Report Documents Increased Costs on PLA Projects
As part of our ongoing series publishing the truth about government-mandated projects labor agreements (PLAs), here is a chapter documenting Increased Costs on PLA Projects from Maury Baskin’s Government-Mandated Project Labor Agreements: The Public Record of Poor Performance (2011 Edition).
II. Increased Costs on PLA Projects
Proponents of PLAs frequently claim that such agreements will achieve cost savings. To the contrary, the public track record of a significant number of government-mandated PLAs to date has reflected significant cost overruns. The following union-only projects have been the subject of published reports of increased costs on PLA projects.
In the mid-1990s, the Roswell Park Cancer Institute in New York was partially constructed under a union-only PLA. Comparisons of bid packages released under the PLA and bid packages undertaken without any union requirement revealed that costs of construction under the government-mandated PLA were 48 percent higher than without the PLA. Projects not subject to the PLA were 13 percent under budget. Projects bid under the PLA were 10 percent over budget. [1]
Similarly, in Buffalo, N.Y., a PLA was imposed on the Northwest Academy school project in 1998. Bids were more than 20 percent over budget, and the price tag soared from an estimated cost of $26 million to $32.4 million. The school board was forced to cut $4 million from projects at other schools to make up the deficit.[2]
Also in Buffalo, a Democratic legislator proposed naming the new Erie County Courthouse the “Flimflam-50 Percent Courthouse.” Referring to the product of a government-mandated PLA, the legislator stated: “We’ve been flimflammed and now we’re 50 percent over budget.”[3]
In Rochester, Minn., bids were opened under a union-only PLA for expansion of the Mayo Civic Center on Sept. 21, 1999. The lowest bid was $14.9 million, 36 percent higher than the city’s budget. On Oct. 5, 1999, the City Board voted to reject all bids, redesign the project and rebid it.[4] The City Parks Superintendent said: “We don’t really know what to do. We were very disappointed with the bids.” Significantly, previous work on the center had been performed without any union-only requirements and had been completed within the city’s budget.
The Boston Central Artery Project (the “Big Dig”) was built under a government-mandated PLA, notwithstanding a court challenge, in the 1990s. Originally projected to cost $2.2 billion, the Big Dig wound up costing more than $14 billion, among the biggest cost overruns in the history of American construction projects.[5] A July 17, 2008 Boston Globe Articlestated, “In all, the project will cost an additional $7 billion in interest, bringing the total to a staggering $22 billion, according to a Globe review of hundreds of pages of state documents. It will not be paid off until 2038.”[6] The scope of the overruns was reported on television’s “Sixty Minutes” and in numerous newspaper reports, and allegations of fraud and waste on the Big Dig resulted in a Congressional investigation and years of litigation.[7] As discussed in later sections of this report, the excessive cost of the Big Dig did not result in higher quality or safety of construction, as there were a number of fatalities among the union workers, massive leakage throughout the tunnel, and ultimately a tunnel collapse that killed a motorist.[8]
The San Francisco Airport, whose PLA was upheld by the California Supreme Court in part on the ground of expected cost savings, subsequently went hundreds of millions of dollars over budget in 1999. Following the court decision in favor of the PLA, published estimates indicated the airport would exceed its $2.4 billion budget by more than $400 million.[9]
The Eastside Reservoir project east of Los Angeles, built under a government-mandated PLA, was the nation’s largest earth moving project in the late 1990s. In October 1998, the project reported a $220 million (11 percent) cost overrun. The increase was attributed to payment of overtime wages under circumstances mandated by the PLA. [10]
The City of Elyria, Ohio, rejected the low bid of a nonunion construction contractor for its City Hall project because the contractor refused to sign a government-mandated PLA. The project was rebid, and the only bids received by the city were more than $600,000 higher on a $10 million project under the PLA. A court intervened and forced the city to rebid and award the work to the low bidder, without the PLA, resulting in more than $600,000 of cost savings.[11]
In Washington, D.C., a new convention center was projected to cost $685 million in 1998.[12] After a government-mandated PLA was signed, however, costs ballooned to more than $840 million by the time the project was completed.[13]
Another convention center in Boston, again built under a PLA, likewise suffered from cost overruns in 2001. Construction managers were “stunned” at the size of the cost overrun, which was deemed “likely to soar nearly $100 million over the allotted $750 million for the project.”[14]
The pattern was repeated on the Iowa Events Center, constructed under a government-mandated PLA from 2003 to 2004. Though estimated to cost $200 million prior to the PLA being imposed, the center was several million dollars over budget by mid-2003.[15] The cost rose to $217 million by 2005.[16]
The $2.4 billion project to replace the Wilson Bridge between suburban Maryland and Virginia was temporarily subjected to a union-only PLA requirement by former Maryland Gov. Parris Glendening in 2000. After the PLA was imposed, only one bidder responded to the RFP for Phase 1 of the project, at a bid price more than $370 million above the state’s engineering estimates—a 78 percent cost overrun.[17] After President Bush issued Executive Order 13202 prohibiting union-only PLAs on federally assisted projects like this one,[18] Phase 1 of the Wilson Bridge project was rebid without a government-mandated PLA. This time, multiple bids were received and the winning bids came in significantly below the engineering estimates.[19] The megaproject ultimately was completed on time and on budget, with no government-mandated PLA.[20]
In Seattle, the PLA construction of Safeco Field for the Seattle Mariners experienced very high cost overruns in 1998.[21] The original estimate for the new stadium was $320 million. The stadium’s final price tag was in excess of $517 million, a 60 percent increase.
In Cleveland, Ohio, the cost of the Gund Arena originally was estimated at $118 million. After the governing agency entered into a union-only PLA, the final cost came in at $148 million—$30 million (25 percent) more than estimated.[22]
The cost of the Cleveland Browns’ stadium, also constructed pursuant to a government-mandated PLA, was $21 million over the estimate in 1998. The union-only bids for the stadium were millions of dollars higher than the estimates. The final cost of the stadium was reported to be at least $61 million more than the original estimate, an increase of 25 percent.[23]
Comerica Park, the Detroit Tigers’ baseball stadium, was expected to cost $260 million in 1999. A PLA was signed and, upon completion of construction, costs were reported to be in excess of $320 million.[24]
Construction of a new baseball stadium for the Washington Nationals in Washington, D.C., under a government-mandated PLA ran significantly over the budgeted $611 million.[25] By contrast, Baltimore’s nearby Camden Yards and Washington’s own FedEx Field, among many other stadiums around the country, were built without any PLA requirements, with no cost overruns.
A 2001 study published by the nonpartisan Worcester Regional Research Bureau estimated that PLAs increased costs for a new vocational school by approximately 15 percent. The report expected a PLA to add $15 million to the school’s construction costs.[26] City officials in Worcester subsequently admitted that a PLA added to the construction costs of a $21.5 million parking garage. The city’s public works director estimated the additional costs at $365,000.[27]
A PLA was imposed on the Pasadena, Calif., power plant in 2003 after non-PLA bids had already been submitted. As a result of the PLA, the winning bidder announced its bid would go up $2.3 million, roughly a 15 percent cost increase.[28]
The Oakland Unified School District put out a call for bids on the Burkhalter Elementary School in 2002 and received a low bid of $1.8 million (out of seven bidders) for the construction work. Prior to contract award, however, the school district entered into a PLA for all of its school projects, resulting in rebidding the work. This time, only three companies bid on the PLA project, and the low bid exceeded $2.2 million, more than $437,000 (24 percent) higher than the original non-PLA bid.[29]
Hartford Public High School in Connecticut encountered significant cost overruns after the government imposed a PLA in 2004. As reported in the Hartford Courant: “Some components of the job received few or no bids. The bids that did arrive were several million dollars more than the $82 million that voters approved seven years ago.”[30]
A 2003 study published by the Beacon Hill Institute examined 126 school construction projects undertaken with and without government-mandated PLAs in the Boston area from 1995 to 2003. The study found that PLAs added $37.88 per square foot to the cost of building schools.[31] One of the study’s authors observed: “It is puzzling to us why any local official would enter into a PLA in the light of local budget realities, as well as our findings.”[32]
A 2004 Beacon Hill study found that union-only PLAs increased the cost of school construction in Connecticut, based upon an analysis of dozens of actual projects built on both a union-only and open competition basis since 1996. According to its Connecticut report, Beacon Hill found that PLAs increase actual project costs by 17.9 percent and that bid costs are raised by 16.6 percent.[33] “Taken together, PLA projects accounted for 1.32 million square feet of construction with a combined actual cost of $224.8 million (in 2002 prices), based on the projects that we were able to include in our study. Our estimates show that this cost was $39.5 million higher than it would have been if PLAs had not been used.”[34]
Finally, a 2006 Beacon Hill study found that the presence of a PLA on New York public schools increased a project’s winning base bid by $26.98 per square foot relative to non-PLA projects, an increase of 20 percent.[35]
Efforts have been made by PLA proponents to rebut the Beacon Hill studies,[36] but such efforts were then refuted in a 2009 report.[37] As noted by Beacon Hill: “All of our findings are highly robust for the effects of PLAs. The PLA coefficient was positive and significant for Connecticut schools when we considered small projects only, large projects only, elementary schools only or other schools weighted by size. The coefficient was positive and significant for both winning bids and actual construction costs for both Massachusetts and Connecticut schools.”[38]
Results similar to the Beacon Hill school studies were independently found in 2010 by New Jersey’s Department of Labor and Workforce Development, which is required to issue annual reports on the use of PLAs pursuant to that state’s PLA Act of 2002. The October 2010 government report stated: “School projects that used a PLA tended to have higher building costs, as measured on a per square footage and per student basis, than those that do not use a PLA.”[39] The report indicated that the indexed cost per square foot for all PLA projects was 30.5 percent higher than for all non-PLA projects.[40]
Elsewhere in New Jersey, the Township of Moorestown was forced to reject all construction bids in 2010 under a PLA for a town hall, library and police complex after the lowest bid came in at $15.7 million, 35 percent higher than the initial construction estimate of $11.6 million. The township mayor subsequently told a town meeting that the union-only restriction was a “bad call.”[41]
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, found that PLAs likely would increase construction costs by as much as 9 percent in three of the five construction markets (Denver, New Orleans and Orlando, Fla.) where the VA was planning to build hospitals. For two other heavily unionized markets, the study predicted mixed results ranging from small project cost increases to small cost savings.[42]
The VA hired the same firm to conduct a similar PLA study for the construction of a $50 million VA Research Office Building in Pittsburgh. The September 2010 study found “a potential cost risk premium of 3 percent to 5 percent if a PLA is mandated. For a $40 million project, this could equate to $1.2 to $2 million.” The study said, “We see that a mandated PLA will reduce subcontractors and lower the labor pool to the detriment of the project, and potentially add cost; therefore, we believe that a PLA would likely not ‘advance the federal government’s interest in achieving economy and efficiency in federal procurement.’”[43]
Finally, in 2010 the General Services Administration (GSA) announced that a change order to adopt a PLA on the Lafayette Building construction project in Washington, D.C., would increase the cost of the project by more than $3.3 million. A Congressional oversight committee is looking into the GSA’s reasons for adopting the PLA and its resulting cost increase.[44]
NOTE: To read the report’s Introduction, click here.
Tomorrow we will post the chapter about Reduced Competition on PLA Projects.
Citations after the jump.
[1] Baskin, The Case Against Union-Only Project Labor Agreements, 19 Construction Lawyer (ABA) 14, 15 (1999).
[2] Board to Absorb Extra Costs as Price of New School Soars to $32.4 Million, Buffalo Evening News, Oct. 29, 1998.
[3] Calling Courthouse a Spade, Buffalo News, Jan. 23, 2000.
[4] Civic Center Bids Exceed the Budget, Post-Bulletin, Sept. 28, 1999.
[5] http//www.issuesource.org.
[6] Big Dig’s red ink engulfs state, Boston Globe, July 17, 2008.
[7] Boston’s ‘Big Dig’ Buried in Cost Overruns, Washington Post, April 12, 2000; Low Bid, $22 Million Over Estimate, Is Approved, ENR, Jan. 13, 1997 at 5; Boston Projects Tracking Higher, ENR, Jan. 20, 1997, at 27.
[8] See below for further reports on safety and quality issues on the Big Dig.
[9] SFO Expansion Project Hundreds of Millions Over Budget, San Francisco Chronicle, Dec. 22, 1999.
[10] Overruns Hit Eastside Project, ENR, Oct. 19, 1998, at 1, 13.
[11] Elyria Risks $610,500 To Get A Union Label, Morning Journal, March 30, 2001.
[12] Convention Center Costs Increase By $15 million, Washington Construction News, March 2001.
[13] Washington Business Journal (March 2003).
[14] Huge Overrun Looms at Convention Center, Boston Globe, Jan. 9, 2001.
[15] Troubled Center Moves Ahead, Des Moines Register, July 12, 2003; Say No to Project Labor Agreement, Des Moines Register, July 23, 2003.
[16] Frantz, et al., The PLA for the Iowa Events Center: An Unnecessary Burden on the Workers, Businesses and Taxpayers of Iowa, Policy Study 06-3, Public Interest Inst. At Iowa Wesleyan College (April, 2009), www.limitedgovernment.org/publications/pubs/studies/ps-06-3.pdf.
[17] Lone Wilson Bridge Bid Comes in 70 percent Above Estimate, Engineering News Record, Dec. 24, 2001; see also Baltimore Sun, March 2, 2002.
[18] See discussion above at page 2.
[19] Unexpectedly Low Bid Keeps Wilson Bridge Under Budget, Washington Post, March 2, 2002.
[20] Wilson Bridge Bike Path Gets Rolling, Washington Post, June 7, 2009; See also Wilson Bridge Span Open Early, Washington Post, June 12, 2006; Woodrow Wilson Bridge Beats Obstacles as It Becomes Beltway Savior, ENR, January 31, 2005.
[21] New Seattle Stadium Battles Massive Cost Overruns, ENR, July 27/Aug. 3, 1998, at 1, 9.
[22] $12 Million to pay for Arena Overruns, Cleveland Plain Dealer, Dec. 14, 1996, at 16-A.
[23] Mayor’s Final Cost at Stadium 25 percent Over, Cleveland Plain Dealer, June 24, 2000; Westbrook says stadium overruns at $21 million, Cleveland Plain Dealer, Jan. 21, 1998.
[24] Stadium On Time, But Costs More, Detroit News, Oct. 31, 1999, B3; see also Field of Woes, Crain’s Detroit Business Magazine, June 18, 2001.
[25] Nationals Park Costs Rise, Sports Commission Struggles, Examiner, Oct. 21, 2008
[26] Worchester Regional Research Bureau, Project Labor Agreements (www.wrrb.org)
[27] Ronald N. Cogliano: Competing for School Construction, Boston Globe, July 10, 2007
[28] Power Plant Costs to Soar, Pasadena Star-News, March 21, 2003.
[29] School Costs Skyrocket After Labor Pact, San Francisco Chronicle, April 28, 2004.
[30] School Project Back in Limbo, Hartford Courant, April 7, 2004.
[31] Beacon Hill Institute, Project Labor Agreements and the Cost of School Construction in Massachusetts (Sept. 2003), www.beaconhill.org.
[32] Boston Business Journal (April 11, 2003).
[33] Beacon Hill Institute, Project Labor Agreements and The Cost of School Construction in Connecticut (Oct. 2004), www.beaconhill.org/BHIStudies.
[34] Id.
[35] Bachman and Tuerck, Project Labor Agreements and Public Construction Costs in New York State (2006),
www.beaconhill.org/BHIStudies.
[36] See Belman, Bodah and Philips, Project Labor Agreements (Electric Int’l 2007), cited in Kotler, Project Labor Agreements in New York State: In the Public Interest (Cornell U. 2009).
[37] See, e.g., Beacon Hill Institute, An Economic Analysis of Government-Mandated PLAs: A Reply to Professor Kotler (2009), www.beaconhill.org/BHIStudies. See also, Tuerck, Glassman and Bachman, Project Labor Agreements on Federal Construction Projects: A Costly Solution In Search of A Problem (2009), www.beaconhill.org/BHI Studies. See also, Tuerck, Why Project Labor Agreements Are Not in the Public Interest, Cato Journal, Volume 30 Number 1, Winter 2010,
[38] Id. at 27.
[39] Annual Report to the Governor and Legislature, use of Project Labor Agreements in Public Works Building Projects in Fiscal Year 2008 (NJDOL Oct. 2010), available at www.thetruthaboutplas.com.
[40] Previous annual reports from New Jersey’s Department of Labor came to similar conclusions about the poor performance of PLAs. See, New Jersey Letter to the Editor Tells the Truth About PLAs, (Nov. 9, 2010). Available at www.TheTruthAboutPLAs.com.
[41] Council ponders next move on project, CourierPostOnline.com (May 18, 2010), available at www.courierpostonline.com.
[42] Project labor Agreements – Impact Study for the Department of Veterans Affairs, Rider Levett Bucknall (June 2009), available at www.thetruthaboutplas.com.
[43] Project Labor Agreements – Impact Study, Pittsburgh, Pennsylvania, Rider Levett Bucknall (Sept. 2010), See also, ABC Wins Another Challenge Against Government-Mandated Project Labor Agreements on Federal Construction Projects, (Jan. 6, 2011), available at www.thetruthaboutplas.com
[44] Hemingway, Mandatory PLAs Put Dollars Into Union Coffers, Washington Examiner (Dec. 5, 2010).