Rules governing Contract of Service

and Job Order workers in gov’t

released
July 4, 2017

Contract of Service (COS) and Job Order (JO) workers should not be made to perform functions which are
part of the job description of the agency’s existing regular employees.

This was stressed by the Civil Service Commission (CSC) as it disclosed the Rules and Regulations
Governing Contract of Service and Job Order Workers in the Government which it signed jointly with the
Commission on Audit (COA) and the Department of Budget and Management (DBM).

The Joint Circular No. 1, s. 2017 clarifies the nature of COS and Job Order (pakyaw) and addresses issues
on the lack of social protection of workers and inequality in benefits and the obscure accountability of
COS and Job Order workers due to lack of employee-employer relationship with the hiring agency.

The Joint Circular covers all National Government Agencies, Government-Owned or Controlled
Corporations with original charters, State Universities and Colleges, and Constitutional bodies, which avail
of the services of COS and Job Order workers.

The circular defined Contract of Service as the engagement of the services of an individual, private firm,
other government agency, non-governmental agency or international organization as consultant, learning
service provider or technical expert to undertake special project or job within a specific period. It also
provides that the term of contract between the agency and the individual contractor shall be for a maximum
period of one year, renewable at the option of the Head of the procuring entity, but in no case shall exceed
the term of the latter.

Job Orders, on the other hand, refer to piece work (pakyaw) or intermittent or emergency jobs such as
clearing of debris on the roads, canals, waterways, etc. after natural/ man-made disasters/occurrences and
other manual/trades and crafts services such as carpentry, plumbing, electrical, and the like. These jobs are
of short duration and for a specific piece of work.

To address the issue on compensation and benefits, the Joint Circular provides the rules on the payment of
services under Individual Contract of Service and Job Order. Individuals hired through Contract of Service
shall be paid the prevailing market rates, subject to the provisions of Republic Act No. 9184 (Government
Procurement Reform Act) and its Implementing Rules and Regulations.

The Joint Circular provides options to individuals hired through COS to enroll themselves in social benefit
programs such as the SSS, PhilHealth, and Pag-IBIG Fund, as self-employed members.

It also directs government agencies to review their functions, systems and procedures, organizational
structure, and staffing to determine the appropriate manpower complement for their programs/
activities/projects. Creation of permanent positions may be considered for regular functions, while hiring
of casual or contractual personnel may be considered for projects and activities that are temporary in
nature, subject to approval of the oversight agencies concerned and to existing budgeting and accounting
rules and regulations.

The public may access the CSC-COA-DBM Joint Circular No. 1, s. 2017 at https://goo.gl/RvAPdy.
TURNING POINT: Job Order: Injustice
and Anomaly in Government Service
By
 WILLIAM R. ADAN
 -
JANUARY 8, 2015 1:51 PM

NAAWAN, Misamis Oriental (MindaNews / 8 Jan) – In street marches and rallies I joined in
the late 60s to the early 70s, we denounced and raged at the illegal, immoral and abusive
practices of business establishments in the treatment of their workers, especially in hiring and
firing them. What we ranted about and wanted the government to stop and correct in the past
has unfortunately remained to this day.

Business establishments like malls, manufacturing and service firms continue to hire workers
on casual or contract-of-service status to evade government-mandated benefits and privileges
due to regular or permanent employees. These include sick leave, vacation leave, maternity
leave, SSS contribution, 13th month pay and year-end bonuses.

These workers are engaged for just a period of three to five months to avoid their becoming
regular or permanent employees. Their services are then terminated at the end of the contract
period. They may, however, be rehired after a lapse of one to four months at the discretion of
their employers.

Hence, female workers who have moved from one firm to another after the end of every
casual employment may own a wardrobe of different work uniforms bought from previous
employments.

In many cases, the salaries of contract workers are often much lower than the regulars but
both are below the minimum wage. Their employers keeps two payrolls for them to sign –
one to comply with the requirements of law and the other as actual records of received
compensations.

Suffice it to say that in upholding social justice, it is the duty and responsibility of the
government to protect and secure the rights of workers and to stop any unjust practices that
undermine their welfare. Instead of putting to an end, however, the government has in fact
adopted some of the exploitative schemes of unscrupulous business firms. This is evident
today in the tolerance and proliferation of job order employment in the government service.

The Procurement Act of 2003, RA 9184, allows government agencies or government-owned

or controlled corporations to enter into contract-of-service or job-order engagement with
private firms or individuals for lump sum works such as janitorial, security or consultancy
services where no employer-employee relationship exists between the government units and
said contracting firms.

It is understood that these lump sum works are not the main functions of the government
entities but are support activities necessary for their effective and efficient operations. The
Commission on Audit (COA) has clarified that job order covers piece of works or
intermittent jobs of short durations not exceeding six months, on a daily basis.

While individuals hired under this scheme work for the government, they are not employees
of the government. They are considered simply as service providers, better known as job
orders or JOs for short.

Many government agencies, however, have deviated from the purpose and the spirit of the
Procurement Law. They use the lump sum appropriation of their annual budget in hiring
individuals through contract-of-service or job-order arrangement to carry out their primary
institutional functions through the loose interpretation of Section 5 f of RA 9184, particularly
5 f (v) and vi), to wit:

“CONSULTING SERVICES – REFER TO

SERVICES FOR INFRASTRUCTURE
PROJECTS AND OTHER TYPES OF
PROJECTS OR ACTIVITIES OF THE
GOVERNMENT REQUIRING ADEQUATE
 EXTERNAL TECHNICAL AND
PROFESSIONAL EXPERTS THAT ARE
BEYOND THE CAPABILITY AND/OR
CAPACITY OF THE GOVERNMENT TO
UNDERTAKE SUCH AS, BUT NOT LIMITED
TO: (I) ADVISORY AND REVIEW SERVICES;
(II) PRE INVESTMENT OR FEASIBILITY
STUDIES; (III) DESIGN; (IV)
CONSTRUCTION SUPERVISION;  (V)
MANAGEMENT AND RELATED SERVICES;
AND (VI) OTHER TECHNICAL SERVICES
OR SPECIAL STUDIES”  (EMPHASIS
PROVIDED).
In state colleges and universities, for instance, JOs are engaged to teach, perform research
functions and conduct extension work along with the regular members of the faculty, research
workers and extension service personnel.

The contract of JOs who are hired to teach are renewed every semester, while the rest –
research assistants, janitors or utility workers, security guards and other administrative
personnel – every six months.

Many JOs have remained in contract-of-service status for as many as five years or more.
Hired under the Procurement Law, they are not covered by Civil Service Commission (CSC)
rules and regulations and not subject to the qualifications standard of the government.
Without check and balance, the situation naturally engenders abuses in discretion of those in
authority. Heads of agencies hire their own relatives and close friends regardless of their
qualifications, and replace JOs with the required qualifications with their own wards if the
former do not toe the line.

In hiring services under the Procurement Act, public bidding is mandatory. Except, however,
for consultancy services and infrastructure construction projects and lump sum works like
security, janitorial services and special or externally funded research projects, the hiring of
individual JOs are being resorted to without any public bidding. Again, all is done at the
discretion of the head of government agency or unit. In fact, the heads of some state
universities and colleges do not even bother to submit the contracts of services of JOs to their
governing boards for approval or even just for notation.

And because an employer-and-employee relationship does not exist under the Procurement
Law, JOs are not entitled to security of tenure and such privileges and perks enjoyed by
regular or permanent employees, such as membership with the GSIS, sick leave, vacation
leave, maternity or fraternity leave, attendance in trainings and seminars, 13th month pay,
year-end bonuses and cash gift. They are, moreover, not also entitled to official travel, per
diems and allowances. They have to spend their own money if their tasks require them to
travel now and then outside their official station.

In a number of cases, the COA has disallowed and directed heads of government agencies to
return to the government payments made for the travel expenses and per diems of their JOs in
field works and the cash gifts or year-end bonuses appropriated them. Shrugging off the risk,
still some heads of agencies continue to grant travel allowances and year-end benefits to their
favored JOs in manner that evades or circumvents the law.

Needless to say, the practice of hiring individual job orders makes the head of agency an
autocrat in his domain, renders the government merit system inutile, compromises
performance quality, and promotes discrimination, injustice and anomaly in the service.

[MindaViews is the opinion section of MindaNews. William R. Adan, Ph.D., is a retired

professor and the first chancellor of the Mindanao State University at Naawan, Misamis
Oriental. He trained, as a British Council Fellow, on environmental management at Sheffield
University, United Kingdom. He was former consultant of the Local Government Support
Programme (LGSP) on institutional development in northwestern Mindanao. He once served
as national consultant to the Asian Development Bank-Department of Environment and
Natural Resources (ADB-DENR) project on integrated coastal resources management.]

THE NATIONAL issue of “endo” (short for end-of-contract or the termination of a worker’s fixed short-term employment) has been in the
limelight for some time now, but has not seen its conclusion yet.

Ending the practice of “endo” was reportedly a campaign promise of President Duterte. In fulfilling this promise, the Department of
Labor and Employment (DOLE) issued a Department Order in March 2017 that provides a set of implementing rules for Articles 106 to
109 of the Labor Code, declaring the absolute prohibition of labor-only contracting. In addition, the President issued an Executive Order
in May 2018 that emphasized the prohibition against illegal contracting or subcontracting of labor.

Then, sometime in June 2019, Congress submitted to the President for signing into law a bill that explicitly prohibits labor-only
contracting and broadens its meaning by specifying the requirements for job contractors who may be allowed to do job contracting.

The passage of the bill elicited strong objections from the business sector, as a strict reading of the bill indicates it would prohibit most
forms of contractual labor that, historically, various businesses need to access to suit the peculiarities of their operations.

The President vetoed the bill in late July 2019 and expressed that “…while labor-only contracting must be prohibited, legitimate job-
contracting should be allowed, provided that the contractor is well capitalized… Businesses should be allowed to determine whether
they should outsource certain activities or not…”

The labor sector, of course, strongly disagreed with the veto. The business sector was relieved.

I thought I would delve into this matter to try to contribute to the debate. Many may consider the issue as mainly legal in character, but I
think it is more in the realm of economics.

I find that the issue, as repeatedly reported in the press, to be unclear. I thought the “endo” issue related exclusively to the fixed short-
term employment of workers, which is continually renewed and also known as “5-5-5.” Under such a practice, a worker’s employment,
which is done through job contracting or by direct hiring by employers, is only for five months and then their employment ends. The
same worker may again be contracted for or hired by the same employer for another five months and so on. In the case of job
contracting, the contractor pays the workers’ compensation, social security, and other employment benefits.

I looked at the Labor Code and discussed this matter with a friend who is a practicing labor lawyer to gain a better understanding of
“endo” and the issues surrounding it.

Under Article 106 of the Labor Code — the main article that was amended under the vetoed bill — the Secretary of Labor and
Employment can issue regulations to prohibit certain contractual labor practices as “labor-only contracting” as defined in the Code. And
this is exactly what the DOLE Secretary did in 2017, although the Order did not specifically identify “endo” or “5-5-5” as labor-only
contracting.

A large business organization has indicated publicly that the said DOLE Order effectively prohibits “endo.” My own reading of the Order
indicates that “endo,” as described above, is indeed labor-only contracting and is, therefore, prohibited.

If, indeed, the issue is just about “endo” as described above, the DOLE Order and the subsequent Presidential veto message should
have ended it. But these actions did not.
Obviously, there is a wider issue. Because of their nature, contractual and fixed-term employments, of which “endo” is just a part, is
discontinuous and, therefore, the workers lack security of tenure (SOT). And here lies the wider issue. The labor sector is seeking SOT
for workers under contractual and fixed short-term employments.

And the pursuit continues. Right after the Presidential veto, a bill was filed in the Senate which is essentially the same as the vetoed bill.
A bill was also filed in the House of Representatives that prohibits all forms of contractualization and fixed short-term employment.
DOLE also prepared its own proposed bill that expresses that job contracting is generally allowed, except for “core business activities or
functions unless in cases of seasonal and project work arrangement.” Core business activity and function is defined as “An activity or
function that is an integral part of the principal line of business of the contractor.” This DOLE draft bill also emphasized that the
contractee shall not exercise control over the workers. This draft bill appears to prohibit most job contracting work. Fixed short-term
employment is also prohibited, except in certain cases.

There was a recent news item reporting that a coalition of the country’s largest labor groups sent a position paper to DOLE indicating
that the Coalition finds its draft bill unacceptable for certain reasons. I could not obtain a copy of the position paper, but it may be similar
to the provisions in the House bill.

Here is where the wider “endo” issue stands today.

In trying to resolve the issue, it may be helpful to list the various forms that “job contracting,” the term that floats around and is used in
the Labor Code and DOLE Order, may encompass.

Job contracting may include contract manufacturing, which is commonly used in the pharmaceutical and electronics industries and
maybe in a few more. In this business activity, the contract manufacturer has its own facilities, including machinery, and hires its own
workers. Then there are service providers that mainly provide labor service but maintain some facilities to enable them to carry on their
business, such as janitorial services providers, messengerial services providers, and the like. Professional firms, such as accounting,
law, and maybe other professions, also provide a similar form of services. There may also be temporary worker agencies that provide
other types of temporary labor. In all these types of service organizations, the workers are employed by the service firm as its
employees and whose work are generally not controlled by the contractee, except in temporary work agencies, where control is
exercised by the contractee.

There are also contracted construction workers. The DOLE Order indicates that this activity is governed by a separate set of rules.
Seasonal agricultural workers compose another group.

And finally, there is the “endo” or “5-5-5” — the type that triggers the current wider issue of SOT. In this type of job contracting, the
contractee exercises control over the workers.

In a direct way of stating it, the central issue is whether all forms of contractual or fixed short-term employment are to be prohibited in
order to provide workers SOT. This is exactly the position taken in the House bill.

It should first be noted that contractual and fixed short-term employment are part and parcel of any national economy. It is more
prevalent in a setting where there is an abundance of labor, a condition that creates opportunities for business-minded people to
organize workers in a manner that offers a cheaper source of manpower supply to business entities. Businesses, on the other hand,
always seek lower cost of operations. Moreover, their needs necessarily vary. There are peaks and valleys in their businesses and, as a
prudent measure, they maintain an optimal workforce that is below the peak and above the valley. When business is low, it absorbs the
cost of unproductive labor; when business is high, they seek contractual labor.

That’s the macro view. Let’s look at the details.

Contract manufacturing is resorted to by a principal, generally, a foreign company, because it needs only a low volume of production
and it is a cheaper alternative as opposed to building its own facility in the country. Under that contractual arrangement, the principal
can sell its products in the country at a lower price as opposed to producing them itself or importing them. This type of work
arrangement appears to be prohibited under the House bill and the DOLE draft bill. If this type of contracting is disallowed, the principal
will either import the products or discontinue selling them in the Philippines. In either case, the country loses job employment and
suffers a reduction in economic output.

The general language in the House bill may be interpreted to mean that service providers, such as messengerial and janitorial services
and professional services, are also prohibited. The DOLE draft bill allows them if the contractee does not exercise control over the
workers. Whatever is prohibited, such activities will cease to exist. Those businesses that used to access these services will very likely
get the work done by their existing employees or by adding a few workers. But the net effect is reduced employment and decreased
output.

Other kinds of temporary services are accessed by business entities to meet some unplanned and unanticipated needs and
emergencies; the contractees exercise control over the workers. This type of contracting is clearly prohibited in both the House bill and
DOLE draft bill and, therefore, will cease to exist. The effects will be the same as those discussed for other types of prohibited
contractual work.

“Endo” is a cost minimization pursuit where labor demand is matched by adequate supply. It is prohibited in the DOLE Order, as well as
in the House bill. It is also prohibited in the DOLE draft bill, because it is an arrangement where the contractee has control over the
workers. Such a prohibition will result in higher labor costs and, as such, will likely result in reduced employment to temper the effect of
the higher cost.

Under the House bill, project workers — which most likely include construction workers — and seasonal workers are deemed regular
workers. They will not earn any pay and, presumably, social security benefits between projects and seasons, but they stay in the labor
pool and have the right of first refusal for the next project or season. By being regular workers, they may be entitled to retirement
benefits under the amended Labor Code. If so, these benefits will add to the cost of their employers. Under the DOLE draft bill, they are
considered regular employees only during the time they are at work.

In sum, the prohibition of contractual and fixed short-term employments, with or without any exception, will lead to reduced employment
and economic output. In some cases, it may also lead to higher labor costs.

I cannot find a ready measurement of the size of temporary employment in whatever form this is defined. But there is an alternative,
although rough, indicator — the underemployment rate. As reported for July 2019, the underemployment rate is 13.9% (15.6% in
January 2019). This proportion of underemployed workers to total workers is high, indeed and, therefore, the economic effects
mentioned above cannot be ignored.

There is a more compelling consideration why prohibiting contractual work must be studied carefully. The two principal pillars of our
economy are the millions of Overseas Filipino Workers (OFWs) who remit their earnings to the country, and the foreign jobs that are
outsourced to our shores that create millions of local employment. OFW work is clearly contractual and fixed-term, while business
processing work that is outsourced to the Philippines is similar to contract manufacturing. If we find foreign contractual work acceptable,
why do we find such work arrangements unacceptable for Philippine business? It is a case of having double standards.

Perhaps, we should define the wider “endo” problem differently and move away from the fixation on SOT. Firstly, we must find and list
abusive practices in job contracting and fixed short-term employment and prohibit them, instead of prohibiting entirely these work
arrangements themselves. Secondly, we should change our laws to permit contractual and fixed short-term workers to earn wholly
portable and higher retirement benefits. I will leave the first one to the experts. Lack of space does not permit me to expound further on
the second one. However, it can be done by somehow combining the retirement benefits provided under the Social Security System
(portable) and the retirement benefits under the amended Labor Code (non-portable) into the former.

The wider “endo” issue, because of its nature, is a big challenge. The government needs to show brilliance in providing a resolution to it
— a fair resolution that will redound to the greater good of all of our citizens. This is not difficult to find.

Benjamin R. Punongbayan is the founder of Punongbayan & Araullo, one of the Philippines’ leading auditing firms.

As published in BusinessWorld, dated 08 October 2019