Fixing Of Basic Profit In Labour Contract.

Contract laborers are paid less than minimum wages by the contractor. The major reason for this exploitation of workers is that contractors are not making a profit. Why are contractors not making a profit? Because tenders are awarded to the lowest bidder (L1 bidder). A contractor will not secure a contract if they quote rates including a proper profit. The competition is so tough that they have to quote a minimum price, sometimes with as little as a 1 paisa profit.

The result of this situation is that laborers are paid less than minimum wages. To address this problem, could the principal employer establish a minimum basic profit? They could then award the tender to a contractor who quoted above that set rate and disqualify any bidder who quoted below that rate. Alternatively, please suggest any other solutions to this issue.

I am looking forward to your valuable suggestions. Thank you.

It is the discretion of each employer to decide whom he will give a labour contract to. A smart employer will work out and ask the contractor how he will make money after payment of statutory dues. Anyone who can't do that should not be given the work.

In the government, similar rules are available for the estimation of the contract value, and the tender committee has the discretion to refuse to accept a tender for reasons stated in writing.

That said, if a contractor is not paying minimum wages, the principal employer is responsible for paying the same and is required to pay it. He will then deduct the amount from the next bill due to the vendor.

Dear Banarjee Sir,

Thank you, sir, for your advice. I would like to let you know what exactly is going on so that you can figure out the exact issue.

This is a case of an ordnance factory. Here, daily minimum wages are Rs 279/-. Tendering is done through the e-procurement process. In the price bid, what the contractor has to quote is their service charges and material cost. The actual material cost is hardly 1% of the total contract value. Rates of minimum wages and statutory liabilities are already fixed by the government, so contractors don't need to quote.

There are 35 registered contractors in the ordnance factory, and a few other contractors also participate as it's an open tender. The contractor has to quote minimum as they are always aware that the tender will be awarded to the L1 bidder. There is no space for the contractor to earn legally.

Contractors have suggested to PE to set a basic rate and disqualify bidders bidding lower than that rate. However, PE is saying their finance/accounts are not ready for this. They want some directive or authority of the government, which they don't have.

I want to know, is this legal? Can PE do this? If PE does this, can any action be taken against them by the audit or CVC? Is there any government authority or directives regarding this matter? Is there any example of such a case?

Sir, I need your help, please advise me on what to do.

Thank you.

Regards,

Farukh Ali

The PE can do it; however, as a government entity, the normal rules of governance need to be followed. You need to review the rules in your organization regarding tenders. When formulating the tender, include specific clauses for the payment of all statutory dues (specify them). Also, make it clear that the contractor must pay minimum wages, provide PF and ESIC returns, and show proof of payment of statutory dues; otherwise, their bills will not be processed. Additionally, provide for an audit of their documents related to payment and statutory dues.

You can also request a Bank Guarantee for a specific amount to ensure recourse in case of failure to pay proper salary and statutory dues. Furthermore, specify that salaries/wages must be paid by transfer to a salary account in a PSU Bank or a Scheduled Bank to ensure proper payment verification. These measures should serve as sufficient deterrents.

Sir, I have two doubts.

(i) In a labor contract, if anybody quotes less than the minimum wage, are there any rules or orders in place to reject it?

(ii)