Cleaning companies say long-term contracts hurt operations

From September, cleaning firms will be required by law to pay cleaners using a wage ladder that sets minimum basic salaries according to the jobs they do. This is expected to raise the price of cleaning services, since manpower makes up as much as 80
From September, cleaning firms will be required by law to pay cleaners using a wage ladder that sets minimum basic salaries according to the jobs they do. This is expected to raise the price of cleaning services, since manpower makes up as much as 80 per cent of the costs, firms say.ST PHOTO: DESMOND FOO

Locking in a price makes it harder to adjust for rising costs, firms say

Cleaning firms are urging the Government to do something about long-term contracts which some town councils insist on.

Such deals mean that companies are locked into a price for their services over a long period, which makes it harder for them to react to rising operating costs, especially when it comes to raising wages for their cleaners.

"These fixed-price contracts lock a company in and some firms will struggle when costs (of) labour and materials go up," said Mr Milton Ng, president of the Environmental Management Association of Singapore, which represents cleaning firms, told The Straits Times last week.

From September, cleaning firms will be required by law to pay cleaners using a wage ladder that sets minimum basic salaries according to the jobs they do. This is expected to raise the price of cleaning services, since manpower makes up as much as 80 per cent of the costs, cleaning firms say.

Although most cleaning contracts typically run two to three years, there are some involving government-linked agencies which run longer.

Cleaning firms were reluctant to give details of such contracts, citing business confidentiality and the worry that this might affect their relationship with clients.

Still, The Straits Times has learnt that there is at least one town council which awarded a four-year cleaning contract in 2012. Last year, another town council called a tender for a five-year deal, sources said. It is not known what became of it because the town council involved did not respond to queries.

Such long-term deals mean firms' profit margins of between 5 and 10 per cent end up being cut in the stretch.

Said Mr Sunny Khoo, sales director of Clean Solutions, which hires some 2,000 cleaners: "First year it may be 5 per cent to 10 per cent, second year it can drop to 3 per cent to 8 per cent. The margin reduces when costs go up."

Added Mr Ng: "Clients also need to be aware that workers expect increment of 3 (per cent) to 5 per cent every year."

Instead, town councils should follow the lead set by the Government. Last year, the Ministry of Social and Family Development agreed on a four-year contract in which the price for cleaning services increases by around 9 per cent for the third and fourth years.

The National Environment Agency (NEA), which this year is expected to award several contracts worth tens of millions of dollars for sweeping public roads and clearing trash bins, is also taking a flexible approach.

Although the contracts are for seven years, the NEA said it will allow contractors to adjust prices every two years to take into account fuel prices and inflation, for instance. Bidders are also asked to price their services while taking into account the new wage ladder mandated by the Government's new licensing scheme for cleaning firms.

The firms interviewed said the most reasonable approach is for parties to agree on a formula which allows for price adjustments every year.

The formula can be linked to key indicators, such as the consumer price index or "some kind of wage index for cleaners", said Mr Woon Chiap Chan, country managing director of ISS Facility Services, one of Singapore's largest cleaning firms. It has more than 6,000 cleaners.

"That will be very fair because it will be very difficult to predict wages in the next few years."

Tampines Town Council chairman Baey Yam Keng also believes town councils should be flexible in order to cultivate a good working relationship with cleaning contractors.

"We also do not want the (cleaning) contractors to fail... While they are running a business and must bear some risks, we also have to be reasonable and negotiate with them if there are cost increases beyond their control, like foreign worker levies," he said.

tohyc@sph.com.sg

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