Home / General / The Subcontracting Scourge: Fukushima Edition

The Subcontracting Scourge: Fukushima Edition

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The scourge of companies subcontracting labor in order to maximize profit continues. Tokyo Electric Power Company runs the damaged Fukushima nuclear reactor. Rather than employ the cleanup workers itself, it is relying on subcontractors that, not surprisingly, cut corners on such things as keeping workers safe.

Most workers inside the plant are contract laborers hired by multiple layers of construction companies. A Reuters investigation last year found widespread labor abuses, where workers said their pay was skimmed and there was little scrutiny over working conditions inside the plant.

Tepco on Friday would not name the worker’s direct employer, but said he reported up to Toso Fudosan Kanri Company, a first-tier contractor under Tepco. The worker was in his 50s, the utility said.

The company confirmed it had hired the worker through another subcontractor.

Tepco has been widely criticized for its handling of the cleanup. The operator was plagued by a series of leaks of radioactive water from hastily built tanks at the site last year and it has repeatedly promised to improve working conditions.

Of course not using subcontractors would probably be the best idea for improving those working conditions.

I’ll also note that when I write these subcontracting posts, commenters inevitably start talking about the benefits of subcontracting since why should every company have its own IT staff. A couple points here to hopefully reduce this kind of thing. First, during the greatest time of economic growth in American history, subcontracting barely existed. It’s not as if you need subcontracting in order to have a successful business model. Second, there may well be times when you can subcontract and have it make sense, such as IT. However, is there any good reason why we should allow subcontracting where the workers labor for less pay, benefits, and safety precautions than directly employed workers? No. There is not. Third, those who defend subcontracting on principle are sort of missing what’s important here. Or at least, for me keeping workers safe and making living wages is more important than a streamlined business process that concentrates wealth at the top. Maybe that’s not everyone’s priority, I don’t know. Once we get to the point where there’s a bill before Congress to ban subcontracting, we can start worrying about the exceptions that make sense. For now, I’m not going to worry too much about the concerns of business.

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  • Here’s my favorite:
    When we “privatize” a former government function to some politicians crony and his/her company, and then they subcontract out the work.

    We go from something where the government oversaw something – and politicians were accountable for it during elections – to something where people are making money off of doing that something by hiring another cronies company, that’s even cheaper to its workers, than the politicians cronies company.

    It’s “The Circle of Grift.”

    • guthrie

      It’s a way of ducking responsibility. The more you subcontract public services, the less control of any form the public has on them. And the more chances for grift as you say.

      Basically lots of our politicians (UK and USA) are in it just for the money, and it makes life easier to subcontract things to other people. When it goes wrong just claim the subcontractors fucked up, and you’ll find someone else who can do it better.

      Here in the UK a company called ATOS got the contract to run the ‘services’ tasked with telling the poor, ill and long term sick and disabled to fuck off and die and stop claiming benefits. They were repeatedly panned in the press for lying to people in their interviews, losing at least a third or more of their cases on appeal, but what the media didn’t bother saying was that ATOS were merely following the guidelines and instructions and targets imposed by the government, and had to resort to lies and evilness to do so.

      It worked so well that ATOS are pulling out of the job and the government is having trouble finding someone else to do it, because guess what, it’s an expensive job.
      Hmmm, I guess that isn’t quite subcontracting in the way you mean it, but thanks for reading my rant.

    • RepubAnon

      The problem isn’t subcontracting in and of itself, it’s about stupidity in setting up the subcontracts. Things to consider in subcontracting:

      * If the prime contractor turns around and subcontracts out the work to another company, why not hire that subcontractor directly as the prime contractor? (It’s one thing to hire a general contractor to build a building, and then have them sub-contract out the plumbing work to a plumber, the electrical work to an electrician, etc. The general contractor is coordinating the entire work effort, and so performing a distinct service. It’s a whole different thing if you subcontract out, say, commissary services, and the subcontractor then turns around and hires a second company to do all the work. Why not hire the second company and save one level of mark-up? Hint: payoffs to political donors…)

      * Subcontracting shouldn’t relieve the prime contractor (or the company that hires them) for site safety. The company may be able to recover from the prime contractor, and the prime may be able to recover from the subs – but it’s simply wrong to let a company escape liability through subcontracting.

      • Brandon

        Yes and yes.

      • witless chum

        Seems like there ought to be a way you could make a rule against federal contractors acting this way. So now we just need the political will!

        • cpinva

          “Seems like there ought to be a way you could make a rule against federal contractors acting this way.”

          I’m not sure there even needs to be a formal rule, it could just be inserted into the bid specifications, with an additional agreement, by the contractor, to be subject to a contract audit, anytime the contracting agency feels like it, with no advance warning required to be given.

          I can almost guarantee that the Damocles sword of an unannounced audit hanging over them, would eliminate a lot of this nonsense.

          • RepubAnon

            Only if we paid enough to hire and deploy decent auditors. Given Republican tricks like cutting the SEC’s budget to the point where enforcement becomes impossible, the mere threat of an audit would be seen as a joke. What we’d need is a high-profile audit, followed by perp-walks of C-level executives, followed by convictions.

            What we’ll get is hiring the prime contractor to perform a self-audit on a cost-plus basis.

            • cpinva

              “Only if we paid enough to hire and deploy decent auditors.”

              I think you seriously underestimate the quality and professional chops of gov’t audit staff. they aren’t the problem, the problem is the failure to act on those reports, once completed. that’s where the lack of political will comes in. it really doesn’t matter how good your people are, if there is a complete lack of resolve at the top.

  • DrS

    Enough layers and you don’t even have to think about how it is that this vendor is delivering the results. Your hands are clean.

    I think you’d have to be nuts to outsource your IT, but I’m not in corporate management. Seeing EDS get $10k for a code change that I know takes 10 minutes gives a certain perspective. It’s not like they treat their employees great either.

    • wengler

      It’s silly just from a data management standpoint. IT may be a support function, but it is the cornerstone of most businesses. See how much work gets done when the network infrastructure goes down. Look at how much money you will have to spend when the IT vendor has ten different people securing your databases and suddenly you get breached and all your customer data is released.

      • Cranky Observer

        Although experience has made me a pretty firm believer in insourcing of IT and especially IS work, were I in the position to make that decision again I would probably use some level of contracting to specialists for perimeter security – that work has gotten too complex and too ugly for internal generalists to handle it the way we did in the 90s.

        Cranky

    • DrDick

      This is just another variant of the offshoring scam. It allows you to screw the workers while maintaining plausible deniability.

    • cpinva

      “Enough layers and you don’t even have to think about how it is that this vendor is delivering the results. Your hands are clean.”

      I don’t think so. prof. campos might want to chime in here, but I believe, under the laws of agency, liability attaches, all the way up the food chain.

      • DrDick

        Whether or not that is strictly true, it does make it much harder to demonstrate that the company making the contract was aware of the abuses.

    • Mike G

      I was an in-house IT who then became an employee of a contractor when fad-fchasing management outsourced their IT. It was a rotten experience for everyone — my working conditions got worse, and IT got less responsive and flexible for my organization. And it ended up costing them more with all the inevitable extra add-ins not embedded in the oh-so-attractive contract rates. But it worked out great for upper management, who didn’t give a crap about quality of service, and the contracting company.
      IT is important. You don’t want a major function of your business under the control of another firm with their own agenda to spend as little as possible while meeting the minimum terms of a contract.

  • If subcontracting hadn’t become synonymous with things like mistreatment of the employees (worse than the treatment of FTEs), graft and shoddy work, I could see why people would defend it.

    However.

  • Sev

    Subcontracting? There are some subjects that I wouldn’t touch with a ten foot pole weakly clamped to another 12 foot pole duct-taped to a fish-pole carrying a 20 lb payload on 10 lb line …. and this is one of them.

  • wengler

    I thought the big scandal with TEPCO is that they were hiring homeless guys in Tokyo and then providing them with little to no safety equipment.

    It’s also pretty amazing at how comprehensively Fukushima has been brushed under the rug by the US corporate media. US sailors aboard the Reagan have filed a class action lawsuit against TEPCO and barely a peep if it is mentioned at all.

    • Ian

      The big scandal with TEPCO? Why pick just one?

  • Bitter Scribe

    Another thing about subcontracting: It often involves the nastiest, shittiest, most dangerous jobs in a plant. That should tell you something.

    • Brandon

      No it doesn’t. It doesn’t seem like you or Loomis are very familiar with how an overwhelming majority of the construction/engineering/projects world actually works.

      • Lee Rudolph

        For many “plant”s in many industries, “the nastiest, shittiest” jobs, if not the “most dangerous” ones, very likely include cleaning stuff up. Certainly most large offices contract out cleaning. Don’t construction/engineering/projects sites?

        • Brandon

          Nasty, shitty jobs are often subcontracted. So are white collar office desk jobs.

          AS far as I’m aware, many miners, some of the most dangerous work on the planet, are directly employed by the often (Always?) exploitative mine companies, not subcontracted.

          Loomis and others didn’t seem to understand the difference between contracting and subcontracting in the last thread on this topic, which IIRC were government cafeteria workers. Hiring a company to perform a specific task is contracting, not subcontracting. When your contractor hires their own contractor for part or all of the job, that’s subcontracting. From the blurb at the top, it sounds like TEPCO hired a contract company to do the work. There doesn’t appear to be any subcontracting at all.

          • Ann Outhouse

            That’s a distinction without a difference.

            Either way, company A is hiring company B to do something company A doesn’t want to do with its own staff.

      • It’s true. All those people who die on subcontracting jobs show that in fact subcontracting involves the safest, best jobs in a plant.

      • dp

        I would suggest that you are unfamiliar with these things. Loomis is right, it is a scourge. And in Louisiana, at least, the contractor has worker’s comp immunity against employees of the subcontractor as well.

      • trollhattan

        Worked in consulting engineering at two of the country’s biggest firms. At, for example, drilling projects, which we did by the score, drillers were always subs. Always. Our geos would be on site to log the bore and I can honestly say we never had a single recordable clipboard injury.

        Excavation–subs. Framing–subs. Welding–subs. Hauling–subs. Scaffolding–subs. Toxic waste hauling–subs….

  • Cranky Observer

    Actually, subcontracting/outsourcing of IT and even more so business information management (IS) ends up as a money-sucking disaster in 95% of the organizations that try it. Turns out there is value in being an organic part of an organization and in being able to understand the why as well as the what.

    Cranky

  • Scotius

    Subcontracting IT services can make sense depending on the size of the company involved. If you’re a five person law office then it would be logical to have an outside IT provider habndle your internal networking, email and computer needs. If you were a 200 person law firm, it would be financial malpractice not to have your own IT team.

  • Harry Huntington

    Sub-contracting is an essential tool for senior managers at publicly traded corporations to manage the company financials to their bonus points. If labor is in house it contributes to head count numbers and you have to pay them on time. You can get hit with “benefits” surprises if you self-insure and if some employee’s spouse has a difficult child birth or maybe a bad ski accident or too many employees catch cancer at the same time. If you “sub-contract” you can hire and fire sub-contractors every day without having to report a different head count number when you publish financial. You can slow pay or no pay sub-contractors. This means every December is a bright Christmas as you can accelerate all your sub-contracting to this financial year (if that works) or you can push it all to next year and make this years expense numbers look sweet. You can quibble line by line on a bill with sub-contractors. You can transfer all the risk of overtime charges to the sub-contractor if you have the proper contract. It is fair to say that for those firms that extensively sub-contract, their public financial statements are an interesting read (but may hide surprises).

    • dp

      An excellent summary.

    • Brad Nailer

      As if we needed another reason to despise corporate managers.

  • trollhattan

    Subcontracting sure worked swell for BP at the Macondo well. That way they can try blaming Hallaburton, Transocean and Cameron for their screwup. “It was those guys, see?”

    Suppose it will take two or three decades to find out whether the strategy pays off.

  • Aaron B.

    Yeah, and also, defenders of subcontracting, have you stopped beating your wives yet?

    • Lee Rudolph

      They beat each others’ wives, for the tax advantage.

      • Origami Isopod

        Nicely played.

    • Way to deal with the substantive issues at hand. Glad you can wave away systems that kill workers with such ease.

      • Aaron B.

        Yeah, because “Or at least, for me keeping workers safe and making living wages is more important than a streamlined business process that concentrates wealth at the top. Maybe that’s not everyone’s priority, I don’t know.” is REALLY ADVANCING THE DEBATE.

        • I am uninterested in “advancing the debate.” I am interested in working to give people tools to fight the power of rapacious corporations. There are plenty of other people fighting on the side of business. If pointing out that defending a system that leads to the death of workers so that you can get your IT outsourced makes you uncomfortable, so be it.

          • Aaron B.

            You can want to discuss things and figure them out or you can want to deploy agitprop but you can’t turn around and accuse me of being unproductive in response to your agitprop.

            • Look, if you want to prioritize this over the dead workers, then fine. I think that says plenty.

              • Aaron B.

                So wait, am I objectively pro-dead worker now?

                • No, but you don’t seem to be anti a system that creates them either.

                • Aaron B.

                  The whole point is that I disagree with you that subcontracting is the problem here. But of course, that’s just objectively pro-exploitation concern trolling!

                • Well thank god someone is defending business.

                • Aaron B.

                  Subcontracting businesses should be subject to the same generally applicable regulations about worker health and safety as any other company, and the large corporations who employ them should be liable if something goes wrong on their watch.

                  The solution is not to force companies to hire employees if they ever want to access services outside their core competency, it’s to regulate subcontractors better.

                • Erik Loomis’s Subcontractor

                  Certain jobs should not be subcontracted out because it means an attenuation of responsibility between corporate owners and workers. If you can hire a subcontractor but assume full responsibility for the health,safety, and pay of the worker at the bottom end of the industry there’s no problem. But if you can hire the worker but disclaim all legal responsibility about work conditions and the worker’s fate then, no.

                • Aaron B.

                  Okay, well the primary reasons why I’m okay with subcontracting are:
                  1. workers should be able to strike out on their own to practice their trade if they don’t want to work for a boss
                  2. subcontracting firms allow those workers a much more predictable and efficient way to find work than everyone cultivating their own client base, and
                  3. allowing firms to contract with workers to do limited-time or -scope projects makes 1 and 2 possible while also helping the business’ bottom line.

                  There’s no reason to my mind why they should otherwise be treated differently than employees.

                • Andre

                  Considering your comments above, Yes.

            • Erik Loomis’s Subcontractor

              OK, Erik has hired me to tell you you are unproductive and your pro corporate agitprop is bullshit. If you don’t like it you can complain to my management. By tomorrow they will have replaced me with another subcontractor so they won’t be responsive.

              • jim, some guy in iowa

                always wondered where the $$ was in blogging

                • Apple Annie

                  It’s in the turnover.

  • Anonymous

    For now, I’m not going to worry too much about the concerns of business.

    Right there with you, Erik. Grod knows there are enough people out there getting paid to care about the concerns of business. Whenever a discussion about business inevitably gets around to the “Well, you know, they gotta make money somehow…” argument, for some reason, I just can’t bring myself to care. I’ll show concern for corporate profits when corporations start showing the slightest fucking concern for the millions of people they hurt on a daily basis.

    • “Well, you know, they gotta make money somehow…”

      Are these people you’re talking to libertarians, some other sort of morally vacant, cliche spouting CHUD or just not very bright?

      I’ve heard this too, but when I ask why I get inarticulate arm flapping and eye rolls. Like they can’t believe it isn’t obvious why a corporation that raked in 20 million in profit in Q3 shouldn’t be allowed to screw its employees, the environment and consumers so it can bring in 25 million in Q4.

      I really should start the 1st Church of Mammon.

      • Brad Nailer

        Funny that corporations are now supposed to be able to express religious beliefs, but when it comes to basic morality, the profit motive controls–“Well, they’ve got to make money for the shareholders. It’s in the charter!”

        • The Divine Right of Kings Corporations.

        • Ken

          “I could ignore them buying half their inventory from a country with forced abortions when it was just a corporation – they’re supposed to put Mammon before God, you know – but now that it’s a person with strong moral beliefs, I feel I have to rebuke them as I would any fellow Christian.”

          (Though I’ll have to figure out how to fit it on a sign, if I want to picket. Maybe just list the clobber verse from Corinthians about rebuking bad behavior.)

  • Swami Sachidananda

    …there may well be times when you can subcontract and have it make sense, such as IT.

    What characteristics of a job ‘makes sense’ to allow subcontracting in your eyes?

    • Malaclypse

      I’d say “specialized knowledge done by subject matter specialists.” Taxes. Payroll. IT. Not “general labor we want to get off our books.”

      • Nobdy

        Especially jobs that only need to be done intermittently. Even Loomis wouldn’t suggest that companies need to hire full time elevator mechanics unless they own a lot of properties with a lot of elevators. Likewise it makes sense to hire a law firm subcontractor when your company is sued rather than keeping litigators on staff 12 months a year.

        One of the ways you can tell if it’s the GOOD kind of subcontracting is if it doesn’t depress wages.

      • Cranky Observer

        Problem is that sometimes dangerous (and potentially dirty) jobs are best contracted to someone who knows how to do them. Oil tank cleaning is an example: even large industrial facilities only do it once every 5-10 years and there are a lot of ways to kill yourself and others doing it, so it makes both business and technical sense to contract it out to someone who knows how to do it correctly and safely. Now, that doesn’t mean the contractor can abuse, exploit, or underpay _their_ workers, nor that the owner can abandon responsibility if the contractor makes a mess.

        Cranky

        • DrDick

          I actually agree with your general point, but that last part does not really fit reality in far too many cases. I think the key is to make both the contractor and subcontractor responsible and legally liable.

          • Swami Sachidananda

            I think the key is to make both the contractor and subcontractor responsible and legally liable.

            Yes, this will create more and more jobs.

        • Red Adair!!

          • Cranky Observer

            Exactly – one industrial firm I worked at did have a contract with Adair’s firm in the event we experienced a large-scale oil fire. We also worked pretty hard to ensure such an event never occurred, but we knew that if it did we would not be capable of handling it in-house (nor would the local fire department).

            Cranky

        • Brandon

          Take the fiasco that Progress Energy created for itself when it was going to replace the steam generators in their Crystal River nuclear plant several years ago.

          Many nuclear plants around the country had already done this, and there were one or two construction companies that everyone used because they knew what they were doing and had a solid track record. Progress Energy decided to keep the whole process in house instead because it could have saved them as much as $20M (on a $500M or so project).

          What happened? Well, the people they brought in to do the work cracked the containment building for the reactor. Then, when attempting to repair it, it cracked again. Ultimately, they were looking at trying to stick the Florida rate payers with a $1-2 billion dollar bill to fix this. They decided to shut the plant down instead, (eventually) terminating hundreds of jobs.

          But hey, subcontracting (really what Erik means is contracting) is the scourge of the devil, and anyone who thinks otherwise obviously doesn’t give a shit about worker safety.

  • Anonymous

    I think that in this instance, subcontracting to lousy companies and too many useless subcontractors in the middle sponging money are the problems. Subcontracting itself is sometimes useful ie a contracting company hires a company of electricians to wire the building they are constructing.

  • Loomis, you’d know the answer to this.

    Can a company run a subsidiary that itself runs a subsidiary that in turn provides subcontracted labor to the parent company?

    I thought I remembered hearing about such a case.

  • Ken

    Or at least, for me keeping workers safe and making living wages is more important than a streamlined business process

    “You know that way you feel about money? Some of us feel that way about people.”

    (Didn’t someone suggest we name this principle after the Daily Show correspondent who first said it?)

  • Coconino

    I’m gonna take that mushball you threw and run with it. My public agency subcontracted our IT a few years back. We have increasingly got crappier and crappier computers with incredible failure rates, prioritized service (high managers first, middle second, and worker bees third), an inability to determine our own electronics needs (from cellphones to air cards to smartphones), to having most of our printers taken away. And it hasn’t saved any money. I

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