The Truth About Project Labor Agreements

On Jan. 18, President Obama issued an executive order, Improving Regulation and Regulatory Review, urging federal agencies to review and fix costly federal regulations that “stifle job creation and make our economy less competitive.”

In an opinion editorial published in The Wall Street Journal (“Towards a 21st Century Regulatory,” 1/18/11), President Obama wrote:

“Sometimes, those rules have gotten out of balance, placing unreasonable burdens on business – burdens that have stifled innovation and have had a chilling effect on growth and jobs.”

Section 6 of the executive order calls for federal agencies to conduct a welcome “Retrospective Analyses of Existing Rules.”

TheTruthAboutPLAs.com suggests that the administration review and roll back a regulatory scheme designed to steer lucrative federal construction contracts to unionized contractors and create jobs primarily for union labor.  It’s a huge payback to the White House and Congressional Democrats’ biggest political supporters: Big Labor. These special interest deals needlessly inflate construction costs, leading to fewer roads, bridges, schools and sewers for taxpayers, as well as fewer construction jobs in an industry facing 20.7 percent unemployment. 

The schemes are called government-mandated project labor agreements (PLAs) and the Obama administration is encouraging federal agencies to use them on a case-by-case basis when agencies build federal construction projects costing more than $25 million.

On April 13, 2010, the Federal Acquisition Regulatory (FAR) Council issued a final rule (pdf), effective May 13, implementing President Obama’s Feb. 6, 2009, pro-PLA Executive Order 13502 into federal procurement regulations.

While it is true that the PLA final rule does not mandate PLAs on all federal construction projects — and it offers agencies some flexibility when deciding whether to mandate a PLA on a specific large-scale construction project — the decision to agree to a PLA should be left up to individual contractors and not forced onto qualified contractors by government agencies as a condition of winning a federal construction contract. 

PLAs discourage competition from qualified nonunion contractors that employ 85.5 percent of the construction workforce — those who have decided not to join a union. PLAs also force contractors to sign a union agreement that saddles nonunion contractors with archaic and inefficient union work rules and forces them to hire most or all of their labor from union hiring halls. Studies have found that the red tape associated with PLAs increases the cost of PLA construction projects by as much as 18 percent compared to similar non-PLA projects. 

Officials reviewing existing regulations may claim the FAR Council’s PLA final rule is flexible — and therefore should not be repealed – but the reality is that the White House, agency political appointees, certain members of Congress and Big Labor bosses frequently pressure federal bureaucrats in charge of construction procurement in the hopes of forcing them into mandating a PLA.

This pressure removes discretion and replaces it with the fear of retribution.

The FAR Council should repeal the PLA Executive Order 13502 for two key reasons if Obama is serious about:

“…looking at the system as a whole to make sure we avoid excessive, inconsistent and redundant regulation. And finally, today I am directing federal agencies to do more to account for—and reduce—the burdens regulations may place on small businesses. Small firms drive growth and create most new jobs in this country. We need to make sure nothing stands in their way.”

First, PLAs have a disproportionately negative impact on small businesses. A 2009 report from the U.S. Small Business Administration (SBA) found that the construction industry has one of the highest concentrations of small business participation (more than 86 percent). Because few small businesses are unionized, they are discouraged from participating as a subcontractor on large federal construction projects subject to a PLA. How will these businesses grow if they can’t compete on a level playing field with larger unionized contractors and are forced into the false choice between agreeing to a PLA or opting not to compete for federal construction subcontracts?

Second, the federal regulatory system spends a tremendous amount of time and money encouraging participation from small businesses, disadvantaged businesses, and minority and women owned businesses through agency programs and small disadvantaged business participation mandates in federal procurement regulations. The use of PLAs may impede the ability of potential offerors and subcontractors to meet federal small, minority and disadvantaged business utilization goals and mandates.  As is often the case in the complex web of regulatory red tape, the PLA regulation has unintended consequences and actually counteracts existing regulations and federal resources devoted to addressing the growth of disadvantaged businesses.

The fact that PLAs harm small businesses and weaken the contracting community’s ability to meet federal small and disadvantaged business utilization laws and regulations is one of many reasons why the Small Business & Entrepreneurship Council and the following groups are opposed to government-mandated PLAs: Associated General Contractors, Construction Industry Round Table, Independent Electrical Contractors, National Association of Government Contractors, National Association of Minority Contractors – Philadelphia Chapter, National Association of Women in Construction, National Black Chamber of Commerce, National Federation of Independent Business, National Ready-Mixed Concrete Association, National Utility Contractors Association, U.S. Chamber of Commerce and Women Construction Owners and Executives, USA.

Congress even held a hearing on Aug. 6, 1998, “The Administration’s Policy of Discrimination: Project Labor Agreement’s Negative Impact on Women and Minority Owned Small Businesses” about this very issue when President Clinton promoted PLAs on federal construction contracts as another payback to his political base.

The construction community shouldn’t count on the Obama administration repealing PLA regulations. The WSJ editorial board is skeptical of Obama’s sudden concern with regulations, considering the fact that his administration has watched and directed unprecedented and costly regulatory growth (“Obama’s Rules Revelation,” 1/19/11).

An Op-Ed in The Washington Examiner (“Obama’s Executive Order Rules Out Real Regulatory Reform, 1/18/11) also expresses skepticism about the ability of the Obama administration to cut regulatory red tape. It provides examples of how regulation impacts the ability and cost of businesses hiring people, such as:

“OSHA overreach, the Davis-Bacon Act, new requirements that will have Americans chopping down entire forests to print 1099 tax forms, EPA regulation of carbon dioxide, and FCC regulation of the Internet.” 

ABC sent a letter to Rep. Darrell Issa (R-Calif.) explaining the serious and negative impact of regulations on the construction industry. The PLA regulations is at the top of this list.

If President Obama won’t repeal federal PLA regulations, Congress has the opportunity to protect all taxpayers and businesses while creating ideal conditions for economic growth and job creation.