Making Socially Responsible Public Procurement Work: 71 Good Practice Cases

#WeBuySocialEU May 2020

The Model for quality of employment in the construction sector

Municipality of Skien, 2 MAKING SOCIALLY RESPONSIBLE PUBLIC PROCUREMENT WORK: 71 GOOD PRACTICE CASE #WeBuySocialEU

The Skien Model for quality of employment in the construction sector

Name of procuring authority, Country: Municipality of Skien, Norway Product or service sector: Construction

image © Tankesmien Agends

Introduction/procurement objective employers that invest in quality employment and corporate social responsibility. Skien is also part The Municipality of Skien aims to promote decent of an intermunicipal procurement partnership - work and fight work-related crime, social dumping the Grenlandskommunenes innkjøpsenhet - with and the exploitation of workers across supply chains. five other municipalities (, , To do so, it has implemented standard contract Kragerøe, , Siljan). In January 2019, these terms, applicable for selected goods, services and municipalities also adopted the Skien model. building and construction contracts, which are perceived as especially sensitive to labour rights. Stage of procurement phase and criteria This set of collective contractual requirements applicable to ‘high-risk’ sectors is called the Skien Informal employment and work-related crime is Model. The Skien Model was implemented under a difficult to measure, however, it has an estimated city council resolution in 2014, and reviewed in 2019. economic impact of around 1.2% of national GDP, A summary of the model (in Norwegian) can be or NOK 28 billion (approximately €3 billion).1 found here. The model is mandatory for all building and construction contracts and is used on contracts for goods and services as long as it is practical and proportional. By spelling out such standards, Skien 1 As reported by Economics Norway, in a work commissioned by the Norwegian Ministry of Labour and Social Affairs: https:// aims to create a level playing field amongst suppliers www.eurofound.europa.eu/publications/article/2017/norway- and create an enabling framework for compliant strategies-to-tackle-work-related-crime A SOCIALLY RESPONSIBLE FRAMEWORK AGREEMENT FOR CLEANING SERVICES 3

In light of challenges with work related crime and the in the execution of the works have employment illegal labour market within the construction sector, contracts ensuring pay levels according to legally the Municipality of Skien has put procurement at binding collective agreements. the heart of its initiatives towards decent work, fair working standards and quality employment. • Use of apprentices The Skien Model is the result of a joint effort between the Municipality of Skien as a contracting In order to promote specialisation and adequate authority and all other relevant stakeholders in training levels in relevant sectors, the Municipality public procurement. Discussions were held with has required specific use of apprentices in contracts construction business organisations, who shared involving specialised work. In addition, it is required the main challenges faced in their activity, and trade that suppliers are affiliated with an apprenticeship unions, who put forward their ideas for appropriate scheme. In order to ensure that this requirement actions and procurement requirements to achieve does not disproportionately affect smaller contracts improved outcomes. Contracting authorities and providers, it only applies to contracts with a acknowledged the need to improve labour standards duration over 3 months and a value exceeding NOK whilst ensuring that the level of requirements did 0.5 million (approximately €50,000) for building and not create additional obstacles for the participation construction contracts and a value exceeding NOK of reliable suppliers in public procurement. The 2 million (€200,000) for contracts for goods and Municipality sought a coordinated approach among services. Any other exceptions must be approved by the other contracting authorities which are part the Municipality. of the intermunicipal procurement partnership on how to address working conditions and standards • Use of skilled workers through procurement. This has resulted in the creation of standard provisions and contracts that The promotion of adequate qualifications and skill generate a higher degree of predictability among levels limits the possibility of exploiting vulnerable suppliers as well as a safe operating environment workers who lack knowledge of the trade or their for procurement practitioners. rights. In addition, the use of apprentices calls for skilled workers on site who are able to act as The model deals with the following areas: mentors. The Skien Model requires that a majority of the employees involved in the execution of • Use of mainly stable employees building and construction contracts hold a relevant vocational qualification. Stable employment relationships, on the one hand, promote increased security among workers and, • Limit on number of levels of subcontractors on the other hand, make it easier for authorities to verify payment of wages by contractors and A limitation on the maximum number of ensure occupational safety and health. However, subcontractors enables better follow-up and control the building and construction sector requires some of work conditions and standards applied by the degree of flexibility due to the varying volume contracting authority. To this end, the Municipality of projects or the cycle of the market. Therefore, has established as a rule a maximum of one level of the Municipality requires that workers involved in subcontracting under the main supplier. While there the execution of contracts must be employed by is no restriction on the number of subcontractors contractors in accordance with Norwegian law, or the proportion of the contract subcontracted, all which prohibits ‘zero-hour contracts’. In addition, subcontractors must be under direct control of the the Model also requires that the use of temporary main contractor in order to avoid fragmentation of workers (supplied by work agencies) is pre-approved responsibility. The subcontractors must be identified by the contracting authority. In addition, suppliers in the contract. This provision accounts for possible are obliged to prove that temporary workers used specialisation needs within a contract and does 4 MAKING SOCIALLY RESPONSIBLE PUBLIC PROCUREMENT WORK: 71 GOOD PRACTICE CASE #WeBuySocialEU

not impair access to public procurement by smaller compliant labour and the situation is not remedied operators. Therefore, contracting authorities are before a deadline set by the client in writing. The allowed to make exceptions to this rule prior to daily penalty will be equivalent to one thousandth competition for market-related reasons or during of the contract value but no less than NOK 1,000 the performance of the contract for special or (approximately €100) per business day until the unforeseen reasons only. situation is remedied. In the event of a confirmed breach of the terms of the Model and the contractor’s • Prevention of human rights’ breaches across the inability to solve it, the contracting authority may supply chain rescind the contract with a suspension period on future participation in procurement procedures. The supplier is obliged to have incorporated guidelines that include respect for basic human rights Contract value and the ILO’s core conventions in its own operations and for its supply chain. Control measures must be Depends on the specific contracts being tendered. carried out and reports must be made on specific follow-up of subcontractors throughout the supply Instrument chain. In addition to the above, the Municipality sets outs additional requirements: • Art. 18.2 on mandatory social clause and Art. 70 on contract performance conditions of Directive • No payments in cash: all wage payments and 2014/24/EU. The use of these provisions must other compensation shall be paid to the individual be in line with the Posted Workers Directive worker’s bank account. Wage payments must be (Directive 96/71/EC as amended by Directive paid to a bank account, and the employer must (EU) 2018/957). be able to trace the payment. All payments other than wages made by the supplier in connection Actors with the execution of contract will also be paid by electronic means and be traceable. Suppliers • Contracting authority: Skien Municipality and its are obliged to identify their bank on request. services, agencies, etc. • Trade unions and employers organisations • Minimum wage levels and working conditions: (the model is based on a tripartite cooperation between municipalities and social partners) Suppliers to the municipality must ensure that • Building and construction suppliers employees enjoy wage and working conditions that • Workers are not lower than those mandated by the relevant nationwide collective wage agreements. Social impacts

Verification • Effective and socially responsible public procurement - and a model that has inspired BThe requirements are part of the contract terms, other municipalities to take responsibility. so by taking part in the competition, contractors are • Building public reputation by taking social committed to abide by these terms during the period responsibility. of execution. Upon request, tenderers must provide • Protect decent work and improve the quality of documentation on the wages and employment work. conditions of their employees. Bidders must • Better control on occupational health and safety certify compliance with ILO Convention No 94 on (safer work environments). Labour Clauses in Public Contracts. The contracting • Promotes training of apprentices and use of skilled authority may levy a daily penalty on bidders if they workers and an increase in regional businesses or any of their subcontractors use illegal or non- affiliated with an apprenticeship scheme. A SOCIALLY RESPONSIBLE FRAMEWORK AGREEMENT FOR CLEANING SERVICES 5

• Promotes serious and reliable contractors, that the needs and policies of the municipalities. For in turn gives stability, quality and predictability. example, the early model required that wages • Fair competition and level playing field among were paid to a Norwegian bank account. Skien suppliers. asked itself however, if this was really necessary • Less tax evasion and fraud - less labour crime. - the municipality only needs to be able to trace the money, which can be done even if the bank In a report on efforts to eliminate social dumping in account is not Norwegian. Also, the old version of public procurement, the Office of the Auditor General the Model only required the use of apprentices notes that many local authorities have room for by Norwegian contractors, but this is now a improvement in this area and has recommended general requirement (when there is a need for to follow Skien’s example. In fact, an increasing promoting apprentices.) number of Norwegian local authorities are adopting • The model will be reviewed every second year, the Skien Model. By 2019 approximately 180 of 426 to be adjusted to how markets and work related municipalities in Norway implemented different crime change and develop, and also adjusts to types of procurement models to secure socially the requirements from the municipality. responsible public procurement. The Skien model is • Follow-up and control of the requirements in the the pioneer model, and there are several different model is a continuous challenge. Digitalisation, models in use in Norwegian municipalities. Some real time information and systematic data models copy the Skien Model, others are adjusted collection are crucial tools towards this aim. to meet the interests and needs of different areas, branches and politics. Contact

Lessons learned and future challenges Ms Ingrid Buset, Adviser, Fagforbundet (Norwegian Union of General and Municipal Employees), • Dialogue with social partners and stakeholders [email protected] in the sector is key to set out requirements in a realistic way, and ensure compliance and Ms Anette Wessel Gerner, Head of the Intermunicipal effective results. Procurement Unit, Municipality of Skien, • It is important to adopt an incremental approach [email protected] to requirements. In this regard, the standards adopted in the building and construction sector Mr Jonas Bals, Adviser, LO (Norwegian Confederation build upon previous measures undertaken by of Trade Unions), [email protected] the Municipality, which have been accelerated in this sector in light of perceived high risks of non- compliance. • Standard clauses and contracts are useful for “The procurement model of Skien has given us an important tool in the fight against social dumping operationalising compliance with standards and work-related crimes, not only in Skien, but across the board. Common standards on core/ almost 200 municipalities that have followed by horizontal issues such as workers’ rights and implementing similar models. These models protect quality of employment is compatible with the decent work, improve the quality of work, promote a safer working environment and give youth an adaptation of procedures to specific needs by incentive to pursue a career in the construction contracting authorities. business. We’ve also seen that criminals are being • The Model was reviewed in 2019, to adjust and pushed out of the market.” improve it based on practical experience to Hans Christian Gabrielsen, date, and to comply with national and EEA-law Leader of the Norwegian Confederation of Trade Unions (LO) after the transposition of the 2014 Procurement Directive. The municipality considered how the model affected the market, the workers and