Rule expected to stifle competition, raise costs, impair disadvantaged firms
Project labor agreements (PLAs) – pre-hire bargaining agreements between contractors and labor unions that establish a construction project’s terms and conditions – have been around since the 1930s.
But they didn’t become a source of debate until the 1990s when they sought to tip the scales in favor of their use on federally funded projects. The controversy spread into the 21st Century with Obama’s Executive Order 13502, which encouraged, but did not require, federal agencies to use PLAs on large-scale construction projects of $25 million or more.
For roughly the last 30 years, successive Democratic and Republican presidents have issued various policies that gave a preference for or against PLAs on federal construction projects. Early on and throughout these different administrations, AGC publicly and consistently advocated for government neutrality – no mandate or prohibition – of contractors’ use of PLAs on any construction project. (AGC neither supports nor opposes contractors’ voluntary use of project labor agreements on federal projects but strongly opposes any government mandate or prohibition of contractors’ use of project labor agreements.)
Today, Biden’s Executive Order 14063 seeks more: Not to encourage, but to require PLAs on all federal construction projects of at least $35 million. The proposal, introduced in February 2022, prompted immediate backlash, including a strong rebuke from AGC.
“Such a choice should not be imposed as a condition to competing for, or per- forming on, a publicly funded project,” ACG CEO Stephen E. Sandherr stated in a February 4, 2022, press release. “The proposed rules will result in ‘build back fewer:’ fewer firms hiring fewer people to build fewer projects.”
In August 2022, the Federal Acquisition Regulation (FAR) Council backed up Biden’s executive order by proposing to amend FAR, which oversees government procurement in the United States. Through FAR Case 2022-003, the Department of Defense (DOD), Office of General Aviation Safety Assurance (GASA), and the National Aeronautics and Space Administration (NASA) seek to implement Executive Order 14063 concerning PLAs in federal construction projects.
Far-Reaching Effects
Proponents of PLA mandates argue that Biden’s rule will improve project completion, control costs, raise wages, enhance safety protections, and expand professional development opportunities. Recent studies, however, reveal starkly different consequences of such a policy, indicating that imposing PLAs will largely prevent contractors from bidding on federal construction projects. For example, in a February 2022 analysis of data from The Construction Advocacy Fund (see page 40), AGC found that federal construction agencies from the DOD rejected PLA mandates 99.4 percent of the time, despite encouragement from the Obama Administration.
Government-mandated PLAs make it impractical and costly for non-union contractors to bid on federal construction projects, drastically limiting the number of competitors per project and driving up costs as a result. Even in the case that a PLA is open to a non-union contractor, that contractor will be forced to make contributions to union-sponsored fringe benefit funds for the life of a construction project, essentially pricing the contractor out of the bid.
“Forcing non-union contractors to become signatories is a bad idea – they’re not used to it, and it’s hard enough finding labor right now,” said AGC member Scott Victor, President and Chief Operating Officer of Nova Group, Inc. “The unions will have the same problem finding labor, so I don’t see this as a good deal for anybody.”
Indeed, in addition to harming open shop contractors, government-mandated labor agreements will hurt union contractors. Because government representatives often negotiate the terms of a PLA themselves, these provisions typically benefit the interests of unions rather than union employers. In doing so, they may ignore provisions of local, area-wide collective bargaining agreements, introducing inefficiencies and raising costs.
The rule may also result in adverse outcomes for the federal government, such as failing to foster greater economic value and efficiency.
“It will force good, open-shop contractors not to bid on work, driving costs up for the federal government – they’re not going to see the benefits of it,” Victor said. “The approach might work in heavily unionized areas of the northeast or big cities, but when you get to the South or the Midwest, there are not going to be enough union contractors to bid the work.”
Federal government contracts leverage two types of procurement: lowest price technically acceptable (LPTA) and best value (BV); both types are based on detailed qualifications. “If union contractors can’t meet those qualifications, the federal government will end up settling for less-qualified union contractors – because that’s the only option they’ll have remaining,” Victor said.
Impact on Minority Contractors, Talent Pipelines
Every general contractor or subcontractor performing work on government-mandated PLAs must negotiate with unions or become party to union agreements. Unfortunately, this requirement makes it more difficult for contractors to work with small firms, including those owned by veterans, minorities, and people with disabilities.
An AGC survey of nearly 300 members conducted from April 21 to May 5, 2022, backs up this premise. A whopping 82 percent of respondents said the mandate will “make it harder for general contractors to subcontract with small, disadvantaged businesses – such as women-owned, HUBZone, and service-disabled veteran-owned small businesses – because those firms typically are not accustomed or prepared to operate on a union basis.” In addition to limiting work opportunities for traditionally marginalized workers, the survey found that government-mandated PLAs will make it more difficult for firms to find new hires in general. Almost 40 percent of respondents to the same poll reported operating under a collective bargaining agreement, with 83 percent of those respondents stating, “there are not enough union workers to guarantee completion of the project on time and on budget.”
Moreover, 67 percent of firms that reported working under a government-mandated project labor agreement said the agreement “made it harder to find workers to hire” – a devastating prospect in an industry notorious for labor shortages.
What’s Next
The proposed FAR Case 2022-003 will not go into effect until after the council reviews the more than 8,000 regulatory comments and issues a final regulation when it is ready. In the meantime, AGC is prepared to take any overreaching final rule to court and continues to engage Congress.
AGC’s Construction Advocacy Fund: Working to Halth Government-Mandated Project labor Agreemetns, Among other Initiatives
One of the effective mechanisms for emphasizing the needs of the construction industry at both federal and state levels of government is AGC’s Construction Advocacy Fund. Through the Fund, AGC of America financially supports initiatives to broaden contractor markets through research and lobbying and to defend the industry from imposition that may come from government-mandated project labor agreements. It also helps to advocate for construction professionals by funding crucial campaigns that impact policy decisions.
Several industry conflicts arising between the courts, regulatory bodies, state capitals, and Congress make it essential for AGC to create a better regulatory and policy environment. Support for the Fund helps AGC achieve critical legislative priorities, including creating a pipeline for workers in the construction industry, taking on initiatives to increase infrastructure investment, and influencing the development of environmental legislation.
The Fund also helps increase the affordability and quality of employer-sponsored health care, blocking and strengthening regulatory actions aimed at the construction industry and ensuring that tax policies are favorable to all businesses. For more information, visit https://constructionadvocacyfund.agc.org.
AGC’s Stance
AGC neither supports nor opposes contractors’ voluntary use of project labor agreements on federal projects but strongly opposes any government mandate or prohibition of contractors’ use of project labor agreements.