The situation of mechanical subcontracting in the industry. Part Three – Subcontracting contracts

It’s been my idea to dedicate this chapter exclusively to the different types of contracts that exist in subcontracting within the industry, because there is a high variety of them, they are complex in essence (and increasingly) and show the distance between the sophistication of these contracts and assets held by subcontractors, that is, the qualification of their employees.

The subcontracting needs of Spanish companies arose in the late 80s, early 90s of the last century, when the great steel and naval industry disappears, to which we have previously mentioned in other chapters, and companies realize that they can make variable what until then was considered a fixed cost: the personnel of the areas that the law did not declare as essential in a company: maintenance, investment engineering and logistics.

At the expense of the above, companies dedicated to supplying personnel to other client companies were created. With this, in addition to lowering costs, since the own personnel was more expensive than the subcontracted one, they were variable; you only had the maintenance workers that the hiring company needed, and in many cases, when they needed it. In principle, it was a win-win situation, until the situation we described in the previous chapters came.

To give a legal form to the relations between the contracting company and the subcontractor, a series of contractual modalities were developed between them, most of which have lasted until today.

To understand the need to have qualified people in subcontracting companies in general, and mechanics in particular, it is convenient to know the ways in which they are related to the companies that subcontract, through what is known as “Contracts of maintenance”.

These contracts between both parties are of various types, but fundamentally they can be concentrated in four different ways:

1.    The oldest, and surely the most used, at least until a few years ago, is subcontracting by the hour or also called by administration. It was the one that started, because it is the easiest to manage, but as long as the employees are perfectly separated. For example, when 100% of maintenance tasks (not management) are subcontracted.

In this contractual modality, the subcontractor companies make available to the contracting parties a certain number of personnel whose services they invoice based on the hours that their personnel do. It is generally resolved on a monthly basis. The needs in terms of the number of people are determined by the client companies based on their needs, making it a very flexible formula.

However, as we have said, this formula is very interesting for the contractor (and for the subcontractor) when 100% of the maintenance is subcontracted. The problem begins when the same facilities coexist own personnel, who perform maintenance tasks, with personnel from the subcontractor company.

In this case, there is the legal figure called labour lending, or conflation of workforces. A person from the subcontractor company can show quite easily that he or she actually belongs to the staff of the contractor company. Keep in mind that the conditions of this second one, are usually better than those of the subcontractor, so it is expected that this problem arises, the more the greater the difference between the collective agreements of both is, for example.

To avoid this, a series of rules must be strictly observed, which do not guarantee that the above will not happen, but minimize the possibility of it. Let’s put a few:

  • The subcontractor must have a persona in charge, who is the sole interlocutor with supervision of the property. Under no circumstances should a person on the property give direct orders to a subcontracted worker.

  • Changing rooms, work clothes, personal tools, etc., must be different and clearly differentiated.

  • Car parks must be different.

  • There can never be mixed teams between both groups of people.

  • The tasks must be perfectly differentiated: for example, property personnel work only when the machine is running and subcontractors only work when it is stopped.

  • Access to spare parts for machines, etc., must be exclusive to the property and at most to the person in charge of the subcontractor.

Keeping these rules in mind does not protect against anything, but not doing it it’s a guarantee of conflation of workers. We are all aware of how labour justice works in Spain. And they can be a large group of people who raise the legal battle (maybe 20 at once), with the consequent mess in the costs of property. Since these are wishes and, above all, individual rights, subcontractor companies can do little to stop this.

To all this we must add an element that is being introduced in the provincial-level agreements and that is something that the trade union centrals have taken as a flag, which means that it has come to stay: the subrogation of workforces. The concept is very simple: when a subcontractor company stops working in a company, it leaves a group of people there, which the new subcontractor company that begins to work (generally for price reasons) must integrate.

Together with this new legal framework, the contracting company faces the following scenario to proceed with a change of subcontracting company:

  • Possibility of reducing maintenance costs. Given that the new company is obliged to subrogate the workers of the previous one, in equal economic and labour conditions, a cheaper price for the same service, has a bad path in the medium term. The client is no longer profitable for the contract, with salary increases subject to a collective agreement.

  • Possibility of improvement in service quality. There is no need to explain that poor quality is irresolvable in a surrogacy setting.

Under these circumstances, two events can occur with qualified workers:

  • That the contracting company welcomes them into its staff.

  • Let them go with their old company.

The result of both events is that those who enter take a mass of workers that they do not want, and whose qualification, moreover, leaves a lot to be desired. Result: they will end up leaving perfectly too. Therefore, in my view, this formula benefits the worker, who is not in legal limbo, but harms the relationship between companies and the quality of service.

In any case, the path that the possible demands for subrogation in our scope may have is still unknown, since the agreement has entered into force in this year 2020.

Without a doubt, this contract must be endorsed by lawyers specialized in the drafting of this type of agreement.

2.    To avoid the problems of outsourcing by administration, other contractual modalities were developed many years ago, some more and some less, where the conflation of workforces does not exist. In addition, they prove effective to involve the subcontractor, since it allows him to optimize resources and improve quality, which benefits both parties. The most important ones are:

  1. The one known as “Under Budget”. In it, the amount of resources to be used by the subcontractor company is determined based on the work to be budgeted in a closed manner, and in principle it is a pact that does not admit exceptions, except those that from the beginning are agreed as “no subject to budgeting ”. The work must be very well defined so as not to create controversies. But if it is, the contracting company forgets the contractual problems, since the exceptions must be very well justified.

  2. To avoid the problems indicated in the previous case, there is a third formula, which is more widespread in Anglo-Saxon countries. It is called a “unit of measurement” maintenance contract, or better known by its Anglo-Saxon terminology “Unit Rate”. In it, maintenance is used for concepts at a closed price (example: change of the mechanical seal of a water extraction pump from a well”. The total cost of maintenance is the sum of all the concepts of the “Unit Rate”, multiplied each one by the number of times it has been carried out.

  3. The fourth and last one is “subcontracting by goals”. It is the most modern and avant-garde, and in it, the contractor company is given responsibility, making it participating in the results of its work. Generally it usually happens in areas where the jobs are very well defined, and where maintenance has a direct impact, which can be very well related to the results of the production maintained.

  • In this modality, objectives are set at the beginning of each year (hours of downtime due to maintenance with respect to those produced, maintenance expenses with respect to hours of operation of the facilities, etc.), and the achievement of these benefits both parties in the manner indicated in the contract.

In order for these contractual modalities to give as few problems as possible, it is necessary that in the contracting company (in the subcontractor it is taken for granted, because it is their work what they value) there are well-prepared teams to determine that the budgets comply with the agreed. It is what are called planning and control offices. There are variants, contractual incidents, unforeseen events, etc., that must be determined and arranged between the parties. There are many things that can and do turn out, in a different way than they were foreseen in the contracts. These should foresee how to settle those contractual differences and who should do it.

This, on occasions when the work is of a certain size, and which also involves the evaluation of various offers that compete with each other, requires a lot of work from the technicians of the contracting company. And not all companies have this group of “evaluators”, nor they are dedicated solely and exclusively to this work, but combine it with the monitoring of work, working sheets, etc.

Typically, in a company, the more the larger its size and / or the complexity of its process, different forms of contractual relationship models coexist between the parties. Although it is true that the first of the modalities, especially in large companies with good agreements, is being discarded, due to all that we have talked about on labour lending before. Nor is anyone interested in the matter of subrogation, except the worker himself.

The cleanest thing is to have all the maintenance subcontracted, but that is not easy, since socially they have many costs that the union forces are not willing to accept and also, in many cases and given the quality of the staff of the subcontractor companies, the contracting companies themselves want to have tied up the nuclear element of maintenance, due to the direct impact that this section has on production and its efficiency, and for the fear of losing knowledge of the installation itself.

In any of these contractual modalities it is important to have trained staff. The more sophisticated the formula, the more important it is that the people who make up the maintenance can give “guarantees” that these formulas are applicable. Therefore, both for subcontractor companies and for clients, it is important to have well-trained people, in order to advance in the formulas, from the traditional administrative formula, to the one outlined in point 4, where there is a co-responsibility between the property and subcontracts for the results obtained from proper maintenance.

To all of the above, it must be added that the development of the monitoring of the production lines (Industry 4.0), will allow planning a maintenance with fewer personnel, in such a way that the cost of the critical maintenance official is assumed with own personnel. With this, perhaps the circle were closed and the commitment to internal training is the only alternative.

Of course, apprenticeships are not going to return, but to a certain extent, well-qualified maintenance officers are becoming a scarce commodity and therefore a talent to capture, motivate and value.

Next chapter: Fourth (and last) part – What to do?