To protect your business from costly mistakes and legal troubles, it is essential to look beyond the lowest price and thoroughly assess potential suppliers.
Warwick Ryan, Partner from Hicksons Lawyers
When businesses look for other companies to work with—like hiring cleaners or builders—they often ask for bids, called “tenders.” Sometimes, a company offers a price that seems much cheaper than everyone else. But a low price can sometimes mean the company isn’t following workplace laws, like paying their workers properly or keeping them safe.
If you choose the wrong supplier, your business can face big fines, lose contracts, or get a bad reputation. Here’s how you can protect yourself by spotting common warning signs.
Workplace law obligations in tendering processes
In an environment where organisations can feel bogged down by complex regulatory requirements, some may be tempted to accept the lowest tender. In short, organisations (and individuals) have a clear legal duty to:
- Provide workers with a healthy and safe working environment – this obligation extends to subcontractors your organisation engages, and (generally) workers whose activities are influenced or directed by your organisation (pursuant to state-based work health and safety laws);
- Prevent unlawful sexual conduct, such as sexual harassment and sex-based harassment (pursuant to the Sex Discrimination Act 1984 (Cth));
- Aid, abet, counsel, procure, induce (whether by threats or promises or otherwise), or conspire with others to effect a contravention of the Fair Work Act 2009 (Cth) or be in any way, by act or omission, directly or indirectly, knowingly concerned in or party to a contravention of the Fair Work Act 2009 (Cth) – such as the obligation to pay the minimum wage, or pay an employee their entitlements under a modern award; and
- If your organisation has opted into or is covered by the Commonwealth or state modern slavery acts, it must report on how it is identifying and addressing modern slavery in its supply chain.
These laws create a myriad of obligations for an organisation to consider when carrying out its tendering processes. If an organisation fails to satisfy these obligations, the combined liability could amount to millions of dollars in potential penalties, damages, loss of contracts or funding, and potential brand damage.
The Fair Work Act 2009 (Cth), Sex Discrimination Act 1992 (Cth) and Work Health and Safety Acts also create personal liability for certain individuals involved in breaches of those pieces of legislation. The greatest risk arises out of Work Health and Safety Acts, where in many states the maximum penalty could involve up to 20 years imprisonment or millions of dollars in fines and it is now unlawful to insure against those fines.
With the above liabilities in mind and appreciating that worker exploitation is a complex global and domestic problem with numerous red flags, below are three big ones to watch out for when reviewing tenders for risks of serious workplace law breaches.
Red Flag #1: Suspiciously Low Tender Prices
When a tender price is significantly lower than competitors, it is crucial to ask why. Before appointing a tenderer, organisations should conduct due diligence to uncover any hidden risks.
Suggested Actions:
- Compare the tenderer’s pricing schedule with industry standard costs. If the pricing is unusually low, investigate further.
- Ask for detailed cost breakdowns, including labour expenses compared to the tenderer’s profit margin. A lack of transparency, or small margins between the labour expenses and the tenderer’s cut (particularly where the tenderer uses a subcontracting model that it has not accounted for in its pricing) can signal greater risk.
- Conduct a workplace law audit of the tenderer before offering them the contract – identifying workplace law compliance risks with a supplier before entering into a contract (although presenting a time and cost investment at the outset) could save your organisation in the long term if it comes to light that the tenderer has been breaching workplace laws in order to service the tender at a reduced price.
Red Flag #2: Vague Responses to Probing Questions
If you request more detail on a low-priced tender and receive vague or evasive answers, this can be a red flag. Tenderers who allocate adequate resources to their workplace law compliance may be more likely to share evidence of their compliance with you. By contrast, a lack of clear documentation or reluctance to share information can be a cause for concern. Often the latter are operating out of ignorance or armed with poor advice – even to point of not understanding the applicable modern award.
If a tenderer cannot adequately respond to your questions about workplace law compliance at the bidding stage, it begs the question – how will that tenderer behave if the contract is offered to them? Will you be able to obtain critical information from them during the life of the contract?
Suggested Actions:
- Rather than relying on vague commitments in a tender proposal that the tenderer does or will comply with workplace laws, insist on documented proof of compliance, such as worker contracts, payroll records, work health and safety systems and processes or evidence of recent external workplace law audits the tenderer has undergone.
- If answers remain unclear, consider what actions, resources or third-party suppliers you could utilise to gain information about the tenderer’s ‘worker voice’ – i.e., what are the tenderer’s employees saying about their working conditions?
Red Flag #3: Heavy Reliance on Subcontracting and Labour Hire
Some tenderers may rely heavily on subcontractors or labour hire models. These workforce models can create layers of contractors that mask the unlawful practices, such as wage theft and other exploitative practices.
Suggested Actions:
- Ask how subcontractors are vetted and monitored to ensure compliance with workplace laws – if the tenderer states that it audits its subcontractors for compliance with workplace laws, what does that “audit” entail? How frequent are the “audits”? Does the “audit” go far enough to provide your organisation with confidence in the tenderer’s workplace law compliance?
- Ask what kind of mechanisms that tenderer has in place to receive complaints from its subcontractors.
- If the tenderer has employees carrying out the same work as the subcontractors, will the employees of the subcontractor be paid the same rates. If not, how will the arrangement work if there is a same job-same pay application?
- Investigate whether the tenderer, or its subcontractors, have any history of litigation in the Fair Work Commission or other courts that could shed a light on their workplace law compliance. This could be investigated through a simple web search – although you may need your law firm’s assistance to access specialised case law databases.
Courtesy of recent changes to the Fair Work Act, Principals are further exposed commercially with the passing of the ‘same job same pay’ amendments. If the Principal has employees conducting similar roles to the employees of the successful tenders, the successful tenderer can be ordered to increase the rates payable to its employees. That can leave the agreed tender price non-viable – which creates an issue not only for the successful tenderer, but also principal (as the contractor cannot continue to operate at a loss).
To protect your business from costly mistakes and legal troubles, it is essential to look beyond the lowest price and thoroughly assess potential suppliers. Early engagement, careful questioning, ongoing monitoring, and a focus on workplace law compliance will help ensure your partners are reliable and your business remains protected.
By Warwick Ryan, Partner from Hicksons Lawyers: Warwick is a recognised specialist in employment law and workplace relations and a member of Hicksons’ Workplace Relations, Employment and Safety team.
Use this information for awareness. Always conduct thorough checks for legal compliance when selecting suppliers.
Keep up to date with our stories on LinkedIn, Twitter, Facebook and Instagram.
