Audit of Contractor Compliance with the Chicago Base Wage Ordinance

The Office of the Inspector General (OIG) conducted an audit to determine if contractors and subcontractors complied with the Chicago Base Wage Ordinance. Similar to living wage laws adopted by cities nationwide, the purpose of the Ordinance is to ensure that City contractors and related subcontractors pay their employees in excess of poverty-level wages, both as a matter of principle and as a means of stimulating the local economy.

Specifically, we reviewed wages paid by four security guard and janitorial service prime contractors identified by the Department of Procurement Services (DPS), as well as those contractors’ subcontractors. OIG found that while the four prime contractors consistently paid their employees the hourly base wage rate required by the Municipal Code of Chicago (MCC) § 2-92-610, three of the four subcontractors paid between $0.02 and $3.04 less per hour. These three subcontractors underpaid 150 employees a total of $22,664 in the four- to six-week periods reviewed each year, resulting in an estimated $291,816 underpayment to the employees over the course of 3 years. OIG also found several smaller wage discrepancies resulting from misapplication of state law or the MCC to overtime and training hours.

OIG concluded that the City did not implement sufficient controls to provide reasonable assurance that prime contractors and subcontractors comply with the Chicago Base Wage Ordinance. OIG recommends that DPS adopt a more proactive approach to promoting wage rate compliance.

To address the underpayments we found, OIG recommends that DPS exercise its existing audit authority and require the contractors and subcontractors reviewed in this audit to identify the total underpayment related to base, overtime, and training wages, and to pay the covered employees any back pay owed. If the contractors and subcontractors do not cooperate, OIG recommends that DPS pursue contractual remedies, if any, and ensure that the City does no further business with these entities for up to three years, as allowed by the Ordinance.

To prevent and detect future wage violations, OIG recommends that DPS take steps to promote compliance among contractors and subcontractors. Such steps may include sending its annual wage increase announcements to subcontractors as well as contractors, and requiring contractors to submit an annual certification of wage rate compliance for themselves and all related subcontractors.

Finally, OIG recommends that DPS provide guidance on monitoring wage rate compliance to all departments that manage contracts with wage requirements. Such guidance should include specific procedures that departments should use to confirm proper base, overtime, and training wages paid by both prime contractors and subcontractors. DPS should also implement procedures to determine whether departments are effectively monitoring wage rate compliance.

In response to our audit finding and recommendations, DPS stated that it issued default notices and requests to cure to the two prime contractors involved, requesting proof that their subcontractors have paid the correct base wages to all of their employees throughout the life of the contracts. If the contractors find the subcontractors have not paid the correct base wage then the primes must submit a corrective action plan to DPS, including a schedule for payment of back wages and periodic updates confirming compliance on a going forward basis.

To prevent and detect future wage violations and to provide guidance on monitoring wage rate compliance, DPS stated that the Mayor’s Office will convene meetings with Department of Finance, Department of Law, and user departments. Through these meetings, the City will develop methods for actively monitoring contractors’ wage rate compliance. Such methods may include compliance certification by prime contractors and subcontractors, implementation of audit procedures, creation of a mechanism to report violations, and enhanced training for staff on audit and review procedures.