Ideas & Debate

In outsourcing work, cheap can be expensive

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Cheap is very expensive. At a large manufacturing firm located in Nairobi’s busy Industrial Area, Mary, a supply chain manager, found a cleaner crying quietly in the ladies bathroom.

Mary was taken aback as the cleaner, Faith, was typically extremely cheerful with a warm countenance towards all the staff in the administration section.

Upon gentle probing, she learnt that the Faith had not been paid a salary in the last three months and was now being asked to vacate her small room in Mukuru Slum, which she shared with her two younger siblings who were looking for work.

Faith’s parents had died from HIV/Aids in quick succession four years before and as the eldest child she had been left with the responsibility of taking care of her two younger sisters.

Mary quickly mobilised her colleagues on the administration floor into an impromptu harambee, and within an hour Sh30,000 was raised. The team was horrified that Faith had suffered for so long while maintaining a happy disposition throughout.

Mary was tasked by the team to find out which other cleaners were affected and she came to discover that it was the entire cleaning crew made up of about 50 workers.

The issue was immediately escalated to the procurement manager who then called the cleaning company.

“How is it possible that we are paying you monthly for cleaning services and you are not paying your staff?” was the difficult question put to the operations manager at the cleaning company.

Not surprisingly, the procurement manager could not get a coherent answer and a decision was quickly made to stop paying the cleaning company and pay the workers directly.

Who should bear the responsibility for Faith’s woes? This problem began at the point where the manufacturing company made a decision to outsource the cleaning services and request cleaning companies to submit tenders.

Ensuring that the procurement objectives were met, the procurement team chose to go with the lowest-cost provider but forgot one critical thing: setting a minimum standard for how the workers of that cleaning company should be treated.

At a basic level, the standard should be that all workers should be paid the government set minimum wages.

Following that, the same standard that the manufacturing company upholds for its employees in terms of ensuring adherence to labour regulations should be required for suppliers of outsourced workers.

This would include statutory deductions for pension and medical cover via the National Social Security Fund and the National Hospital Insurance Fund and ensuring that those deductions are remitted.

Here’s the catch though: when the procurement team has to ensure that the outsourced company is paying workers well, remitting their statutory deductions, giving them their statutory leave days, including maternity days amongst many other legal requirements then the procurement team essentially bears a burden of oversight over the welfare of those workers and becomes a pseudo-human resource team in and of themselves. Which negates the whole point of outsourcing these workers, right?

In the scenario above, the procurement team did take over that role when it began paying the workers directly because the cleaning company was not applying the monthly payments to remunerate their workers.

Clearly, the cleaning company had cash flow issues occasioned by either legitimate or fraudulent business problems. By going the cheap route, that is giving the award for cleaning services to the cheapest quotation, the solution ended up being expensive in that the procurement team became involved in handling staff welfare matters for the workers of the cleaning company.

Further, since that was an unsustainable solution, the procurement team had to terminate the contract of the cleaning company.

Consequently, the 50 workers that had been assigned to the manufacturing company lost their jobs. Corporate social responsibility (CSR) is pivoting away from internally driven management choices to the more impactful and externally driven ethical standards being applied on the environmental, social and governance (ESG) impact of companies on their operational footprint.

Treatment of employees whether directly employed or indirectly employed through outsourcing falls within the scope of social impact.

For boards of companies that regularly outsource work to third party suppliers, this is a critical area of oversight. This is particularly important when those workers are undertaking risky jobs without the requisite safety equipment leading to accidents, some fatal. Because, well, choosing to outsource cheaply can end up being very expensive.

[email protected] Twitter: @carolmusyoka