A very British dispute
12 Mar 2009
The Lindsey Oil Refinery (LOR) dispute not only highlighted issues concerning the introduction of foreign workers on UK engineering projects, but also how productivity, skills and labour issues are impacting the ability of engineering firms to deliver major projects here.
The LOR dispute started with a decision by refinery owner/operator Total to install a new desulphurisation facility on the site. The main contract for the construction of the HDS-3 unit was awarded to Jacobs Engineering, which subsequently subcontracted much of the work to other engineering firms, with the mechanical and piping work going to Shaw Group UK. Total has confirmed that Jacobs had directly and indirectly recruited between 600 and 1000 workers on the £300-million project.
With a capacity of 10,000 kilotonnes per annum (ktpa), LOR is Total's main refinery in the UK. The 1,000-ktpa HDS-3 unit will increase its production of ultra-low sulphur diesel and substantially increase the refinery's capacity to process less expensive sour crudes. The new capacity is due for start-up this year.
Towards the end of last year, much of the project work - union sources suggest this was as much as two-thirds - was taken back from Shaw Group and re-tendered. This decision meant redundancy for many of the workforce recruited by Shaw Group.
According to GMB spokesman Sean Clarkson, issues with the HDS-3 project had started well before the decision to re-tender the work. Union representatives, he said, had raised many concerns with Shaw Group and Jacobs at the monthly project joint-council meetings throughout last year.
Employers had been particularly slow in putting even small things, such as catering facilities, right, claimed Clarkson. There was, he added, an atmosphere of mistrust and discontent among workers, with many skilled people leaving the project mid-stream to work elsewhere. This combined with delays with materials coming in and bad weather to mean that work on the HDS-3 unit had slipped three months behind schedule by the time Jacobs and Total decided to step in.
This view is confirmed by other union sources, who have linked the delays to factors including late 'civils', delays with materials arriving on site and management issues.
For its part, Total has stated that: "To meet additional works requirements, Jacobs carried out a tender process [in December 2008] to which five UK and two European contractors responded. The contract was subsequently awarded to IREM, an Italian-based contractor with a permanent, skilled workforce, which it directly employs."
The Italian company won the contract on the basis of the safety, quality, scheduling and price of its bid, according to the official Acas report into the causes of the dispute.
Neither Jacobs or Shaw Group have issued a detailed version of events, but the situation seems to echo problems revealed by US group CB&I last year, when it posted pre-tax charges of around £150 million for cost overruns on the South Hook and Isle of Grain LNG projects in the UK (Sept/Oct 2008, p13).
At the time, CB&I blamed most of the cost overruns on continued poor productivity, weather delays and the need to supplement critical subcontractor areas. Singling out 'labour' as "the main underlying problem," CB&I complained about inadequate subcontractor performance and an increasingly difficult trade union environment. It also highlighted how UK labour regulations and trade union rules had posed many challenges for the company, unlike those experienced on its other projects around the world.
Perhaps aware of these issues, IREM made it clear that it planned to follow the European sub-contracting model and use its own workers, who were all foreign nationals, to deliver the majority of the contract - unlike the workers employed by Shaw Group, who were all UK nationals. Any locally-sourced workers would only be used on less skilled work, or where the work entailed servicing mainstream operations, such as cranage, riggers, NDT and painting.
IREM had agreed that all its 200-300 workers on site would be employed on the terms set down in the National Agreement for the Engineering Construction Industry (NAECI), which determines the pay and conditions for workers at all major engineering construction sites in the UK.
Unions GMB and Unite voiced concerns about Jacobs' decision to use IREM and, in particular, the plans to employ overseas labour only. They believed that UK-based workers had the skills and experience to work on the project for IREM and should be given the opportunity of applying for jobs.
"The unions were not seeking to have Italian workers made redundant, nor were they seeking exclusive jobs for UK workers," Acas, however, emphasised.
According to the report, the unions felt that the shift pattern IREM proposed to use on the work was inconsistent with the NAECI agreement. Specifically, they were concerned there was no provision in the contract with IREM for its workers to take paid 'tea breaks', which was a condition that had to be met by UK companies applying for the tender.
"The time of a tea break may seem small but when multiplied by several hundred workers over the period of a contract for several months it can mount up to a considerable saving of time and, therefore, money," Acas noted.
The unions also felt it was unfair that IREM workers would be preparing for their shift before travelling to the site, unlike other workers whose time spent putting on protective clothing was counted as part of their shift. This would have enabled IREM to bid on the basis of its workers being more productive.
Given that the contract was being awarded on a lump sum basis of a fixed number of hours in which to complete the job, these factors were considered by the unions to give IREM an unfair competitive advantage, the Acas investigators found.
Site management stated that it had linked the tea break to the midday lunch break to create a longer lunch break - as permitted under the NAECI agreement. The employers also explained to Acas that all workers on site were required to be changed and dressed in the appropriate protective workwear prior to clocking-in for work.
Unions believed that IREM workers were not getting a daily travel allowance for the journey between their accommodation barge and the project whilst they are being transported in the company's vehicle, whereas a UK worker would receive a daily travel allowance, as required by the NAECI agreement.
Perhaps, most importantly, the unions were extremely concerned about the lack of wage transparency - a GMB source claimed IREM was paying its workers as much as £1,000 a month less than Shaw Group's rates - and the employment status of the Italian firm's workers. IREM had previously stated that its workers were permanent employees and would be paid according to the NAECI agreement.
The NAECI agreement establishes terms of reference for a monthly audit facility as part of the management and union control process on all major new construction projects. The Lindsey project did appoint such an auditor, though an audit had not taken place by the time the dispute arose.
"The auditor can look at matters such as the performance and pay levels of all employees," noted Acas. "Had an initial audit been undertaken this might have helped to re-assure the unions."
The unions discussed their concerns with Jacobs and IREM over a series of meetings from November, but the talks reached an impasse. The lack of progress was communicated to workers at the Lindsey site and on 28 Jan they decided to take unofficial action.
According to Acas, a major source of tension underlying this dispute was the EU Posted Workers Directive, which generally requires the host state to ensure that the workers posted to it are guaranteed the standards laid down by law, regulation or administrative provision in the host state in specified areas. The directive states that the host state's obligation applies to matters including:
l maximum work periods
l minimum paid holidays;
l minimum rates of pay
l health, safety and hygiene
Host states cannot require 'posting' employers to comply with standards that go beyond the terms of the directive, for example by requiring wages other than the minimum rates.
Moreover, the European Court of Justice has held that host states cannot require posting employers to adhere to standards laid down in collective agreements, so that the NAECI agreement could not serve as a set of mandatory rules.
IREM was, therefore, not legally obliged to adhere to the terms of had made a commitment to do so as a term of its contract case.
Acas, therefore, concluded that there was no evidence that Total, Jacobs or, indeed, IREM had broken the law in their use of posted workers or entered into unlawful recruitment practices. Acas said that it had also received assurances from management that it will abide by the NAECI agreement. However, it went on to note that there are still "clear issues of interpretation" between management and unions.
The dispute at the Lindsey Oil Refinery has, however, thrown up a number of issues, found Acas.
The first, it said, is the application of the Posted Workers Directive in the UK and its relationship with the UK's industrial relations system, especially given that economic circumstances have changed and we have entered a period of labour surpluses.
The complexity produced by the interrelation of EU law, national agreements and supplementary local collective agreements is a real source of confusion and potential dispute, Acas added.
"There should be a review by the parties to the agreement of the interrelationship between national and local collective agreements to ensure greater consistency in terms and conditions of employment, with less scope for variation at local level," said the report. This, it explained, would also aid transparency and reduce the potential for misunderstandings and conflict.
Another issue of concern, said Acas, is whether UK-based and European construction companies are able to operate on a level playing field given the differing income tax and social insurance regimes, statutory rights, and employment practices between UK and other EU countries.
Checking how level the playing field is can be difficult, given that tendering and contractual matters are "commercial in confidence," noted the arbitration body.
"An enhanced role for the NAECI independent auditor in both the tendering and project monitoring processes ... would, we believe, play an important part in helping to overcome some of the difficulties that this dispute has raised," Acas concluded.
The LOR dispute started with a decision by refinery owner/operator Total to install a new desulphurisation facility on the site. The main contract for the construction of the HDS-3 unit was awarded to Jacobs Engineering, which subsequently subcontracted much of the work to other engineering firms, with the mechanical and piping work going to Shaw Group UK. Total has confirmed that Jacobs had directly and indirectly recruited between 600 and 1000 workers on the £300-million project.
With a capacity of 10,000 kilotonnes per annum (ktpa), LOR is Total's main refinery in the UK. The 1,000-ktpa HDS-3 unit will increase its production of ultra-low sulphur diesel and substantially increase the refinery's capacity to process less expensive sour crudes. The new capacity is due for start-up this year.
Towards the end of last year, much of the project work - union sources suggest this was as much as two-thirds - was taken back from Shaw Group and re-tendered. This decision meant redundancy for many of the workforce recruited by Shaw Group.
According to GMB spokesman Sean Clarkson, issues with the HDS-3 project had started well before the decision to re-tender the work. Union representatives, he said, had raised many concerns with Shaw Group and Jacobs at the monthly project joint-council meetings throughout last year.
Employers had been particularly slow in putting even small things, such as catering facilities, right, claimed Clarkson. There was, he added, an atmosphere of mistrust and discontent among workers, with many skilled people leaving the project mid-stream to work elsewhere. This combined with delays with materials coming in and bad weather to mean that work on the HDS-3 unit had slipped three months behind schedule by the time Jacobs and Total decided to step in.
This view is confirmed by other union sources, who have linked the delays to factors including late 'civils', delays with materials arriving on site and management issues.
For its part, Total has stated that: "To meet additional works requirements, Jacobs carried out a tender process [in December 2008] to which five UK and two European contractors responded. The contract was subsequently awarded to IREM, an Italian-based contractor with a permanent, skilled workforce, which it directly employs."
The Italian company won the contract on the basis of the safety, quality, scheduling and price of its bid, according to the official Acas report into the causes of the dispute.
Neither Jacobs or Shaw Group have issued a detailed version of events, but the situation seems to echo problems revealed by US group CB&I last year, when it posted pre-tax charges of around £150 million for cost overruns on the South Hook and Isle of Grain LNG projects in the UK (Sept/Oct 2008, p13).
At the time, CB&I blamed most of the cost overruns on continued poor productivity, weather delays and the need to supplement critical subcontractor areas. Singling out 'labour' as "the main underlying problem," CB&I complained about inadequate subcontractor performance and an increasingly difficult trade union environment. It also highlighted how UK labour regulations and trade union rules had posed many challenges for the company, unlike those experienced on its other projects around the world.
Perhaps aware of these issues, IREM made it clear that it planned to follow the European sub-contracting model and use its own workers, who were all foreign nationals, to deliver the majority of the contract - unlike the workers employed by Shaw Group, who were all UK nationals. Any locally-sourced workers would only be used on less skilled work, or where the work entailed servicing mainstream operations, such as cranage, riggers, NDT and painting.
IREM had agreed that all its 200-300 workers on site would be employed on the terms set down in the National Agreement for the Engineering Construction Industry (NAECI), which determines the pay and conditions for workers at all major engineering construction sites in the UK.
Unions GMB and Unite voiced concerns about Jacobs' decision to use IREM and, in particular, the plans to employ overseas labour only. They believed that UK-based workers had the skills and experience to work on the project for IREM and should be given the opportunity of applying for jobs.
"The unions were not seeking to have Italian workers made redundant, nor were they seeking exclusive jobs for UK workers," Acas, however, emphasised.
According to the report, the unions felt that the shift pattern IREM proposed to use on the work was inconsistent with the NAECI agreement. Specifically, they were concerned there was no provision in the contract with IREM for its workers to take paid 'tea breaks', which was a condition that had to be met by UK companies applying for the tender.
"The time of a tea break may seem small but when multiplied by several hundred workers over the period of a contract for several months it can mount up to a considerable saving of time and, therefore, money," Acas noted.
The unions also felt it was unfair that IREM workers would be preparing for their shift before travelling to the site, unlike other workers whose time spent putting on protective clothing was counted as part of their shift. This would have enabled IREM to bid on the basis of its workers being more productive.
Given that the contract was being awarded on a lump sum basis of a fixed number of hours in which to complete the job, these factors were considered by the unions to give IREM an unfair competitive advantage, the Acas investigators found.
Site management stated that it had linked the tea break to the midday lunch break to create a longer lunch break - as permitted under the NAECI agreement. The employers also explained to Acas that all workers on site were required to be changed and dressed in the appropriate protective workwear prior to clocking-in for work.
Unions believed that IREM workers were not getting a daily travel allowance for the journey between their accommodation barge and the project whilst they are being transported in the company's vehicle, whereas a UK worker would receive a daily travel allowance, as required by the NAECI agreement.
Perhaps, most importantly, the unions were extremely concerned about the lack of wage transparency - a GMB source claimed IREM was paying its workers as much as £1,000 a month less than Shaw Group's rates - and the employment status of the Italian firm's workers. IREM had previously stated that its workers were permanent employees and would be paid according to the NAECI agreement.
The NAECI agreement establishes terms of reference for a monthly audit facility as part of the management and union control process on all major new construction projects. The Lindsey project did appoint such an auditor, though an audit had not taken place by the time the dispute arose.
"The auditor can look at matters such as the performance and pay levels of all employees," noted Acas. "Had an initial audit been undertaken this might have helped to re-assure the unions."
The unions discussed their concerns with Jacobs and IREM over a series of meetings from November, but the talks reached an impasse. The lack of progress was communicated to workers at the Lindsey site and on 28 Jan they decided to take unofficial action.
According to Acas, a major source of tension underlying this dispute was the EU Posted Workers Directive, which generally requires the host state to ensure that the workers posted to it are guaranteed the standards laid down by law, regulation or administrative provision in the host state in specified areas. The directive states that the host state's obligation applies to matters including:
l maximum work periods
l minimum paid holidays;
l minimum rates of pay
l health, safety and hygiene
Host states cannot require 'posting' employers to comply with standards that go beyond the terms of the directive, for example by requiring wages other than the minimum rates.
Moreover, the European Court of Justice has held that host states cannot require posting employers to adhere to standards laid down in collective agreements, so that the NAECI agreement could not serve as a set of mandatory rules.
IREM was, therefore, not legally obliged to adhere to the terms of had made a commitment to do so as a term of its contract case.
Acas, therefore, concluded that there was no evidence that Total, Jacobs or, indeed, IREM had broken the law in their use of posted workers or entered into unlawful recruitment practices. Acas said that it had also received assurances from management that it will abide by the NAECI agreement. However, it went on to note that there are still "clear issues of interpretation" between management and unions.
The dispute at the Lindsey Oil Refinery has, however, thrown up a number of issues, found Acas.
The first, it said, is the application of the Posted Workers Directive in the UK and its relationship with the UK's industrial relations system, especially given that economic circumstances have changed and we have entered a period of labour surpluses.
The complexity produced by the interrelation of EU law, national agreements and supplementary local collective agreements is a real source of confusion and potential dispute, Acas added.
"There should be a review by the parties to the agreement of the interrelationship between national and local collective agreements to ensure greater consistency in terms and conditions of employment, with less scope for variation at local level," said the report. This, it explained, would also aid transparency and reduce the potential for misunderstandings and conflict.
Another issue of concern, said Acas, is whether UK-based and European construction companies are able to operate on a level playing field given the differing income tax and social insurance regimes, statutory rights, and employment practices between UK and other EU countries.
Checking how level the playing field is can be difficult, given that tendering and contractual matters are "commercial in confidence," noted the arbitration body.
"An enhanced role for the NAECI independent auditor in both the tendering and project monitoring processes ... would, we believe, play an important part in helping to overcome some of the difficulties that this dispute has raised," Acas concluded.
