Overview
On Feb. 17, 2001, President George W. Bush issued Executive Order 13202, which maintained government neutrality in federal contracting and prohibited the government from requiring contractors to adhere to a project labor agreement (PLA) as a condition of winning federal or federally funded construction contracts. PLAs needlessly increase construction costs, discourage competition from nonunion contractors and stifle job creation for nonunion employees in the construction industry, which is presently suffering from an unemployment rate of more than 20 percent. Between 2001 and 2008, this executive order protected $147.1 billion worth of federal construction and hundreds of billions of dollars worth of federally assisted construction spending from government-mandated PLAs.
On Feb. 6, 2009, President Obama issued Executive Order 13502, which repealed Executive Order 13202. In addition, Executive Order 13502 strongly encourages federal agencies to require PLAs on a case-by-case basis on federal construction projects costing more than $25 million. On April 13, 2010, the Federal Acquisition Regulatory (FAR) Council issued a final rule implementing Executive Order 13502 into federal procurement regulations, effective May 12, 2010.
Although the final rule is not a mandate on all federal construction contracts costing more than $25 million – as a blanket PLA policy likely would be struck down by the courts immediately – the rule affords federal officials discretion about whether a PLA is appropriate for qualifying federal contracts. Additionally, procurement officials will be subject to intense political pressure from special interest groups and politicians to mandate PLAs.
During the 111th Congress, ABC will continue to meet with members of Congress, the Obama administration and federal agencies procuring construction services to adamantly oppose any effort to require PLA mandates on federal and federally funded construction projects.
What Is a PLA?
Anti-competitive PLAs are special interest kickback schemes that end open, fair and competitive bidding on construction projects.
Typically, a PLA is a contract awarded only to contractors and subcontractors that agree to recognize unions as the representatives of their employees on that job; use the union hiring hall to obtain workers; obtain apprentices exclusively through union apprenticeship programs; pay fringe benefits into union-managed benefit and pension programs; and obey the unions’ restrictive and inefficient work rules, job classifications and arbitration procedures.
Contracts subject to PLAs are special interest set-asides designed to funnel work to unionized contractors and their unionized workforces, which represent just 14.5 percent of the U.S. private construction workforce, according to 2009 Bureau of Labor Statistics data. Merit shop contractors, their employees and many communities strongly oppose PLAs because they discourage open competition.
Merit shop contractors and employees argue that PLAs are unfair to nonunion employees because they limit or completely prohibit a contractor from employing their existing nonunion employees on a PLA jobsite. The few nonunion employees allowed to work on a PLA project are required to pay union dues even though they are not union members. Employers also are required to contribute to union benefit and retirement plans on behalf of their nonunion employees for the life of the PLA project. The nonunion employees will not benefit from their employer’s contribution unless they join the union and/or become vested in the union benefit and retirement plans.
An October 2009 report by Dr. John R. McGowan found that employees of nonunion contractors forced to perform under government-mandated PLAs suffer a reduction in their take-home pay that is conservatively estimated at 20 percent.
The McGowan report also found that had President Obama's pro-PLA Executive Order 13502 applied to applicable federal contracts in 2008, additional costs incurred by employers related to wasteful PLA pension requirements likely would have ranged from $230 million to $767 million per year. Lost wages for nonunion construction workers would have ranged from $184 million to more than $613 million, depending on the assumptions made for companies executing contracts via PLAs. In total, the move to PLAs would have cost nonunion employees and their employers $414 million to more than $1.38 billion annually.
According to a September 2009 study by The Beacon Hill Institute (BHI), PLAs significantly increase construction costs on federal projects without providing corresponding benefits to taxpayers or construction owners. The study found that if President Obama’s Executive Order 13502 were in effect in 2008, federal construction costs would have increased an additional $1.6 billion to $2.6 billion.
BHI used the results of three previous studies measuring the effect PLAs have on school construction projects in Massachusetts, Connecticut and New York—which determined PLAs add 12 percent to 18 percent to construction costs—to estimate the effect Obama’s executive order would have had on federal construction projects initiated in 2008.