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New Zealand Context - Part Four: Government contracting policy and philosophy

Current situation

The answer to the question of whether pay and employment equity and precarious work are considered in government contracting policy and practices is "no".

As discussed earlier, part of the reason for this is an ideological view that such matters are the business of the provider company and it is not appropriate for funders to interfere. In spite of this, funders are aware that as the main, only or significant funders of the residential, home based support and cleaning sectors their funding decisions, especially around prices, do have a direct impact on business profits and pay rates. From the interviews, it was apparent that another reason for not specifying either compliance with legal employment minimums or positive employment practices in the employment agreements is that it has simply not occurred to those in policy or practice positions to do so.

Funders are aware that the poor pay and employment conditions for cleaning and disability support staff impact directly on recruitment, retention, training and career progression of staff. In a labour market of near full employment such issues are now hard to ignore. Quality service provision and the stability of the sectors (especially residential and home based support) are seen to be fragile. One senior DHB official noted, "The workforce issues are immediate. Turnover is the key determinant of quality - and old people hate having changes of carers."

A couple of examples were provided that indicate how wide the funder/provider split is in terms of funder responsibility for the quality of the employment experience for those actually providing the service. Government agencies that need to procure uniforms for their staff^[32] now source these offshore. New Zealand manufacturers could not compete on price and in spite of the policy requirement to support innovation in New Zealand businesses and to also support SME's, price was the determining factor. The procurement manager for a very large agency reported that the uniforms were made in Malaysia (through an agent) and that as far as he knew there had been no quality checks by the funding agency on the factory in terms of working conditions or the age of the workers. As one senior procurement manager said, "We are tasked to live within baseline position - there is no extra allowance to select New Zealand manufacturers who are more expensive or to raise the wages of suppliers. Any increase in minimum wages raises our costs."

The other example was of a core government department who let a cleaning contract to a company who employed foreign students and not only paid below the minimum wage but required them to work for a month on trial without pay. This contract has now been terminated.

Since the well-publicised cases of MOH funding for organisations that were using the money to lobby government, there has been a tightening of the parameters of funding and contracting. Treasury's view (supported now by all government agencies) is that agencies do not pay for things they would not do themselves. A senior Treasury official commented that while this was in response to the lobbying issue, she could see no reason why the same logic should not be applied to being a good employer. "Departments would not employ people on poor or illegal conditions, why should they pay someone else to do this?"

Treasury recently completed a review that looked at the NGO contracting policies in a couple of departments. The review mainly focussed on their systems and practices rather than their contracts with providers. The official commented that she had not been aware that Treasury guidelines on government contracting with NGOs contained reference to using good employer principles as an evaluation criteria. This issue was not included in the review and she was not sure how it was interpreted or if it was ever monitored.

The State Services Commission (SSC) recently looked at how issues contained in the Public Service Code of Conduct (binding on Public Service departments) apply to NGO work undertaken on behalf of Public Service departments.

Initially SSC focussed on what values and standards, if any, should apply to NGOs when undertaking work under contract from Government agencies. Since the initial work, the focus has shifted to a risk management approach that departments could apply when choosing an NGO provider and to the contract with an NGO provider. SSC believes that there are some things that must be done by NGOs (like treating people properly or acting within the law), some things that they could do, and some things they should not do e.g. use service delivery money for advocacy. SSC was looking at the possibility of creating an 'ethics and values' filter for selecting providers or building it into a contract - this provides an opportunity for a discussion with the NGO during the life of the contract. This work has not progressed through to consultation and implementation.

SSC's initial work looked at whether there were some 'must do's' that could be part of contracts with NGO providers such as integrity, honesty and upholding the law. There were some 'could do's' that could be reflected in such contracts, at the discretion of the Government agency and subject to negotiations with NGOs. The third grouping was things considered to be the sole prerogative of the NGO provider.

SSC's focus is on the delivery of service to clients. They did not consider the implications for how providers treat staff as part of their recent examination of how issues contained in the Public Service Code of Conduct apply to NGOs, because it is outside the focus of what SSC was doing. It was clearly the first time this issue had been raised in the ethics/integrity context within SSC.

Emerging changes

Many informants to this research said that they are experiencing or provoking changes that they believe have the potential to positively impact on the funder/provider relationship, the quality of services delivered to clients and more positive employment outcomes for the employees providing the services. Certainly in the health area, there is general agreement that the current situation is not working for any of the players.

Below are some of the changes being experienced.

Contracting context

The experience of near full employment has put pressure on labour supply and wage rates. Providers in both the disability service and cleaning sectors report finding it hard to get and keep staff for wages at, or not far above the minimum wage. In some parts of the country these workers have other choices and where this choice is to take better paid seasonal work, this decimates the health and cleaning sectors at certain times of the year. Current wage rates in the disability support sector were not seen as sustainable in this context.

Within government agencies, roles responsible for the procurement process have evolved from supply officers to procurement managers. The cleaning sector representative interviewed said that this 'professionalisation' of the procurement role has had very positive impacts on the procurement process and the relationship between funder and provider.

Maturing of provider/funder relationships

In all three sectors considered in this research there has been what is described as a 'maturing' of the relationship between the funder and provider.

This change is most evident in the disability services sector. Over the years of the funder/provider split there has been an increasing understanding of the interdependence of the two players and the fact that contracting for services to dependent and vulnerable people is not like purchasing photocopying paper. Service failure or poor quality service directly impacts on public perception of government. Officials have moved more towards a "partnership" principle for the relationships and there is general acceptance that the 'health' of the provider sector is the concern of government as much as it is the concern of the business shareholders. Relationships need to be enduring and supported by good will and a sense of mutual interest. Part of the mutual interest is having well-trained, motivated and committed staff. In the course of this research, all disability service funders interviewed acknowledged that wages and employment conditions for the front line staff need to improve and this is part of the answer to increasing the reliability and quality of the services provided.

There are already examples of funders directly intervening to improve the quality of the service. MOH is running a pilot programme to provide advanced induction level training for homecare workers delivering personal care. In doing this they acknowledge that there are funding issues for providers in terms of providing the training themselves. While this certainly does address a part of the reason why there are low levels of training in the sector, it does not in the longer term address the issues from the workers' perspective. These include not being paid to attend training, generally having travel costs to attend training and not receiving higher wages for achieving training.^[33] While acknowledging it was positive that something was happening, the provider representative said that many of their members would rather be given the money to manage training of their staff themselves. The large DHB interviewed is developing a new service model and will also commit funding to assist the sector to prepare to deliver this model.

The need to develop closer funder/provider relationship is not without tension. One funder described the home based service sector as quite immature in terms of business practice. She felt that funders make demands on disability service providers in terms of disclosure of business practices that are not required in other business areas. She said, " We are trying to work with companies to get mutual solving of problems - but it is hard because we feel there are some questions about the way they run their businesses such as client allocation and efficient planning for travel."

The Treasury guidelines (reflecting other government policy on government/not-for-profit relationships) substantially reinforce the partnership and support model of contracting with NGOs.

The need to develop more of a partnership approach to the funder/provider relationship in the cleaning sector is made more acute by the awarding of contracts (particularly syndicated contracts) to the three to four larger providers. This creates more mutual dependence on the viability of the companies. As mentioned earlier in this report one example is the extending of contracts to a four year cycle to assist this viability. One funder described this new approach to relationships as allowing for more 'productive discussions during the life of the contract' on issues such as quality or service organisation.

An example of responsiveness to provider needs is the move to day cleaning by some government agencies. Traditionally government buildings are cleaned once staff have left the building. Night time cleaning attracts a particular segment of the workforce - a segment that in some areas of the country is able to access higher paying jobs elsewhere. It also excluded some potential workers that were not able to leave their children or other dependents alone at night. Day time cleaning aims to increase safety of the cleaners and provide opportunities for the recruitment of people who prefer to work during school or early childhood education hours.

Changing service needs

The funding model that operates in the home based support area has been based on the purchase of a set number of hours at a specified level of service. As one funding official noted, this input mode is relatively straightforward to monitor. In spite of this, there is general dissatisfaction with the model - particularly on the part of the DHBs who inherited the old MOH contracts with providers when the funding was devolved. The direction for the change they envisage is well articulated in a discussion paper produced on behalf of the Central Region DHBs.^[34]

"The existing industry has developed as a result of historical funding and contracting approaches and services have evolved within a narrowly defined framework. However, the health and disability environment is changing rapidly, and the needs of clients receiving home based support services are significantly different to what they were when home based support services were established.

The current issues facing the sector are described as:

• Stability and sustainability of the industry
• High worker turnover
• Inflexible and inappropriate services
• Cost blowouts
• Need for a rehabilitative approach to service delivery".

The paper argues that a paradigm shift in the approach to the service delivery and the way that the service is funded and then contracted out, will have a significant and positive impact on the home based service industry and the conditions for the actual providers of the service. The shift is broadly characterised as moving from purchasing of tasks on an hourly basis to a rehabilitative approach based on purchasing packages of services based on client assessment and client goals. Payment would be determined by an assessment of care levels and the provider would have flexibility to respond to changes in client needs without gong back to the funder for "more hours".

Moloney argues that this fundamental change will mean that, "The flexibility and continuity in purchasing offers a way of addressing recruitment and retention issues, by improving the ability of providers to develop long-term business and workforce plans, improved conditions of employment, career prospects for support workers and enhanced job satisfaction." She is very clear that, "The issues that need to be resolved are complex and are unlikely to be resolved merely by increased funding within the current purchasing framework of task specific funding." As she said in an interview, "The problem is that the workforce we need to deliver the packages of care does not exist at the moment." She argues that while MOH is currently putting a focus on sector strengthening through training, it is training for the old model of service delivery.

She also says, "Providers in NZ have consistently identified the "per hour per client" purchase model with its attendant volatility and uncertainty as a barrier to service sustainability. They see this as leading to casualisation and inefficient use of the workforce, which in turn generates staff turnover. This view is borne out by international research which links a 'pay per hour' purchasing approach to a low skills/casualised approach to the workforce."

Moloney cites the Community First model being piloted in Waikato, Otago and Bay of Plenty. These pilots utilise a bulk purchasing service model which works on the basis of some guaranteed hours and places considerable emphasis on the team. Evaluation results will not be available until next year but informal reports indicate that the turnover of support workers in significantly less than in normal support programmes.

Capital and Coast District Health Board (C and CDHB) recently "put its toe in the water" and issued a request for proposal for home and community care packages. They saw this as a way of signalling a change in service provision to providers and as a way of starting to assist the strengthening of the sector. The proposal describes one of the key principles of the service approach as:

"Workforce Development: The service will support improved recruitment, retention, training and supervision of the homecare workforce, including addressing employment conditions, role enrichment and worker satisfaction."

The proposals were to be evaluated by C and CDHB against a number of criteria including:

Workforce

• How comprehensively the proposal demonstrates the ability of the service to recruit, train, supervise and generally support the workforce required to deliver the service;
• The extent to which the proposal demonstrates an understanding of the needs of the proposed workforce; and
• The extent to which the proposal will support improved recruitment and retention of the proposed workforce.

MOH agrees with taking a different approach to the purchase of services but has concerns about how it will be monitored. They also acknowledge a tension between the drive for national consistency in service quality and delivery and the need for DHBs' to respond autonomously to the particular service needs in their area.

While this new model is seen as an improvement by service providers many would prefer to have even more autonomy. This would see funding come to them directly and they would undertake the care assessments and allocate the money. One DHB sees this as creating enormous service risks and worries that it may not necessarily do anything to improve wage rates.

There have also been changes in the services required of residential providers. As the recent publicity campaign has highlighted, the services required have become increasingly more complex and demanding because those clients with lesser needs are being supported in the community. Training and attracting the high quality staff has become even more important. One funder commented, "We know that the situation for workers in the residential sector is variable - some get less than homecare sector. There are huge literacy problems - some staff cannot read the care plan."

Other potential points of influence

During the course of this research informants suggested other ways in which influence on the employment outcomes for workers could be brought to bear through contracting policy and practice. The brief review of the literature raised some other possibilities. The suggestions are not listed in any order of importance and they are not necessarily independent of each other or mutually exclusive.

Addressing the agreed equity issues in funding

Having a transparent and understandable model for price setting in the disability services sector would greatly assist the discussion of fair wages and employment conditions.

The structure of home based support is well understood - intrinsic to the work is the need to travel between clients. Funding should (at a minimum) take account of the realities of this occupation.

While there is general agreement that issues of sector viability will not be resolved through increased funding alone, for the people at the end of the process - the actual service providers - wages that recognise their work structure, actual skills used and labour market shortages are the most pressing concern.

While the other suggested critical points of influence listed below can support pay and employment equity and may mitigate against precarious work outcomes, it is difficult to escape the conclusion that increased government funding is the vital first step.

The business case for fair and predicable employment

Several funder informants suggested that for 'good employer' practices to be included as a selection criteria in the contracting processes funders would need to be convinced that there is a sound business case - how would services improve and be more sustainable by doing this? No-one was arguing that there was no such business case but had either not thought about it or had not seen one articulated. A Canadian paper^[35] put the arguments for intervention as:

• Higher wages can raise productivity and job quality. Employers invest more in capital equipment and training when they pay higher wages;
• Wage floors can lower turnover and increase skills and experience; and
• A common wage and benefit package means that firms must compete with one another on the basis of non-labour costs such as quality and customer service which require more skilled workers.

Educating for change

The requirement for environmental sustainability in government contracting was often cited as a good example of a change process that combined education about the issues and practical assistance to make it easy and make it work. The Ministry for the Environment was commended for the way it took a gradual and non-dogmatic approach with the result that there is a widespread commitment of hearts and minds to the issue. Environment picked two or three issues that would have maximum impact in terms of their broader policy goals and targeted these.

One commentator noted that it was not easy at first and agencies were concerned that it would cost more and create more work. He noted that it would likely be the same if pay and employment equity and precarious work became contract features. However, as he said, "People get used to it" - but gradual and considered implementation processes certainly helped.

Responsible Contractor policy

MED and DOL have undertaken some initial work on the development of a responsible contractor policy. The MED and DOL work suggested that:

1. The responsible contractor policy recognises that government agencies are in a position to promote good ("fair and ethical") employment practices in the private sector when contracting for provision of services
2. State Sector chief executives have a specific statutory obligation to 'operate a personnel policy that complies with the principles of being a good employer'....Their employment practices must also conform to a range of other relevant employment and health and safety legislation applicable to both the public and private sector.

The work outlined the benefits of the policy and places them in the context of the Government Procurement Policy guidelines, including the key principle of value for money over the "whole of life" of the service. Two key planks are:

• Demonstration of compliance with relevant legislation (e.g. minimum employment)
• Evidence of good employment practice (over the above minimum standards) e.g. belonging to EEO Trust's employers group

In the interview MED felt that with sufficient education about "why, and how to" this policy could be introduced fairly easily. They did not see it as overly restrictive or as introducing unacceptable compliance costs.

As it stands the draft policy does not explicitly mention issues such as precarious work or pay equity. Details of what the policy might cover and how to make an assessment of compliance could be the subject of a new section in Part 3 of the Good Practice Guidelines produced by the office of the Controller and Auditor-General.^[36] Another possibility is to include these issues in a more detailed explanation of "good employer" in the Treasury Guidelines.

The possibility of such a policy was raised with some funders during the course of the research. Some responded in a fairly matter of fact way saying that as long as it was not too prescriptive they could see no problems in its adoption. Others were concerned that the "extras" in the contract were becoming too dominant and that the private sector would be "horrified" at this new demand. A provider representative said that their members would be very resistant to further requirements being introduced through the contracting process in the current funding environment.

Preferred suppliers

Precedents exist for stipulating preferred supplier conditions that are not directly related to the actual service but are linked to other government objectives. When the current Police vehicle contract was tendered, one of the preferred provider clauses concerned the environmental sustainability of the whole of life of the vehicles. In assessing the tenders, this requirement had a 5 percent weighting. ACC have included a similar clause about considering favourably providers who are working towards certification on the safety standard.

In the same way, the Responsible Contractor policy (or a version of it) could form the basis for including employment issues as a preferred employer condition

Enforcing and supporting statutory minimum standards

While the Responsible Contractor policy (or something like it) would require would-be providers to provide evidence of compliance with relevant legislation, compliance could also be checked through existing DOL inspection mechanisms. If there are concerns that some employers in the three sectors are not complying with statutory minimum requirements such as wage levels, these could be the subject of targeted investigation. In some situations, the possibility of this happening would probably "lift the game".

The WEB research found that some large and most small contracting companies believed it was appropriate for the state to intervene in order to improve the wages of cleaners and suggested this be done through raising the minimum wage and increasing the effectiveness of the enforcement of the existing statutory obligations with regards to wages, holidays, holiday pay and health and safety.^[37]

It is also important to ensure that employers (especially SMEs) are aware of statutory minimum requirements and be supported through advice and information to comply with these. Ensuring that they are aware of DOL services in this area is important.

Pay and Employment Equity Reviews

Employers in the public service and public health and education sectors have been provided with a review tool to help them assess their pay and employment systems for gender bias. It is mandatory for core government departments to conduct a review of their pay and employment systems. The exercise will be conducted with either union or employee representative involvement. The results will be available to all parties and to the Pay and Employment Equity Unit (P&EE Unit) in DOL.

At the time of writing, training in the use of the review tool is being provided to departments by the P&EE Unit.

In both the public health and education sector some of the most vulnerable female dominated occupations (cleaners and disability support service workers) will be excluded from these reviews because they are not directly employed by the government agencies. One suggestion raised during the course of the research was that service providers employing occupational groups known to be female dominated and in low paid or precarious employment be required to undertake a pay and employment equity review within their own organisation in order to be eligible for the contract.

The review tool would need to be substantially adapted for small organisations to make this feasible.

The outcome of some review exercises may result in the re-evaluation of the 'value' or 'worth' of female dominated work or occupations through the use of the gender neutral job evaluation tool.^[38] This tool will also be available for use independently of the review process. In low paid female dominated occupations it offers the opportunity for comparison with similarly skilled male dominated work that (often) attracts higher wage rates.

A view was expressed that providing 'leverage' on one part of the sector (e.g. cleaners in state schools) could assist changes for the particular female dominated occupation across all sectors.

Minimum documents

As described earlier in this report, approximately 60 cleaning service providers are party to a minimum employment agreement with the SFWU. The union suggested that these terms become the 'floor' for all cleaning contracts let by government agencies.

The same process could also be used in the residential disability services sector.

The WEB research found that many cleaners do not understand their employment status or their entitlement in law and may have no idea how to access this information. The provision of an automatic minimum could safeguard against the possibility of exploitation through ignorance.

Creating a new policy 'sieve'

One suggestion was to require any changes in contracting policy or practice to be examined for intended or unintended impact on pay and employment equity outcomes for front line staff providing services on behalf of the government. Cost saving at the expense of already low paid workers should not be acceptable in terms of the government's stated commitment to pay and employment equity.

Any employment equity impacts identified in the course of such an analysis need to be made transparent and subjected to a cost benefit analysis.

Guaranteed core hours of work

One of the predictors of precarious work is having work hours that are either irregular or unpredictable or insufficient to earn a living wage. This is a complex policy area because the literature does suggest that some workers are attracted to occupations such as cleaning or disability support work because of the flexibility while others suffer greatly because these conditions make their work lives and incomes precarious. For example, the MOH Uniservices research^[39] found that in the home based support area:

"A few coordinators mentioned that their staff were highly resistant to a rostered system because they wanted flexibility and they wanted to choose their own hours. Some managers said that their workers were always eager to take on extra shifts because they wanted to make more money and the coordinators had to 'try and stop them doing maximum hours'. One coordinator mentioned that individual contracts were important for her agency because they were more flexible and responsive to the needs of the workers; this agency served a rural area where the cost of living was relatively high. Individual contracts allowed them to pay these rural workers at a slightly higher rate. Most of the home-based workers seemed to work part-time with no guarantee about the number of hours they worked in a week. The coordinators chose this system because of the highly variable client base and the funding constraints of the organisation; the clients' needs were always changing and the agency could not afford to pay the workers for hours unless they were assured of receiving government funding for that time. Some coordinators said they had to fight the funding providers to get funding when clients cancelled their services on short notice. Coordinators often did not understand why the current contract system was used, but only that this was the system the agency had always used and it seemed to work. "

The new approach to contracting and the Community First model being piloted (discussed earlier in this paper) both assume that some guarantee of hours is vital to quality service delivery and sector sustainability.

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