Independent Study Finds PLAs Increase Construction Costs

11 November 2, 2009  Federal Construction, Uncategorized

A TruthAboutPLAs.com reader sent us a June 2009 study conducted by property and construction consulting firm Rider Levett Bucknall prepared for the U.S. Department of Veterans Affairs (VA) Office of Construction and Facilities Management.   The VA hired this firm to evaluate the cost impact of project labor agreements (PLAs) in various markets where the VA plans to build hospitals.

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The government-funded study found that PLAs would likely increase construction costs by as much as 9 percent on three of the five construction markets (Denver, New Orleans and Orlando) in which the VA is planning to build hospitals.

For the other two markets, San Francisco and New York City, the study predicted mixed results ranging from small project cost increases to small cost savings.

In San Francisco:

“…a PLA would be relatively cost neutral ranging from -1.5% to +1.5% in a poor economy.  In a stable economy we see that the effect of a PLA in San Francisco would have  a construction cost increase range from 0% to 3%.”

In New York City:

“….a PLA could be used to negotiate construction cost savings of approximately 2% to 5% in a poor economy.  In a stable economy we see that the effect of a PLA in New York would be relatively cost neutral ranging form -1.5 to +1.5%.”

The study belies Big Labor’s bogus claims that PLAs offer considerable cost savings to project owners.  At best, these special interest agreements offer a small amount of cost savings only in unique areas where union market share is strong (such as NYC) and “a PLA can offer concessions to normal union work rates and rules” that would otherwise be prevalent on a construction project absent a PLA.

The study’s conclusion highlights a main reason why nonunion contractors oppose government-mandated PLAs: PLAs shackle nonunion contractors with expensive and wasteful inefficiencies that are unique to a union contractors’ business model. These discriminatory and costly agreements prevent nonunion contractors from offering the best bid at the best price.  The report finds that PLAs increase production costs of nonunion contractors:

 “Whether or not a project has a PLA should not affect productivity or schedule in terms of the rate of production per day – as a project will be manned accordingly by subcontractors to meet schedule.  However, there is strong evidence to suggest that the result of a PLA that dictates work rules, double benefits, team structure and activities on non-union type contractors will be that production costs will increase – given these union related requirements.”

What about Big Labor’s selling point that PLAs are necessary to avoid strikes?

“Strikes have become a rare event in U.S. construction and given the main original and advocated benefit of a PLA was to prevent strikes in isolated, non-union areas, the PLA adds very little value to the no-strike arguments as both PLA and non-PLA advocates cite many examples for projects where there have been strikes but also no strikes — unrelated to whether or not a PLA is in place.”

And finally, what about all of the other “kitchen sink” arguments PLA proponents push as compelling reasons to sign a PLA?

“Targeting safety, employment of minority and women owned businesses, meeting prevailing Davis-Bacon rates, ensuring 100% worker eligibility status for project workers and focusing on preventing strikes, can all be contract clauses and procurement approaches without a PLA.”

For a thorough and fair examination of the impact of government-mandated PLAs on federal construction projects, be sure to read “Project Labor Agreements – Impact Study for the Department of Veterans Affairs.”

Given the findings of this independent study, why is President Barack Obama encouraging government agencies to require the use of PLAs on federal construction projects exceeding $25 million via Executive Order 13502?

Update: Kevin Duncan, a Professor and Senior Economist at the Healy Center for Business and Economic Research at Colorado State University prepared this white paper attacking Rider Levett Bucknall’s analysis of a PLA mandate on a VA facility in Denver. Duncan prepared the report for A. Neal Hall, Business Manager for the Colorado Building and Construction Trades Council for an undisclosed sum. It is worth noting Duncan is critical of RLB’s opinion-based research via interviewing industry stakeholders, when that is the exact approach used by Hill International, Arace and Associates and other PLA feasibility consultants celebrated and supported by construction trade unions because they consistently recommend the use of PLAs.

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11 Responses to Independent Study Finds PLAs Increase Construction Costs

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