrum have been engaged by the Department of Finance under a whole-of-government arrangement for the provision of property services. The Department of Finance have allocated to the Department of Jobs and Small Business Broadspectrum as our property service provider. Their job for us is to source and deliver property services. They have sourced for us cleaning services, following the cessation of our earlier contract—our prior contract.
They have subcontracted three entities, one of which is a company called Jarrah Integrated Services. They've also subcontracted Pacific Services Group Holdings and First People Property Group to provide cleaning services across a range of Department of Jobs and Small Business offices.
Jarrah Integrated Services will be cleaning our offices in the ACT, New South Wales and Tasmania; Pacific Services Group Holdings will be cleaning our office in Townsville; and First People Property Group will clean our Victoria state office and our regional offices.
Jarrah is a joint venture 49 per cent owned by a cleaning company called PrompCorp. As discussed below there are very close management links between Jarrah and PrompCorp as well as a third associated entity named Pioneer Facility Services. Although Jarrah was awarded the cleaning contract with Broadspectrum it appears that Broadspectrum also have a cleaning contract with PrompCorp. For the purpose of the following discussion the committee uses 'Jarrah/PrompCorp' to refer to the closely aligned management structures providing cleaning services on behalf of Broadspectrum.
United Voice advised that nine out of 24 cleaners who had previously cleaned the Department of Jobs and Small Business offices under Asset Industries no longer had jobs after the contract changed to Jarrah/PrompCorp. United Voice also advised that other cleaners who kept their jobs suffered a pay cut of six per cent and lost substantial hours of work.
Jarrah/PrompCorp confirmed that under their previous contract with Asset Industries, the cleaners were paid 16 per cent above the award rate. After beginning work with Jarrah/PrompCorp, still cleaning the same offices, the cleaners wages were reduced to 10 per cent above the award, equivalent to a six per cent cut.
The committee queried the Department of Finance whether it knew when it awarded the contract to Broadspectrum that the cleaners engaged to clean the Department of Jobs and Small Business offices in Canberra would suffer a six percent pay cut under the new contract arrangements. The Department of Finance indicated it was not aware of this because it did not know the details of the arrangement that was in place with Asset Industries, the previous contract holder.
When asked why this was the case, representatives of the Department of Finance responded that 'it had no need to':
ACTING CHAIR [Senator Cameron]: You said you did not know what Asset Services were being paid. Is that correct?
Ms Johnson: We do not have visibility of that contract.
ACTING CHAIR: Right. If you had asked—what government department was it with?
Ms Johnson: Department of Jobs and Small Business.
ACTING CHAIR: Did you ask the Department of Jobs and Small Business what workers were being paid?
Ms Johnson: We had no need to.
When asked about the establishment of the contract with Broadspectrum, Department of Finance officials claimed that they had relied on the Commonwealth Procurement Rules (CPRs):
We've very much modelled the contracting arrangements between the Commonwealth and Broadspectrum on the Commonwealth Procurement Rules. In particular, there are specific references, both in the Commonwealth Procurement Rules and in the contract that we have with Broadspectrum, to the ethical behaviour that they must abide by, including that entities and subcontractors can't seek a benefit from supplier practices that may be dishonest, unethical and unsafe.
However, the committee notes that 'the core rule' under the CPRs, issued by the Department of Finance, is to achieve 'value for money'. The CPRs go on to state the requirements for achieving value for money including:
Officials responsible for a procurement must be satisfied, after reasonable enquires, that the procurement achieves a value for money outcome. Procurements should…use public resources in an efficient, effective, economical and ethical manner that is not inconsistent with the policies of the Commonwealth…
The CPRs then expand on the meaning of 'efficient, effective, economical and ethical'. With respect to the last term the CPRs state that 'ethical relates to honesty, integrity, probity, diligence, fairness and consistency...'
The CPRs make clear that the four factors used to ensure the achievement of value for money (efficient, effective, economical and ethical) 'must be considered in meeting the core rule of achieving value for money.'
The committee received evidence that the Department of Finance had effectively outsourced its ethical procurement responsibility to contractors. When asked whether the ethical procurement approach under the PSCP arrangements differed in any way to the requirements under the CPRs (in particular clause 4.4 and 6), the Department of Finance responded:
The Department of Finance has passed down relevant practical elements of the Commonwealth Procurement Rules to the service providers through the coordinated procurement Deeds. This includes adapting the ethical procurement framework set out in the Commonwealth Procurement Rules to reflect that procurement by the service providers will be undertaken by a company, rather than Commonwealth officials.
Renegotiating the contract
The committee queried whether Jarrah/PrompCorp would be willing to sit down with United Voice, on behalf of the cleaners, to negotiate an agreement that restored the wage rate for the cleaners that had suffered a pay cut.
Mr Benjamin McGaw, Chief Executive Officer of PrompCorp and Director of Jarrah, emphasised that the companies had 'signed a contract with a set price on a commercial model that has been built up' and that this was a 'constraint'. However, he stated that if a contract renegotiation was something Broadspectrum wanted to pursue, it would be something they 'could negotiate'.
The committee then asked Broadspectrum whether it had the capacity under its contract with the Department of Finance to pay more if an enterprise agreement was negotiated between the cleaners and Jarrah/PrompCorp. Mr Michael Barlow, General Manager of National Operations for Broadspectrum Property answered 'I'm not able to commit to an increase at this point'.
The committee subsequently queried the Department of Finance as to whether it would be open to renegotiating the terms of the contract with Broadspectrum, should Broadspectrum and its subcontractors negotiate with cleaners to increase pay rates:
ACTING CHAIR: Okay. So, Mr Jaggers, if Broadspectrum and their subcontractors negotiate an enterprise agreement that requires extra funding from the Department of Finance, is that available?
Mr Jaggers: No, Senator.
Public interest immunity claim
At a public hearing on 18 October 2018 the committee requested that the Department of Finance provide details of the contract and tender documents between the Department of Finance and Broadspectrum.
The Department of Finance refused to provide the documents and subsequently the Minister for Finance and the Public Service, Senator the Hon Mathias Cormann lodged a claim of public interest immunity on behalf of the Government. The claim stated:
The documents sought by the committee contain detailed, commercially sensitive information relating to contracting processes including tender content and other information which would be of significant commercial value.
The release of this information would set a precedent that could result in businesses ceasing to engage in commercial arrangements with the Commonwealth on the basis that such an engagement could risk publication of valuable commercially sensitive information. This outcome would materially impact the Commonwealth's ability to negotiate and contract with commercial entities.
The committee formally considered and rejected the claim and accordingly reports this matter to the Senate.
The committee considers that the situation described above is a clear example of the negative impacts of fragmented employment chains and ultra‑competitive contracting arrangements. This layered public sector procurement arrangement closely parallels the arrangements which are being pursued by some large corporations in the private sector.
In such situations, the entity at the top of the chain (in this circumstance the Department of Finance) sets contract conditions prioritising a simple 'value for money' criterion, and while intermediaries in the middle (Broadspectrum and Jarrah/PrompCorp) can respond to these conditions to ensure they make a profit, those at the bottom (the cleaners) are left with no bargaining power resulting in wages trending towards the legal minimum entitlement of the award. This undermines one of the key objects of the Fair Work Act 2009 (Fair Work Act) to achieve 'productivity and fairness through an emphasis on enterprise‑level collective bargaining...'
The committee notes that under the CPRs Department of Finance officials must consider various factors to ensure that procurement achieves value for money, including a specific requirement to take into account ethical considerations.
The committee acknowledges that the Department of Finance included contractual obligations on Broadspectrum which requires ethical behaviour on the part of Broadspectrum and its subcontractors to not seek a benefit from supplier practices that may be dishonest, unethical and unsafe.
However, the committee sees no evidence that the Department of Finance sought to understand the workplace conditions of the cleaning workers who would be directly impacted by the new contracting arrangements.
In this regard the committee considers that the Department of Finance has shown a total disregard for the ethical responsibility it holds in its role of 'price maker', demonstrating no care for the welfare of those individuals performing the cleaning services and no desire to balance those considerations against other factors required by the CPRs such as efficiency. This is despite the obligation in the CPRs for officials to make reasonable enquires before determining if the procurement achieves value for money.
The committee finds it concerning that the Department of Finance has prioritised efficiency over its ethical duty to low-paid workers.
Although the committee acknowledges that importance of the prudent use of public resources and the need to procure services in an efficient and economical way, the committee is of the strong opinion that these outcomes should not be achieved at the expense of vulnerable workers.
Additionally, the committee is highly concerned by evidence indicating that the Department of Finance has effectively outsourced its ethical procurement responsibilities to contractors. The committee considers this approach to be extremely troubling. Such behaviour epitomises the 'all power, no responsibility' attitude demonstrated by some major corporations and that is now also evident in the public sector. Such attitudes confirm the committee's concerns about the deliberate distance price makers such as the Department of Finance put between themselves and the vulnerable workers whose labour they are ultimately benefitting from.
The committee is of the strong opinion that the Government should be a leader in ethical procurement and contracting.
Just as the Government and Commonwealth agencies have an obligation to behave as 'model litigants' (as set out in the Legal Services Directions 2017), the committee considers that the Commonwealth should also have an obligation to behave as a 'model procurer'.
The committee considers that setting contract parameters that effectively undercut existing workers, or not bothering to check whether this is the case, as the Department of Finance did to the cleaners of the Department of Jobs and Small Business offices in Canberra, is not acting ethically. To the committee's mind, such behaviour does not demonstrate the required 'honest, integrity, probity, diligence, fairness and consistency' set out in the CPRs.
To this end, the committee makes the following two recommendations.
The committee recommends that the Australian National Audit Office conduct a performance audit on the extent to which Commonwealth entities are using public resources in an ethical manner in compliance with the Commonwealth Procurement Rules.
The committee recommends that the Department of Finance immediately renegotiate the contract with Broadspectrum in order to properly account for the previous working conditions of the cleaners.
Links with non-compliant companies
In addition to the information about the pay cuts meted out to the cleaners, the committee also received concerning evidence illustrating the intricate links between Jarrah, PrompCorp and another cleaning company, Pioneer Facility Services (Pioneer).
For example, the three companies list identical addresses for each of their respective offices in Victoria, New South Wales, South Australia, Western Australia, the Northern Territory, Queensland and Tasmania.
Additionally, the Chief Executive Officer of PrompCorp is Mr Benjamin McGaw. Mr McGaw is also Chief Executive Officer of Pioneer. Mr McGaw is also a director of Jarrah.
Mr Francis (Frank) Xavier Scarce is the sole director of PrompCorp. Mr Scarce is also the managing director of Pioneer.
In a Federal Circuit Court of Australia judgment handed down on 24 August 2018, Pioneer was found to be 'knowingly concerned' in the underpayment of workers in Woolworths supermarkets in Tasmania.
Ms Erryn Cresshull, an organiser for the Australian Capital Territory branch of United Voice elaborated on why the links between Jarrah, PrompCorp and Pioneer had caused the union to highlight the case to the committee:
The cleaners I've spoken about have been discarded by Prompcorp, a company whose sole director was involved in a company found guilty of wage theft. The company was found guilty last month in the Federal Court of being aware of underpaying cleaners of more than $20,000. The underpayments relate to cleaners in Woolworths in Tasmania, which you'll be very aware of in this committee. As you will know, the Fair Work Ombudsman found that 90 per cent of cleaners in Woolworths Tasmania were being underpaid.
It would be bad enough if this were the director's sole moment in the sunshine of coming to the attention of the authorities, but another company featuring the same director was found guilty in December of underpaying cleaners and was fined $16,000. That was the case relating to the cleaners in the Myer stores. What this means is that workers in the office buildings in Canberra have been sacked or had their conditions slashed by a company director whose previous companies have been found guilty on two occasions of wage theft.
The committee queried Broadspectrum as to whether it was aware that two of the companies it had contractual relationships with (i.e. Jarrah and PrompCorp) were closely integrated with a company (i.e. Pioneer) that had previously engaged in non-compliant behaviour. Broadspectrum indicated that it was aware of the situation:
Mr McCafferty: My understanding is that, at the moment, we have no contractual relationships with Pioneer. We do with Prompcorp and we do with Jarrah.
ACTING CHAIR [Senator Cameron]: But Pioneer is a related entity.
Ms Suchanek: Yes. That's correct.
ACTING CHAIR: They are related entities, so the behaviour of one is an issue for you.
Ms Suchanek: That's right. Under the terms of our tier-4 high-level due diligence, the due diligence requires a review of Jarrah and Prompcorp and any related entity as part of that corporate group.
ACTING CHAIR: I understand there is an appeal underway, but Justice McNab found that Pioneer were knowingly concerned in underpayment contraventions. Are you aware of that?
Ms Suchanek: Yes.
The committee asked Broadspectrum to outline the due diligence it undertook in relation to its interactions with Pioneer, Jarrah and PrompCorp. Ms Marianne Suchanek, Group Risk and Compliance Counsel for Broadspectrum's Legal and Governance Group explained:
We conducted tier 1 and tier 2 due diligence, which was low-risk and medium-risk due diligence. At the time that we conducted that due diligence, we had considered declarations regarding legal issues as declared by PrompCorp and Pioneer regarding the underpayment of Woolworths and Myer workers. At the time of the due diligence of the tier 1 and tier 2 stages, it was determined by the Fair Work Commission that the underpayment of the Myer workers was an administrative error. From that, we determined it was not a systemic issue, but what we did do was build in protective measures. The purpose of the protective measures was to ensure that we protected the employees' payments under the subcontract arrangements and did the right thing by our clients, and also to ensure that we met our contractual and legal obligations. The protective measures that we have built in require that the contractors employ their direct workforce. As a precondition to payment claim, they are required to declare that they have employed their direct workforce. They are required to also declare that they've provided a statutory declaration to that effect. They are also required to declare that they have paid our workers in accordance with the award and to provide supporting documentation for that. Other protective measures also require, under our standard subcontract terms and conditions, that they comply with our code of business conduct and, with that, the business partners policy, which requires that they conduct themselves using ethical corporate practices. Under the terms of our subcontract arrangement, failure to do so would be deemed a serious breach and, as such, they would be terminated under the terms of our contract.
Ms Suchanek further advised that in addition to undertaking initial due diligence for each of the subcontractors, Broadspectrum was now undertaking tier 4 due diligence of PrompCorp and Jarrah after becoming aware of the adverse findings against Pioneer:
…I can confirm that our tier 4 due diligence has been triggered in relation to the Fair Work Ombudsman's findings regarding the underpayment of the Woolworths workers [by Pioneer]. In that instance, the findings determined that there was no administrative error. It went beyond the administrative area.
Ms Suchanek continued:
Broadspectrum is concerned. At present, the workers under our contract have not been underpaid. Nevertheless, we value ethical corporate business practice. In light of the recent findings under the Fair Work Ombudsman that the underpayment went beyond the administrative area, we have triggered our tier 4 due diligence, which requires a higher level of due diligence, re-evaluating the protective measures. We recognise that, yes, it is important to deliver value for money but that value for money must be consistent with our corporate ethical practices, without cutting corners.
The committee is deeply concerned that the Government, through head contractor Broadspectrum, have chosen to engage and associate with companies such as PrompCorp that are closely linked to individuals who have shown blatant disregard, on more than one occasion, for their legal workplace obligations.
The committee acknowledges that Broadspectrum is now conducting further due diligence to reassess their links with these companies.
The committee again notes that the CPRs include directions on ethical behaviour. Specifically, the committee notes that the CPRs state:
Relevant entities must not seek to benefit from supplier practices that may be dishonest, unethical or unsafe. This includes not entering into contracts with tenderers who have had a judicial decision against them (not including decisions under appeal) relating to employee entitlements and who have not satisfied any resulting order. Officials should seek declarations from all tenderers confirming that they have no such unsettled orders against them.
The committee considers it appropriate that the CPRs be expanded to prevent a tenderer from entering a contract with any corporation or an associated entity that has been penalised for being non-compliant with any employee entitlement laws. The CPRs should require that officials seek declarations from all tenderers confirming that all corporations and associated entities they intend to subcontract with do not have a history of non-compliant behaviour.
The committee recommends the Department of Finance broaden the Commonwealth Procurement Rules to preclude a tenderer from entering a contract with any corporation or an associated entity that has been penalised on more than one occasion for being non-compliant with any employee entitlement laws.