TL;DR – I wish Peter Drucker had said this instead: “Do what you do best, outsource the rest but don’t outsource your responsibility!”
Very often, when some management guru says something, companies and people rush to follow. They think that doing so will give them a competitive edge. Follow the sagely advice of the guru and success and riches won’t be far away. So when management guru Peter Drucker said “Do what you do best and outsource the rest!”, many companies and organisations rushed to follow. Including the Singapore government. They outsourced things like security and cleaning.
But like what Labour MP Zainal Sapari has asked, what exactly has this outsourcing practice done to the low wage workers?
The costs of cost-cutting
The proponents of outsourcing claimed that they managed to cut costs. But there were costs in cutting costs. First, there’s a societal cost. Wages of workers (e.g. security officers and cleaners) were depressed. In fact, most cleaners were earning the same pay now as they were earning a decade ago.
Yes, a DECADE ago.
Why? According to Labour MP Zainal Sapari, as a result of cheap-sourcing, many cleaners have worked at the same place for many years, but every time they are hired by a new employer, their salaries are being reduced and annual leave reset back to seven days. As such, most of our cleaners have low salaries and poor benefits.
Second, in Singapore, outsourcing resulted in lower productivity. Because the value of contracts for outsourced work are often tied to number of workers provided, rather than outcome, and contracts are usually annual, there is very little incentive for companies to invest in improving productivity.
Such archaic procurement practices often result in service buyers getting less than ideal outcomes from the service providers that they outsourced to. That’s not to say that outsourcing is inherently bad. It can work. But it would require service buyers to be more intelligent in the way they specify their contracts. But currently, in Singapore, most service buyers of cleaning and security services are doing it wrongly.
And there isn’t much incentive for service buyers to change. Even though they aren’t getting ideal outcomes from their cleaning and security service providers, things haven’t gone horribly wrong (yet). And even if they do, the service buyers can easily push the blame on to the service providers. Why? Because contracts are often one-sided. When something goes wrong, the liquidated damages imposed on service providers are often blown out of proportion.
Does this mean that the workers of those service providers are condemned to depressed wages forever?
No. Over the last two years, the Progressive Wage Model (PWM) was implemented for three sectors – cleaning, security, and landscaping. This was a win for NTUC, which had been advocating for the PWM since 2012.
More can still be done
But having the PWM alone isn’t enough.
Procurement practices have to change.
If not, then service providers still won’t have the incentive to make the necessary investments to improve productivity. It would make sense for service providers to get machines and systems, and train their staff if they can amortise the costs over a number of years.
But current procurement practices mean it’s not easy for service providers to be confident that they have sufficient time to amortise the cost of investments into improving productivity. Why? Because service providers must bid for the same contracts every year. And service providers, in a bid to win the new contract, will have to lower their bidding prices or risk losing the contract to their competitors.
Hoping that the market will sort itself out is wishful thinking. The only way to overcome this market failure is for there to be government intervention. That’s what NTUC is pushing for. They are asking for the Government Procurement Act to be reviewed and enhanced.
NTUC hopes that changes to the Act will provide greater transparency in contractual obligations and thus allow trust to be promoted between service buyers and service providers. With better relations between these key stakeholders, there will be space for them to amicably explore longer-term productivity solutions to elevate the standards of the low-wage industries. This will in turn allow our workers to benefit from better jobs and better pay.
A new hope…
Granted, this Act only affects the procurement practices of the government. Other companies don’t NEED to follow the practices spelt out in the Act. But the Government is probably the single largest buyer of cleaning and security services. Especially if you include all the Town Councils and government-linked companies (e.g. CapitaLand). So, if the Government changes, they’ll have a significant influence on industry behaviour.
As Zainal put it:
“The enhancement of the Government Procurement Act will shape industry behaviour by addressing some of these key issues faced by the outsourced industries. Collectively, we can create an environment that will benefit everyone, including workers who can enjoy better employment terms and conditions.”
Will it be enough?
We don’t know. But it’s certainly better than not doing anything. Let’s hope that NTUC will be successful in advocating for this and we will see the government improving their practices in procuring for cleaning, landscaping, and security services in the future. Then, hopefully, the rest of Singapore will follow suit.