In 2018 the Commonwealth Government introduced the Modern Slavery Act 2018 (Cth) (the Act) to combat modern slavery by driving the business community to proactively and meaningfully reform supply chains and workforce practices in Australia and globally.

Modern slavery includes forced labour, debt bondage, slavery-like conditions, human trafficking, and child labour. In this Insight we examine the specific risks associated with modern slavery in the construction context.

The construction industry is susceptible to modern slavery practices because of the complex and multi-layered supply chains involved in delivering a project. Many different types of businesses and large numbers of people are involved in delivering any one project.

In the supply chain there are often vulnerable people who are unskilled, the work may be dangerous or physically demanding, and working hours might be long or unpredictable. The pressure to complete jobs on short timelines can compromise safe working practices. Raw materials from other countries – in particular bricks, timber, rubber and glass - are highly susceptible to human rights violations including child and forced labour. In some cases there is no protection provided by appropriate legislation, regulation, or unions.

Does the Act apply to you?

The Act applies to entities based or operating in Australia, with annual revenue of at least $100 million, and to Commonwealth entities. All other businesses may report voluntarily and companies in NSW are subject to other state-based requirements.

The Act requires entities to identify and report annually on the risks of modern slavery in their operations and supply chains, take actions to address those risks, and monitor the effectiveness of its actions. The annual report is called a Modern Slavery Statement, which will be made publically available.

Reporting entities must critically analyse the activities of the business, its subsidiaries and its supply chains, conduct due diligence on suppliers, provide training for employees, and draft contracts to ensure minimum standards are met to reduce modern slavery risk.

Clauses which may give rise to modern slavery risk

There are certain conditions and practices in the construction industry which have the potential to give rise to modern slavery risks. These include:

  • the outsourcing of labour (such as subcontracting work);
  • workers being poorly paid and working long hours;
  • workers undertaking physically demanding work or working in unsafe conditions; and
  • goods being procured from overseas where there is little oversight of working practices.

Construction and supply agreements afford certain rights and protections for risks that may arise in undertaking the works or services, and will include obligations related to deadlines, working hours, and work health and safety. However, enforcing certain conditions may give rise to human rights abuses. Clauses that put pressure on timelines, dis-incentivise the contractor for delay, or do not comprehensively detail safety requirements may cause or contribute to worsened working conditions in the supply chain.

Example 1: A contractor proposes a short program to obtain a competitive advantage during tender, and is subsequently appointed as contractor. However, by doing so, it fails to take into consideration the effect of delays, and cannot absorb them into the agreed program when they arise. It requires its workers and subcontractors to work long hours for poor pay to avoid paying costs to the principal for missing deadlines, and to keep pricing competitive.

Example 2: A supplier must deliver goods to the customer’s site by a certain date, otherwise the contract may be terminated. The supplier is delayed in procuring the goods and decides to use a different manufacturer who can provide the goods faster. The supplier does not check whether the manufacturer uses exploitative practices to produce the goods. It turns out that the manufacturer uses forced and child labour to manufacture the goods.

Example 3: A contractor is required to perform remediation works on a site that has dangerous site conditions including hazardous materials. The work health and safety clause does not require the contractor to oversee the safety practices of its subcontractors. The contractor has outsourced some of the work to a subcontractor who has not provided its employees with appropriate protective gear or safety training.

These examples show how market standard clauses can create working conditions that might lead to or support modern slavery practices. However key questions remain: Aren’t these risks the responsibility of the contractor or supplier? Does the principal have to remove crucial contractual protections just in case the contractor or supplier enforces modern slavery practices?

Addressing modern slavery risk

There are ways to address these risks without having to remove key contractual protections. Businesses can employ risk mitigation strategies to combat modern slavery at the various stages of a project’s lifecycle: the procurement stage, the contract drafting stage, and the contract administration stage.

At the procurement stage, specific policies, standards and procedures to screen and evaluate contractors and suppliers can be used to assist in the identification of key risks.

When companies pitch for projects, it may become relevant to demonstrate compliance with modern slavery requirements and transparency of activities. Reporting entities can then assess whether the contractor or supplier can perform the services or undertake the works, and whether it reasonably has the expertise, skill, and labour power to do so.

Once contractors and suppliers have been screened, entities can then impose various contractual obligations to ensure that poor working conditions are avoided. The contractual terms may give a company the right to audit records of the contractor and supplier, and require contractors and suppliers to address and remedy modern slavery practices.

Finally, at the contract administration stage, entities must balance their commercial interests against their obligations to identify, address, and remedy modern slavery practices in its operations and supply chains. For example, where commercially viable, a business may opt to provide an extension of time for a cause of delay that has a real risk of causing poor or unsafe working conditions.

Be prepared and proactive

With COVID-19 putting additional pressure on businesses, conditions conducive to modern slavery practices may become increasingly prevalent. Companies may cut corners in relation to the payment of goods and services; may terminate contracts or working arrangements without proper cause; and exploit vulnerable people working in compromised conditions.

Prepare your organisation by reviewing the organisation’s policies and procedures, procurement processes, auditing your standard contract terms in supply and procurement contracts, and proactively examining your operations and supply chains. This will prepare you to respond to modern slavery risks and to meet the Act’s requirements in time for the first reporting period in December 2020.