In Russia facility services became popular when foreign companies entered Russian market and active development of private property. The first service of this kind was professional cleaning of the premises. Over time, the range of services has been expanded, and companies that offer a comprehensive approach to facility maintenance began to appear on the market, those companies considered cleaning as a part of multiservice or, in other words, a facility service. According to the estimates of the Federal Tax Service of Russia, the turnover of companies operating in this area exceeded 365 billion rubles ($6,4 bln) in 2016, that fact allows us to speak about the whole industry, which the newly created National Association of Facility Operators (NAFO) is called upon to form.
Facility operators are multiservice companies, their focus area is internal and external cleaning, equipment and networks maintenance, security, vehicle fleet maintenance outsourcing. And NAFO intends to unite the efforts of all market players of professional cleaning and technical operation to form a new industry that operates on the principles of quality and safety of services, as well as the law-abiding business. The need for unification arose for a number of reasons. The problems of the industry are: low level of social protection of working staff of cleaning contractors; the use of aggressive methods of tax optimization, which ultimately lead to dumping when concluding contracts (participation in tenders). They need to be solved.
The widespread appliance of illegal tax optimization schemes led to the situation where large cleaning compantractors became, in fact, aggregators of services and, having received a contract from the customer, were forced to attract subcontractors, providing low-cost labour. According to the studies of National Research University “Higher School of Economics” (HSE), almost half of Russian employers face labor violation, receiving hidden wages. This global all-Russian problem could not be ignored by the facility segment of the economy, in which, according to the Association’s experts, about 2 million people are involved. That can be easily explained why this happens. So, now the customer forms the prices for the services necessary to him and, trying to reduce his expenses, he chooses the minimum cost. Executives, in turn, are forced to agree to stay the course, but very often it leads to the use of not always legitimate financial schemes, and as a result hidden wages appear, tax underpayment, the acute problem of migrants.
At the same time, the domestic tax service develops the idea of working not with individual legal entities, but with whole branches. The Federal Tax Service is conducting serious work in this direction. The results of implementation of this approach are obvious: the quality of state administration of taxation has significantly improved, and the Federal Tax Service of Russia is recognized as the most effective in the world. In particular, according to the Deputy Head of the Federal Tax Service, Daniel Egorov, the use of the software package “ASK VAT-2” allowed tax officials to reduce the number of applications for illegal VAT refund by almost 8 times and reduce the number of short-lived companies by 2.5 times.
Customers, by the way, also should not forget about the responsibility for non-observance of due diligence in assessing the tax conscientiousness of the counterparty.
Under these conditions, the unification of the operators of cleaning and maintenance services is a logical step in order to work with the state to bring the industry to the level of absolute transparency of business. For example, the formation of a new civilized market of facility services already this year will allow official employment of about 500 thousand people. They will stop receiving hidden salaries in short-lived companies. Under the new conditions, conscientious players will be able to draw “shadow” workers from the “gray” sector of economy, providing them with decent working conditions, officially declared salary, payment of all taxes and compulsory insurance payments from the payroll fund.
This factor will also affect the growth of taxes and fees for the industry. NAFO experts have calculated that from the current 3-5 billion rubles per year the volume of payments to the budget from multiservice companies working in a transparent civilized market are quite capable to overcome the mark of 50 billion.
To achieve these global targets, National Association of Facility Operators has developed so called roadmap.
First, within the Association at the moment, market participants have already reached an agreement about the “rules of the game.” These rules allow competing not at the expense of violation of laws, but due to competent and high-quality work.
Secondly, the activities of the facility operators within the NAFO are based on the principles of the Ethical Charter, which prescribes the requirements for the business of participants in the professional cleaning and technical operation market: strict observance of labor, tax, migration legislation and caution in selecting counterparties. NAFO appeals to all market players to sign this document.
Thirdly, the members of the Association will control the transparency of pricing and the observance of fair competition policy. The participation of facility operators in tenders of 2018 will be monitored, and any attempts to underestimate prices unreasonably, which eventually lead to violations of tax laws, will be resolutely stopped with the involvement of the Federal Tax Service and Federal Anti-Monopoly Service of Russia.
Fourth, NAFO priorities include the development of pricing principles, which include all taxes and fees that are required by law, taking into account registered regular staff. Practical methods of counteracting unfair competition based on minimization of taxation have already being developed, which will later transform to the platform of recommendation and ways of changing the market of facility services at the legislative level.
The combination of the professional cleaning and technical operation market into a common facility sector will allow the industry to reach international level and NAFO will be able to enter International Association of Facility Managers (IFMA) as a full associate member. This association unites the companies of the industry with a total world turnover of 1 trillion dollars. Best practices of foreign experts in the field of facility management will be implemented by NAFO in Russia.
NAFO is a serious, long-term project. It is in our common interest to change the market so that competition means the quality of the services. This is a serious challenge, but we accept it!
Author: Sergey Ivlev, Head of NAFO PR Department