Working Conditions on DFI-Financed Projects: Requirements and Key Points

IFC Performance Standard 2, AfDB OS5, World Bank ESS2 and Principle 5 of the Equator Principles establish a common framework on working conditions applicable to projects under international financing. This framework is underpinned by the fundamental conventions of the International Labour Organization: freedom of association (C087), right to organise and collective bargaining (C098), forced labour (C029 and C105), child labour (C138 and C182), non-discrimination (C100 and C111).

The logic uniting these frameworks is simple: projects financed by public institutions or backed by banks signatory to the Equator Principles must offer working conditions at least equivalent to these international standards, regardless of the state of national law. In countries where ratification and especially effective application of ILO conventions are partial, this requirement creates a substantial gap between local practice and the project standard.

This article presents the four structural chapters of DFI requirements, their extension to contract workers and subcontractors, and the practical points of vigilance that most often arise in lender supervision.

Chapter 1: Working Conditions for Direct Employees

The first chapter covers workers directly employed by the lender's client, including fixed-term or open-ended contract workers, seasonal workers and apprentices. PS2 (paragraphs 8 to 17) details the applicable requirements.

Human resources management policies and procedures. Each project must have written policies describing recruitment rules, conditions of employment, dismissal procedures, disciplinary arrangements, and policies on non-discrimination and harassment.

Conditions of employment. Written contracts, in a language understood by the worker, are mandatory. They detail remuneration, working hours, leave, social contributions and termination rules. Remuneration must respect at minimum the legal minimum wage of the host country, or applicable collective agreements if they are more favourable.

Non-discrimination and equal opportunity. Recruitment, promotion, remuneration and dismissal decisions must be based on objective criteria of qualification and performance, not on origin, gender, religion, trade union membership or any other criterion prohibited by ILO conventions.

Workers' organisations. The client cannot prohibit, discourage or punish the formation of workers' organisations or collective bargaining. Where national law limits these rights, the client must permit alternative mechanisms for representation and discussion with workers.

Workforce reductions. In the event of collective redundancy, an analysis of alternatives, consultation with workers and their representatives, and compliance with applicable national rules are required. The project documents the measures taken.

Chapter 2: Health, Safety and Accommodation

The second chapter addresses material working conditions. PS2 (paragraphs 23 to 26) and the IFC Environmental, Health and Safety Guidelines set out precise requirements.

A safe working environment. Identification of specific risks, prevention plans, appropriate and sufficient personal protective equipment, worker training on risks and emergency procedures, systematic accident investigation. The ISO 45001 standard, or an equivalent system, is often recommended as a framework.

Accommodation, when provided by the employer. Workers' camps on large construction sites must comply with detailed standards in the IFC and EBRD guidelines on workers' accommodation (2009 joint publication, still in reference). Floor space per person, sufficient toilets and showers, individual bed, kitchen and catering facilities, accessible infirmary, separation of men and women, security of access.

Emergency preparedness. Written emergency plans, regular drills, trained rescue teams, available equipment, evacuation procedure to appropriate care facilities.

Chapter 3: Contract Workers and Subcontractors

The third chapter is one of the most demanding and least well mastered. PS2 (paragraphs 27 to 29) extends requirements to contract workers, i.e., workers provided by an intermediary (temp agency, operational subcontractor, service provider) to perform tasks central to the project.

This extension implies that the client cannot outsource its E&S responsibility by outsourcing the works. Three main obligations follow.

Firstly, due diligence on intermediaries. The client verifies, before contracting, the capacity of subcontractors to comply with PS2 requirements (written policies, conditions of employment, health and safety). Signed contracts include clauses requiring subcontractors to comply with these requirements.

Secondly, active supervision. The client monitors, in the field, the working conditions actually provided by subcontractors. Regular audits, interviews with subcontracted workers, handling of complaints they may lodge via the project mechanism.

Thirdly, correction of gaps. When non-compliance is identified at a subcontractor, the client imposes corrective measures, on pain of contractual sanctions including, as a last resort, termination.

Practice shows that this extension is often the first point raised in lender audit. Small subcontractors, sub-subcontractors, workers in catering, security and cleaning of workers' camps concentrate situations of non-compliance that easily escape control.

Chapter 4: Primary Supply Chain

The fourth chapter, introduced forcefully in the 2012 revision of PS2 (paragraphs 27 and 28), addresses the primary supply chain: suppliers who deliver goods or services essential to the core functions of the project, and whose activity presents significant risk of child labour, forced labour or safety issues.

The practical requirement is more modest than for direct employees or contract workers: the client must identify, via proportionate reasonable diligence, the main risks in its primary supply chain and act to mitigate them when detected. The requirement does not aim for exhaustiveness of the complete chain or absolute eradication of risks, but a documented, serious and progressive approach.

For an infrastructure project, typical risks concern material suppliers (quarries, cement works, steel mills), logistics subcontractors, sometimes specific service suppliers. Practice consists in prioritising suppliers by risk level, integrating social clauses into significant contracts, and conducting targeted audits on the most exposed links.

Recurring Points of Vigilance

Five situations systematically arise in lender audit and merit particular attention at the outset.

The confusion between employees and subcontractors. Workers presented as subcontractors function in practice as direct employees (same location, same hierarchy, same duration of engagement, same equipment). This confusion, often practised to avoid social contributions, is detected by the lender and reclassified.

Accommodation conditions out of line with guidelines. Overcrowding, insufficient sanitary facilities, inadequate catering, absence of infirmary. The 2009 IFC/EBRD guidelines remain the reference and are known to supervision missions.

Non-existent workers' grievance mechanism or confused with the community mechanism. The two mechanisms must be distinct, PS2 (paragraph 20) explicitly requires it.

Undocumented migrant workers. On large construction sites in Africa, mobile labour raises specific questions of documents, access to care and accommodation conditions. The project must anticipate these situations rather than suffer them.

Child labour in the primary supply chain. Certain local suppliers (quarries, brickworks, informal transporters) present significant risks. Supplier mapping and a clause on non-use of child labour in significant contracts are minimum measures.

Working conditions on a project under DFI financing are not limited to compliance with national labour law. They mobilise a structured international standard, which extends to subcontractors and, partially, to the primary supply chain. The compliance effort is real, but it unfolds progressively, through maturation rather than overhaul.

For a project owner or construction company entering this framework for the first time, the right strategy is to prioritise: first direct employees, then key subcontractors, finally the supply chain. The reverse order exhausts resources without producing visible results and leaves one open to criticism from supervision missions.