Companies Facing Difficulties Re-negotiating Contracts Signed Before PWM Wage Rungs Were Set

Ms Yeo Wan Ling asked the Minister for Manpower for companies implementing the Progressive Wage Model (PWM) and effecting the higher wage rungs, what assistance and interventions from the Ministry are available for such companies facing difficulties renegotiating ongoing multi-year contracts that have been signed before the PWM wage rungs are set.

The Senior Minister of State for Manpower (Mr Zaqy Mohamad) (for the Minister for Manpower): Mr Speaker, the Progressive Wage schedules for each Progressive Wage Model (PWM) sector is negotiated by sectoral tripartite cluster committees, which comprise representatives from the unions, service providers and service buyers in each sector, as well as the Government.

The tripartite cluster committees recognise that in sectors where outsourcing is common, such as in cleaning, landscape maintenance, security, and lift and escalator, service providers typically enter into multi-year contracts with service buyers. This is why the tripartite cluster committees negotiate a multi-year schedule of wage increases for each PWM sector, to provide both service buyers and service providers with clarity on how progressive wages will increase in the years ahead.

The wage schedules are also announced in advance, so that service providers and buyers entering into new contracts do so with sufficient information, and those mid-way through existing contracts can discuss whether the contracts need to be re-negotiated. The current PWM wage schedules for all sectors where outsourcing is common were announced in 2021 or 2022, ahead of their 6-year implementation from 2023 to 2028.

Tripartite partners encourage service buyers to work closely with service providers to re-negotiate ongoing contracts where reasonable. The Government is also doing its part to offset increases in labour costs through the Progressive Wage Credit Scheme (PWCS). Under the PWCS, the Government funds up to 75% of wage increases that employers provide to lower-wage workers, for five years from 2022 to 2026. This includes wage increments given due to Progressive Wage requirements.

Beyond this, service buyers should consider moving towards outcome-based contracting. This will encourage service providers to invest in productivity solutions and deploy manpower more efficiently, which is a win-win outcome as it supports sustainable wage growth and can also lead to better services to service buyers.

Mr Speaker: Ms Yeo Wan Ling.

Ms Yeo Wan Ling (Pasir Ris-Punggol): I thank the Senior Minister of State for the answer. Business owners who are service sellers in multi-year contracts have given me feedback that they may be locked into contracts which be up to 10 years, especially if this is related with longer term municipal and infrastructure maintenance projects. This may go beyond the length of Government support like the progressive wage credit scheme which is five years.

Reviews of PWM wage rounds especially in that earlier rolled out sectors may see wage increases of more than 20% and it will be critical for them to align this with service bias to remain sustainable even without Government support. However, in the re-negotiation process, business owners have told me that some service bias have communicated that they were blackmarked their businesses, even with successful re-negotiations of the current contract in their future contracts, as they were deemed to have not fulfilled the conditions of their current contracts.

What recourse would businesses have should they be faced with such challenges? Would the Ministry investigate such claims and educate service buyers, especially in the PWM rollout process as uplifting our lower wage workers is a whole-of-community effort?

Mr Zaqy Mohamad: Mr Speaker, the issue of re-negotiating multi-year contracts occurs largely in PWM sectors where outsourcing is more common, such as in cleaning, landscape, security, lift maintenance, for example, where the contract periods may vary – to the best of my knowledge, most within three to five years. There are some exceptions as the Member has mentioned but these are typically minority with some peculiarity such as waste management, for example, which runs up to seven years.

But, that is one feature of our PWM's negotiations, in the sense that the tripartite partners are all involved – you have got the unions, you have got the industry, you have got service buyers and even the Government being a service buyer too, are involved in the negotiation of the wage ladders. Therefore, there is that realism that is injected where we the tripartite partners in the cluster committees understand what the practices are, what typical renewal cycles and how the contracts are structured to make sure that this is sustainable.

Therefore, it is expected that as we implement wage ladders, these have to be realistic in terms of the multi-year schedules.

In this case, with the recent increase, I acknowledge that we are in a phase where there is stronger growth prospects that we expect or we want for our low-wage workers and therefore, I know the industries are probably feeling how the wage grows are accelerating a lot quicker than they expected. Hence, that is why we gave one to two years advance notice and the Government has also stepped in with PWCS as I mentioned that covers some of the 75% of wage increases, in the next coming two years and runs for about five years, although at different rates. But these are how we manage and try to support the industry, to make sure that it does not overburden the industry.

Having said that, I find it quite disappointing to hear that there are service buyers who wish to blacklist service contractors, when in fact, it is clear that these wage schedules are put out in advance, over a six to seven year period, where you have time to adjust and re-negotiate and most contracts do have clauses in which you do have opportunities to re-negotiate midpoint. It is not right or it is not nice if you have to put a strangle hold on outsource providers and force them to accept these kind of terms.

However, I have to also say that these are commercial contracts which are entered into, between service buyers and vendors, and we do not want to get in the way. But having said that, as far as the Government is concerned, we will do our best to support our workers. We support businesses through the PWCS and other schemes as required. More importantly, over the long term, we hope that this remains sustainable. I hope the Member take this into account and the unions can also do that part to help to mediate between the service bias and contractors for the benefit of their workers too.