Crackdown: Construction takes on the labour agencies

It's 7.00 am in the CITY OF LONDON. AN unmarked van pulls up outside a construction site run by a well-known contractor and a dozen or so men pile out of the back. A man emerges from the site with a list and ticks off the new arrivals as they enter. The van speeds off.
This scene was witnessed recently by a senior manager from another contractor who was on his way to a nearby site for a meeting.
"It was the legendary battered white transit," says the manager, who does not wish to be named. "The men were unshaved, wearing T-shirts and trainers. They weren't properly kitted out. None of them was speaking English."
In the capital, it's an everyday occurrence – workers without adequate clothing, training, language skills or documentation getting work on major construction projects. They are supplied by disreputable labour agencies that specialise in providing cheap labour with no questions asked.
It's a problem that few in the industry want to talk about. Contractors are often intimidated by the agencies they use and do not want to lose their source of labour, and the agencies themselves, even reputable ones, are understandably tight-lipped. In two weeks' time, however, a government summit hosted by the DTI as part of a cross-industry employment review will provide those who are prepared to speak out against such practices with an opportunity to do so.

<B>Dodgy dealings</b>
While the majority of labour subcontracting agencies are law-abiding, there are others who operate at the edge of the law, supplying workers to busy sites with no questions asked.
"We use two or three agencies," says Steve Smith, major projects managing director at Mowlem. "They're all reputable. They ensure workers have CSCS training, accreditation and proper footwear. It's all done by the book – things like tax and National Insurance. On top of this, we do spot checks on the workers."
But he continues: "You get these dodgy guys in the second or third tier of contractors – not the household names – who don't really care. But there is a great reluctance from the proper labour agencies to talk about it. Five or 10 years ago the labour agencies were a sham, but they've put their house in order now. They don't want to bring the problem up because they're scared the [Inland] Revenue will get interested."
Often, the characters who run these disreputable agencies are little more than gangsters – with a reputation for violence to match. One construction union official paints a picture of shadowy firms run by men who drive Mercedes with blacked-out windows, employ minders to look after them and use fear and intimidation as standard businesses methods.
"The description I give is not exaggerated," the official tells Building. "If you want to prove that they are operating in this way and you want to confront them with it, just make sure you don't go and see them on your own." He warns: "If these guys think you are onto something they will deal with you, and it may not be pretty."
Construction unions accuse these agencies of crooked practices including issuing fake documentation to their workers; employing illegal immigrants; facilitating bogus self-employment; and exploiting loopholes in the law to help workers and employers avoid paying National Insurance. Workers supplied by disreputable agencies are also thought to be less productive than legitimate workers – and responsible for a disproportionate number of accidents on sites.
"Labour agencies often provide you with men who can't do the job, who do not know about safety on site, or do not have the proper documentation when they turn up," says the head of a leading M&E firm. The executive said he would rather directly employ his workforce, but has to call upon agencies from time to time because of the acute shortage of labour.
When the firm tries to reject unsuitable agency workers who turn up for work, the agencies can get extremely nasty. "They try to force workers on you and then they become very aggressive. The agencies expect you to take them on with no questions asked and demand that you pay them. They won't take no for an answer," he says.
However, for some clients and contractors, agencies are highly convenient. They provide cheap labour, usually by the day, saving firms money and giving them an alibi when dubious practices come to light. When a Building investigation last year (26 October 2001) found large numbers of illegal workers on sites run by members of the Major Contractors Group, the MCG's Bill Tallis said: "Our members don't set out to employ illegal immigrants. They must be being passed on by agencies or subcontractors."
When clients have tried to outlaw agency workers on their sites, they have run into trouble. Last year, BAA announced that only directly employed labour would be permitted on its giant Terminal 5 project at Heathrow. However, it has now had to backtrack on this promise, as it fears it may not be able to find enough direct labour to complete the £2.5bn job (as reported on 19 July 2002).
When questioned by Building, a spokesperson for the Recruitment and Employment Confederation, the trade body that represents labour agencies, said that it encourages firms in all sectors, including construction, to use its member firms. The spokesperson said: "Our code of conduct offers protection for worker, agency and end user which is greater than statutory provision, and provides a disciplinary process when issues arise."

Many of the agencies are quite intimidating and don’t want to lose their contracts

Source at contractor Jarvis

<B>Agencies on the agenda</b>
Now, at last, moves are afoot to clean up the labour agencies. A government summit on 22 November will address the way workers are employed in the construction industry as part of a wider review of employment practice across all industries.
The unions have been leading the drive to tackle the agencies, and will be lobbying hard at the DTI-hosted summit. They fear that agency workers may endanger the lives of their colleagues and undermine attempts to improve working conditions for legitimate workers.
"Unions have consistently been raising the issue of illegitimate working practices by labour agencies in the industry with contractors for a number of years. There is a belief now that this government review could be the chance to influence change," says Paul Corby, national construction officer at M&E union Amicus.
Clients too are beginning to demand a stop to illegitimate agency workers. Anthony Morgan, partner responsible for construction and capital projects at accountant Pricewaterhouse Coopers, says agency workers are increasingly being restricted to site maintenance and security roles. Clients feel that an average agency worker produces lower quality work than an average directly employed worker, Morgan says, and are less motivated to report issues such as safety breaches on sites.
Morgan adds that some contractors are turning against agency workers, as they have less control over agency labour than over directly employed staff. "I think some companies are starting to try to get a better balance between labour agency workers and subcontractor workers," he says.
The use of subcontracted labour on the railways has been hugely controversial, with accusations that untrained, unsupervised workers were carrying out maintenance work on tracks. A senior figure at rail contractor Jarvis said the amount of publicity surrounding the Potters Bar rail crash in May has led to intense scrutiny of all construction labour agencies. Network Rail, which superseded track operator Railtrack last month, has announced a shake-up in track maintenance whereby contractors are required to employ 85% of their workforce directly.
"Everybody in the industry is aware that there are dodgy labour agencies operating in the construction sector," says the Jarvis source. "Contractors are now facing renewed pressure from clients and the government to only use safe and competent agencies."
But he adds: "The problem is that many agencies are quite intimidating and have had deals in place to supply labour for many years. They don't want to lose these contracts."
Besides creating safety risks, labour agencies are accused of operating a variety of scams that damage the industry's reputation. The following three common practices draw most criticism.
First, many of the estimated million-plus illegal workers in the UK find their way onto construction sites with the help of agencies. Last year, Building ran a story in which unions alleged illegal workers – mostly from Eastern Europe – were on "every site in London in huge numbers". Many of these are recruited by agencies run by Eastern European "gangmasters", who pick up workers from recognised collection points around London and drive them to sites. They take a percentage of the workers' wages in return.
Second, agencies are helping defraud the taxpayer by issuing workers with fake documents such as Construction Industry Scheme (CIS) cards and National Insurance numbers. This allows workers who are effectively employed full-time to pass themselves off as self-employed – saving themselves and their employers billions each year in national insurance contributions.
A recent UCATT report called Undermining Construction claimed that there are 361,000 construction workers in the UK falsely claiming to be self-employed. Bogus self-employment, in the union's definition, is where construction workers hold a CIS4 tax card that entitles them to pay tax and National Insurance at a reduced self-employed rate, when they are actually being hired by contractors on a full-time basis. These cards are usually handed out by labour agencies.
The report estimates that this practice costs the Treasury between £1.1bn and £2bn a year in unpaid tax and National Insurance. UCATT argues that the industry will not change this system on its own initiative, since it allows contractors to pay lower National Insurance contributions and also use the labour agencies to administer the system at arms' length.
Third, agencies are often behind the creation of composite companies, another scam that allows workers to avoid paying tax and National Insurance. In a composite company, a construction worker becomes a partner in the firm and is paid dividends rather than a wage. He or she can thereby avoid paying full Class 1 National Insurance contributions and income tax.
The contractor that engages partners in a composite company also benefits, as it is not required to pay employer's National Insurance contributions. The contractor also enjoys the advantage of having a large group of mobile labour that can move from project to project without filling in tax forms.
All these issues will be raised at the DTI summit later this month. Thirteen delegates from the industry – representing organisations including Amec, the Institution of Civil Engineers, the Construction Confederation and UCATT – will explain how any reforms emerging from the government's ongoing employment status review might help clamp down on labour agencies. The review, currently out to consultation, is designed to lead to legislation that will overhaul workers' statutory employment rights.
Phil Harris, group human resources director for Birse, will be attending the summit. He says he will be looking for clarification on what the DTI plans to achieve. "If the government plan is to reform legislation to target unscrupulous labour agencies, and also tighten up their employment status, then I want to make sure any wide-ranging reforms do not hinder professional self-employed people, who many contractors rely upon." He fears that the outcome of any legislative changes could reduce the flexibility of professional engineers and quantity surveyors employed by contractors on a short-term freelance basis. The worry is that it may become economically unviable for them to operate, and that the whole process will be too bureaucratic.
However, union representatives attending the summit have different concerns. Amicus' Corby says construction unions will present a united front at the summit over the issue of bogus self-employment, and call for government to use the review to make changes. Corby himself will be raising the issue of labour agencies' use of composite companies to highlight the problem in the sector.
But the Construction Confederation representative, industrial relations director Jerry Lean, is concerned that the DTI summit should not simply be about exploring the murky waters of labour-hire and bogus self-employment. He feels it should also be used to flag up a more significant issue on the agenda – a forthcoming European directive on labour agencies. "It is still a long way off, but there are things that the UK can implement now within the DTI review that can help the Euro laws pass through with greater ease," he says.
One of the EC directive proposals is that a new six-week rule is introduced, whereby a person employed by a labour agency does not have industrial relations protection until he or she has worked for an employer for six weeks, after which they will have to adhere to the firms' full employment conditions. After six weeks, they would also enjoy employment rights such as being able to claim unfair dismissal, and access to benefits such as holiday pay.
Lean says the proposals will clarify the employment status of agency workers by determining what employment rights they should be entitled to. Lean argues that the six-week rule, which is currently being negotiated in Europe, would fit in with the way the UK construction industry operates. He accepts that the unions would be looking for full employment rights as soon as workers start, but believes that introducing the six-week rule will cut bureaucracy while workers could still enjoy flexibility when working on a short-term basis.
Lean disagrees with Paul Corby that the issue of composites is especially significant, and argues that in reality only a small number of people use that system. He feels that the summit should be about the detail in overall employment reforms and not individual tax scams. "Yes, composites are an attractive tax loophole, but issues concerning tax scams and unscrupulous labour agencies should be directed to government authorities to enforce. They should use the existing policies to clamp down on the abuses more seriously."