Big Labor Crashes Dulles Metro Rail Press Conference, Stifles Objections to Costly Project Labor Agreement Scheme

0 April 20, 2011  State & Local Construction, Transportation & Infrastructure, Uncategorized

On April, 18 Laborers Union (LIUNA) Local 657 and other members and paid astroturfers guests of the Washington Metropolitan Council, AFL-CIO, bused in disruptive protestors from Washington, D.C., and Maryland to crash a press conference held by U.S. Rep. Frank Wolf concerning $3.5 billion worth of construction for Phase 2 of the Dulles Metro Rail project in Northern Virginia.


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Rep. Wolf called the press conference to object to the Metropolitan Washington Airport Authority’s (MWAA) April 6 decision to build an underground metro station at Dulles Airport that will cost Dulles Toll Road users, as well as Virginia, Fairfax County and Loudoun County taxpayers, an additional $330 million.

Along with Rep. Wolf, Loudoun County Chairman Scott York, Ryan Dunn of the Virginia Chamber of Commerce and Pat Dean of Associated Builders and Contractors (ABC) Virginia Chapter spoke outagainst MWAA’s resolution mandating a union-favoring project labor agreement (PLA). MWAA’s pro-PLA resolution will give construction labor unions (like the out-of-state protestors bused in) a virtual monopoly over supplying labor to build Phase 2 of the project, which will begin at Wiehle Avenue (where Phase 1 ended) and terminate at Ashburn in eastern Loudoun.

ABC Virginia President Pat Dean’s stated MWAA’s PLA mandate will soak Virginia taxpayers with an estimated 12 percent to 18 percent in additional construction costs, discourage competition from Virginia construction firms and discriminate against 96 percent of the Virginia construction workforce that chooses not to belong to a union.

In short, the anti-competitive special-interest PLA will bust budgets and lead to out-of-state workers (such as the LIUNA local 657 “members” bused in to protest) stealing jobs from qualified Virginia construction workers and taxpayers–despite the fact Virginians are footing the bill for this project.

In a letter sent to MWAA officials, Rep. Wolf criticized MWAA’s recent fiscally-irresponsible decisions that could jeopardize the financing of Phase 2 construction under current funding models and agreements with local financial stakeholders; (i.e., MWAA, the Commonwealth of Virginia, Fairfax County, Loudoun County and Dulles Toll Road users).

Phase 2 Cost Increases Will Bust Financing Models. Is This Virginia’s Big Dig?
Rep. Wolf and local financial stakeholders have good reason to be concerned about the financing for Phase 2, as project costs are escalating quickly. Originally projected to cost $2.5 billion, Phase 2 has ballooned to more than $3.5 billion (and growing), and the project has not even broken ground yet. In addition, MWAA officials have not adequately calculated the added cost increases resulting from the PLA, nor realized potential cost savings from opening the project to a voluntary or PLA-mandate free competitive bidding process.

The financial agreement for the Silver Line says that MWAA, Loudon County and Fairfax County will fund a percentage of total Silver Line cost of 4.1 percent, 4.8 percent and 16.1 percent, respectively. This means their costs grow and shrink depending on the overall Silver Line project costs.  The Commonwealth of Virginia is contributing a fixed total of $275 million. Dulles Toll Road revenue and bond proceeds (controlled by MWAA) will cover the remaining costs (about 55+ percent of the total costs). (This presentation compares the cost impact of having an above ground or a below ground metro station at Dulles Airport).

In order to raise enough money to service the construction and debt needed to complete the Silver Line, MWAA hired consultants to help project a schedule of toll rates, assuming a Phase 2 budget of $2.5 billion. The July 2009 WilburSmith Associates report projected a toll rate schedule with Dulles Toll Road users paying $11.25 each way in 2047 (see table ES-2). An alternate toll schedule  projects motorists to pay $16.75 each way in 2047 (see table 6-3 on p. 124). The study makes some crystal ball assumptions for traffic in the later years of the schedule, which makes these projections somewhat unreliable.

Even with annual inflation, these tolls are a steep commuting cost for the average Virginia motorist in the Dulles corridor.

The critical issue is that it is unclear if the financial models and agreements account for the additional $1 billion in Phase 2 construction cost (and growing) in addition to the initial $2.5 billion Phase 2 cost estimate, which has to be paid by somebody and will result in higher taxes, toll increases, cuts in other infrastructure spending or a combination of all three.  Will higher tolls drive motorists off the Toll Road and deprive the Silver Line revenue it needs to pay its bills? Is this financing a recipe for future financial shortfalls and chaos?

An article in Leesburg Today points out key issues raised in the letter about the Phase 2 PLA (“Union Protestors Crash Wolf Press Conference On Dulles Rail Station,” 4/18):

While contract terms for the Phase 1 project had similar language, Wolf pointed out in a letter to MWAA board chairman Charles Snelling, “it was entered into voluntarily by Dulles Transit Partners and Bechtel after the contract was signed, and expressly exempted merit shop contractors from agreeing to the PLA.

“Requiring firms to agree to the use of a PLA before contracts are awarded would be a significant departure from the Phase 1 agreement,” the letter reads.

Calling on the MWAA board to abandon its plans for a PLA for Phase 2, Wolf’s letter points out that “several large construction firms” have already stated they will not submit a bid for the project if they are required to agree to a PLA.

“Fewer bids will decrease competition and drive up costs,” the letter states. “In addition the firms that may decline to bid on a PLA contract are merit-based companies. Discouraging their bids will make Phase 2 subject to more costly union hiring, work and pension regulations.”

Dulles Transit Partners Built Phase 1 with a Voluntary PLA
As mentioned in Rep. Wolf’s letter to MWAA, Dulles Transit Partners (DTP) (Bechtel and URS) completed Phase 1 of the Metrorail Project under a voluntary PLA entered into by DTP after it already had been awarded the Phase 1 contract.[7] In addition, merit shop contractors were exempted from being subject to the agreement.[8]

This is a significant detail, as the resolution indicates the Phase 2 PLA is going to be mandated by MWAA on prime contractors prior to contract award. Prime contractors and subcontractors interested in competing for these contracts likely will be forced to agree to a PLA (it is unclear if the PLA will have already been negotiated by MWAA) in MWAA’s request for proposal (RFP), which is how contractors get the information needed to submit bids to win Phase 2 contracts. If they do not sign the PLA prime contractors and their subcontractors can’t win the project.

What Is a Project Labor Agreement?
Typical PLAs are pre-hire contracts that require projects to be 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 from union apprenticeship programs;
  • pay into union benefit plans (such as underfunded and mismanaged pension plans); and
  • obey costly, restrictive and inefficient union work rules.

When mandated by government agencies, these agreements are very controversial in the construction industry because they are special interest schemes that end open, fair and competitive bidding on public works projects.

Anti-competitive PLA mandates drive up the cost of construction by discouraging competition from merit shop contractors (commonly known as nonunion contractors because they are not signatory to union agreements, they typically hire union and nonunion employees, and they work alongside/hire union subcontractors based on merit) and their skilled employees from building projects paid for by their own tax dollars.

Merit shop contractors are not prevented from bidding on PLA projects, but they must agree to follow the terms and conditions of a PLA in order to win a contract. While some provisions of a PLA are standard practice in the construction industry, typical PLA provisions put merit shop contractors at a competitive disadvantage by forcing them to adopt inefficient union work rules and hire unfamiliar union workers, subjecting firms to needless costs and uncertainties during the bidding process. The added costs and inefficiencies make it difficult for merit shop contractors to win PLA contracts against union/pro-PLA contractors.

How Will a PLA Impact Costs, Competition and Jobs for Virginians on Phase 2?
Government-mandated PLAs discourage (if not eliminate) competition from qualified merit shop contractors that can offer the best possible construction project at the best possible priceto MWAA and taxpayers.[3]

A government-mandated PLA on this project is especially problematic in Virginia because only 3.9 percent of the state’s private construction workforce belongs to a union.[4] (Only 13.1 percent of the U.S. private construction workforce belongs to a union.[5])

While it is unclear how much the PLA will add to the Dulles Phase 2 project at this time (because the final agreement has not been drafted, and because costs vary from project to project and market to market), studies in states with prevailing wage laws (where wage and benefit rates are a controlled variable) have found that PLAs typically increase the cost of construction between 12 percent and 18 percent compared to similar non-PLA projects.[6]

PLA advocates maintain a PLA mandate is the only way to ensure union-scale wages and benefits. But the truth is, a PLA is not needed to implement prevailing wage and benefit rates. This project already was going to be subject to federal Davis-Bacon Act prevailing wage and benefit rates for Fairfax County, despite the fact that Phase 2 has no federal money. (Phase 1 was subject to federal prevailing wage rates because it received federal money and MWAA’s Phase 2 construction estimates assumed federal prevailing wage rates.) Qualified merit shop contractors have no problem complying with prevailing wage laws, but they are discouraged from competing for contracts subject to PLAs.

About six prime contractors are interested in competing for Phase 2 contracts. Three of the six prime contractors and their preferred subcontractors are opposed to government-mandated PLAs and might be discouraged by the PLA mandate, depending on the details of the agreement and how it is utilized in the procurement process.  A PLA will give three of the interested prime contractors, including Phase 1 winner DTP, a significant advantage in the competitive bidding process, as the PLA may effectively cut competition from experienced and qualified contractors and subcontractors opposed to PLAs.

If contractors believe PLAs are beneficial, they should voluntarily enter into them after they have been awarded the project, as was the case in Phase 1. MWAA should not mandate these agreements if they contain anti-competitive/pro-union provisions.

It is unclear if the Phase 2 PLA will exempt merit shop subcontractors like the voluntary Phase 1 PLA. However, upon request, MWAA staff released a Heavy & Highway Construction Project Agreement by the National Heavy & Highway Coalition that may be the type of agreement MWAA committees will implement on Phase 2. It is very similar to the Phase 1 PLA.

Considerable evidence suggests the agreement will not be modified to exempt merit shop subcontractors, as union special interests serving on the MWAA board will benefit from a PLA extending to all merit shop subcontractors, assuming any are part of winning teams that submit Phase 2 bids.

MWAA Member Dennis Martire Is Engaged in Self-Dealing
MWAA member Dennis Martire is chairman of MWAA’s Planning and Construction Committee. He also is employed as the vice president and Mid-Atlantic regional manager of the Laborers’ International Union of North America LiUNA with an annual salary of $266,000, plus a generous benefit and pension package.[9] Martire’s employer, LiUNA, and its local affiliates, (such as LiUNA Local 657, which bused in the protestors), and their various benefit funds, will receive a financial windfall from the Phase 2 PLA that could easily exceed tens of millions of dollars.[10]

For example, Phase 2’s sample PLA forces contractors to pay to a Construction Industry Labor-Management (CILM) Trust Fund $375 for every $1 million of the project’s award amount, with a contribution cap of $50,000 per contractor per project (see Section 2.2). If Phase 2′s construction costs are at $2.5 billion ($3.5 billion is the estimated total cost), that adds up to a maximum financial windfall of $937,500 for the life of the project that will go into the trust/union slush fund.

According to the sample PLA:

“Contributions to the Trust are payable withing ninety (90) days once the Notice to Proceed is received, and shall be made payable to the Construction Industry Labor-Management Trust and forwarded to 905 16th Street, N.W., 4th floor, Washington, D.C., 2006.”

The national headquarters of Martire’s employer, LiUNA, is located at that address and LIUNA and its membership benefit financially from CILM activities.

These trust funds are not required to disclose their spending and are used for a variety of purposes, including attacking merit shop contractors, funding PR campaigns promoting union contractors and political spending. These trust funds are largely unregulated and unaccountable. For example, a California trust fund extorted $90,000 from a developer and then sent a portion of that money to attack a ballot initiative that local construction unions opposed.

The potential $937,500 financial windfall to the CILM trust fund doesn’t even count the other required employer and employee contributions to various union benefit funds as part of the PLA and related collective bargaining agreement.

The wage and benefit schedule contained in the current LiUNA collective bargaining agreement for LIUNA Local 657 and Local 11 (the LiUNA locals with jurisdiction over this project) highlight the wage and benefit rates contractors must pay to their union laborers if they are party to this agreement. Appendix A (page 20) lists the following hourly contributions contractors are required to pay to union funds by contractors (after contractors collect the hourly deductions from each Laborer’s paycheck):

Pension: $1.99
Health and Welfare: $3.01
Training: $0.25
LECET: $0.10
CCC Industry Fund: $0.08
Total:  $5.43 per hour

Here is the section from the CBA on union dues:

“…the Employer agrees to deduct union dues in the amount of 5% of gross wages as well as other authorized deductions from net pay after taxes and remit same to the appropriate Local Union.”

This excel worksheet estimates the financial windfall LiUNA and various LiUNA funds will receive from a Phase 2 PLA mandate. Here are the total amounts based on current information:

Pension: $21.544 million
Health and Welfare: $32.587  million
Training: $2.706 million
LECET: $1.082 million
CCC Industry Fund: $833,113.22
Dues: $8.081 million
Contractors pay to CILM: $937,500 max.

This does not include other fees, or voluntary contributions to political or other union-managed funds not included in the union collective bargaining agreement that union members might have to opt-into or opt-out of during the life of the Phase 2 project.

Clearly, a PLA will benefit LiUNA and the various LiUNA funds with millions of dollars of new revenue.

Other construction unions have similar arrangements that force contributions from tradesmen and contractors, resulting in a large financial windfall to union institutions, their members and their various funds.

Unions typically support Democrats, which is a key reason why MWAA members appointed by Democrats or affiliated with the party supported this PLA resolution. The public officials that appointed them will eventually benefit from union political contributions funded by this PLA.

Martire has been an advocate for a government-mandated PLA on Phase 2. He authored this paper, [11] voted for the PLA resolution, spoke at MWAA Dulles Corridor committee meetings in support of the PLA and helped MWAA member Michael Curto introduce the PLA resolution.

Martire’s MWAAA bio lists him as “a former Trustee to the National Heavy and Highway Alliance” (the very same group that drafted the proposed Phase 2 PLA and the Phase 1 PLA voluntarily signed by DTP) and Martire is also the Chairman of the Mid-Atlantic Laborers’ Employers Cooperation and Education Trust (LECET), which is a union fund contractors/employees are forced to pay into under the current LiUNA collective bargaining agreement. Here is more on LECET from their website:

“The Laborers-Employers Cooperation and Education Trust (LECET) brings the Laborers’ International Union of North America (LIUNA) and its signatory contractors together to address issues of importance to both. Laborers and their employers share a lot of common ground. Working as a team, they secure projects and jobs, increase union-sector market share, advertise their services, develop a workforce, and advance shared market-related interests.”

As the evidence demonstrates, at the very least, Martire should have excused himself from engaging in this decision, as this self-dealing undermines the public trust given to MWAA; is a common-sense disregard for integrity; and is a direct violation of the code of ethical responsibilities MWAA board members must follow.[12]

Wilson Bridge Redux?
Stakeholders concerned about the anti-competitive and costly impact of the government-mandated PLA on Phase 2 of the Dulles Corridor Metrorail project should look at the results and controversy surrounding other government-mandated PLAs in the Washington, D.C., area, including the Wilson Bridge.  The $2.4 billion project to replace the Wilson Bridge between suburban Maryland and Virginia was temporarily subjected to a union-favoring 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.[13]

After President Bush issued Executive Order 13202 prohibiting PLAs on federally assisted projects like this one,[14] the mega-contract for the Wilson Bridge project was rebid into smaller contracts without a government-mandated PLA. This time, multiple bids were received and the winning bids came in significantly below the engineering estimates.[15] The mega-project has been completed on time and on budget by union and merit shop contractors, with no government-mandated PLAs.[16]

What’s Next?
MWAA should rescind the resolution mandating a PLA on Phase 2 of the project. Doing so will encourage full and fair competition from Virginia’s qualified prime contractors and subcontractors, as well as reduce construction costs.

Abandoning this special interest PLA scheme will give local construction professionals who will be harmed by the PLA – specifically, the 96 percent of Virginia’s construction workforce that does not belong to a union – a fair shot at working on projects funded by local and state taxes and tolls. Such fairness would be a welcome act of good government as the construction industry faces a 20 percent unemployment rate.[17]

Everyone wins by introducing maximum competition for Phase 2 construction contracts by eliminating a PLA mandate. Fair and open competition will create more jobs for Virginia construction workers, reduce costs to Phase 2 financial stakeholders and keep future toll rates down. The current and future economy of the Dulles Corridor depends on cost-efficient rail and road infrastructure.

Removing the Phase 2 mandate will help MWAA deliver the best possible construction product at the best possible price to Virginia taxpayers and Dulls Toll Road users.

If you would like more information about the PLA on Phase 2 of the project, please send us a note here.

Here is Media Coverage from this week
Washington Examiner Editorial
Leesburg Today
Washington Times
Fairfax Times
Loudoun Times
NBC 4 News
Channel 9 News
Channel 7 News
WTOP
Labor Union Report
Washington Examiner (04/14)

Footnotes after the jump.


[1] See attached “Resolution No.11-8” obtained via request from MWAA staff. The PLA discussion was first publicly announced on an agenda contained in this media advisory, sent on Monday, 4/6/11. The vote was at 8AM on Wednesday. There was little time for comment prior to the meeting and no opportunity to ask questions or present concerns to MWAA members at the actual meeting.  The resolution passed 11-2.

[2] MWAA staff said minutes from the meeting will not be released until they are approved after the next MWAA meeting on May 5, 2011, but it was reported that MWAA board members Davis and Cobey voted against the PLA resolution.

[3] You can learn more about government-mandated PLAs at www.thetruthaboutplas.com

[4] www.unionstats.com , just 6.7 percent of Maryland’s private construction workforce belongs to a union. There is not data on union membership in Washington, D.C.’s private construction workforce.

[5]U.S. Department of Labor Bureau of Labor Statistics http://www.bls.gov/news.release/union2.nr0.htm

[6] Studies are available at www.abc.org/plastudies

[7] The PLA was executed 12/15/05. Attached is the proposed Heavy and Highway Construction Project Agreement from the National Heavy and Highway Coalition that applied to Phase 1. Here is the proposed Phase 2  Highway and Highway Construction Project Agreement.

[8] See paragraph 8 of Dulles Corridor Metrorail Project Labor Agreement Final Addendum, Heavy and Highway Construction Project Agreement, Construction of Phase 1 – Fairfax County, Virginia. “Subcontracting:…It is further understood that in the event any covered work is awarded to a merit shop contractor the contractor shall not be required to sign this agreement or sign any other agreement as a condition of performing work on this project.”  

[9] See Form LM-2 from 2010 filed with the U.S. Department of Labor Employment Standards Administration, Office of Labor Management Standards. Martire made approximately $266,000 from LiUNA in 2010.

[10] It is difficult to calculate the financial benefit of the Phase 2 PLA to LiUNA, LiUNA locals, LiUNA members and their related pension, benefit and union slush funds until the PLA is finalized and estimates for the project construction costs and projected man-hours are more refined.

[11] Project Labor Agreements: Advantages for Capital Construction Projects, Dennis L. Martire, Laborers’ International Union of North America, Dec. 2008

[12] See MWAA Code of Ethics on Direct and Indirect Financial Interests: http://www.metwashairports.com/file/CodeofEthicsDirectors.pdf

[13] Lone Wilson Bridge Bid Comes in 70 percent Above Estimate, Engineering News Record, Dec. 24, 2001; see also Baltimore Sun, March 2, 2002.

[14] Executive Order 13202 (Feb. 17, 2001), as amended, Executive Order 13208 (April 6, 2001). President Bush’s executive order was upheld against claims of labor law preemption in Building & Const. Trades Dept., AFL-CIO v. Allbaugh, 295 F. 3d 28 (D.C. Cir. 2002).

[15] Unexpectedly Low Bid Keeps Wilson Bridge Under Budget, Washington Post, March 2, 2002.

[16] 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.

[17] http://www.bls.gov/iag/tgs/iag23.htm

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