The Truth About Project Labor Agreements

While researching the use of government-mandated project labor agreements (PLAs) in West Virginia in advance of Wednesday’s deadline for a U.S. Army Corps of Engineers (USACE) survey about a potential PLA mandate on a large-scale federal project in Harpers Ferry, W.Va., TheTruthAboutPLAs.com went back in time to revisit another real-world example of how discriminatory PLA schemes needlessly increase costs and reduce competition.

In February 2000, Wyoming County, W.Va., voters approved a $7 million bond for $5 million worth of construction for Westside High School and $1 million for outdoor athletic fields at both Westside High School and Wycoming County East High School.

On May 8, 2000, the local board of education mandated a union-favoring PLA on construction funded by the bond. Many speculated the PLA was mandated via a back room deal in exchange for construction trade unions’ assistance in getting the school bond measure passed by voters.

After months of opposition by contractors and taxpayers against the discriminatory PLA mandate, the county opened bids subject to a PLA mandate Dec. 12, 2000.

As expected, officials experienced weak competition and bids exceeded the project’s budget by roughly $1.5 million.

On Dec. 18, 2000, officials reconvened and voted to rebid the project without a PLA.

When PLA-free bids were later opened, the results were not surprising. (See documents here).

Without a PLA mandate, the number of bids increased by 67 percent (15 bidders without a PLA vs. nine bidders with a PLA) and costs decreased by 11 percent ($12.889 million with a PLA vs. $11.482 million without a PLA).

It should be noted this project was covered by state prevailing wage laws so wage and benefit rates were the same with or without the PLA mandate and school construction plans were identical. The only difference was the PLA mandate and the timing of bids, which was negligible.

Research Supports Anecdotal Evidence

Four subsequent studies researching the effect of PLA mandates on a large sample of public schools subject to state prevailing wage laws in California, New York, Connecticut and Massachusetts found results similar to this West Virginia anecdote: PLA mandates typically increased costs between 12 percent and 18 percent compared to similar non-PLA projects.

Likewise, research conducted by the New Jersey Department of Labor and Workforce Development found PLA mandates on New Jersey schools increased construction costs by an average of 30 percent and PLA projects took an average of 100 weeks to complete, in contrast to 78 weeks for non-PLA projects (learn more here).

Back to the Future: School Projects Bid With and Without PLA Mandates Prove PLAs Reduce Competition and Increase Costs

TheTruthAboutPLAs.com has collected more than a dozen other examples of federal, state, and local projects that were bid with and without PLAs. In every instance, either fewer bids were submitted under the PLA mandate than were submitted without it or the costs to the public entity went up—or both.

Here are recent notable examples involving school construction:

Connecticut

This spring, Middletown, Conn., may rebid the Maloney High School project after bids subjected to a PLA mandate busted budgets by 13 percent and reduced competition from qualified local firms and their skilled employees. Two school projects in Middletown, the Snow Elementary school in 1996 and the Middletown High School in 2005, benefited from increased competition and reduced costs once the projects were rebid without PLA mandates.

Kentucky

In Kentucky, the Carter County Board of Education rescinded a controversial PLA mandate on the Tygart Creek Elementary School after the school district failed for the second time to receive construction bids within the $12 million scope of the project. Bids opened in October 2010 exceeded estimates by about $1.1 million. When first advertised in late 2009, the project’s low bids were more than $2 million above budget. In addition, the PLA mandate was subject to a legal challenge.

In the face of the PLA-related lawsuit, increased costs and reduced competition resulting from the PLA mandate, the PLA was removed in time for the third and final round of bidding. PLA-free bidding resulted in an $11.6 million contract awarded within the project’s $12 million budget, for a net cost savings of $1.5 million.

Ohio

In 2010, the Ohio School Facilities Commission was forced to rebid a planned PLA project to replace the state’s schools for the deaf and blind after only two firms bid on the general trades contract work, with the lowest bid exceeding the estimated cost by 44 percent. After removing the PLA, 12 firms bid for the general trades work, with a low bid 20 percent under the commission’s estimate.

New Jersey

On April 21, 2009, the Blackhorse Regional School District in Camden County, N.J., accepted bids for a HVAC replacement project at Triton Regional High School subject to a PLA. The lowest bid submitted was $866,784 but all bids were rejected.  On Sept. 9, 2009, the project was re-bid without the PLA requirement. Every other aspect of the original project’s drawings and specifications remained unchanged. According to bid results, the same union contractor submitted the lowest bid of $646,130.  The only difference between the two bids was the PLA, which needlessly increased costs by 25 percent.

In this instance, a union contractor was awarded the contract in a fair, open, and competitive bidding process and Camden County saved $$220,654 by eliminating a PLA requirement.

Massachusetts

In 2006 the City of Fall River, Mass., adopted a PLA on multiple school construction projects.  As a result, fewer than half of the contractors who were prequalified by the city for the job ended up submitting bids. After bids for the projects came in millions of dollars over budget, Fall River mayor Edward Lambert was forced to abandon the PLA mandate and rebid the project without a PLA. Now that the project was truly open to competition from qualified union and nonunion firms, the number of bids nearly doubled and the prices plummeted.  Fall River Councilor Joseph Camera wrote:

“With the first rebid, 64 bids came in, compared to 21 when the PLA was used.  Furthermore, the costs were cut by 17 percent, and every trade had multiple bidders, even electrical.”

Fall River taxpayers saved $8.5 million from a combination of lower bids and the need to borrow less money. A December 2006 report by the Beacon Hill Institute at Suffolk University, “Project Labor Agreements and Financing Public School Construction in Massachusetts,” reviews this real-world case study supporting BHI’s previous research on the effect of PLAs on school construction costs. This packet of articles provides additional information.

California

The Oakland Unified School District solicited 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 with a PLA mandate. During the second round of bidding a week later, only three companies bid on the PLA project. The low bid exceeded $2.2 million, more than $437,000 (24 percent) higher than the original non-PLA bid of $1.8 million. In addition, the winning firm increased their bid by $167,000 from their first bid, providing a direct apples-to-apples comparison measuring the cost of a PLA requirement. (Learn more here).

In addition, there are similar examples of school projects bid with and without PLAs during the ’90s from Massachusetts, Missouri and Ohio.

Non-School Projects

Non-school projects bid with and without PLAs have also experienced reduced competition and increased costs.

New Hampshire

A U.S. Department of Labor Job Corps Center in Manchester, N.H., was originally bid with a PLA mandate in 2009. After nearly three years of PLA-related delays and litigation, the project was rebid without a PLA. Bid results from February 2013 proved the PLA increased costs and reduced competition. Without a PLA, there were more than three times as many bidders (nine versus three) and the low bidder’s offer was $6,247,000 (16.47 percent) less than the lowest PLA bidder in the March 2012 round of PLA bidding. In addition, firms that participated in both rounds of bidding submitted an offer that was, on average, nearly 10 percent less than when they submitted a bid with a PLA. Without a PLA, a local firm from New Hampshire won the contract. In contrast, the low-bidder under the PLA mandate was from Florida. Here is an apples-to-apples comparison between the two rounds of bidding, proving that PLA mandates reduce competition and increase costs.

New York

In 2011, general contractor Lancaster Development submitted a PLA-free bid to the NYSDOT on a contract to upgrade Route 17 and the Exit 122 interchange in Orange County, New York (pdf). Following political pressure, NYSDOT added a PLA requirement just 13 days before the bid deadline. Lancaster, a nonunion, open shop firm, had already prepared a PLA-free bid and submitted its bid with explicit provisions that it wouldn’t sign a PLA. When bids were opened, Lancaster was the low bidder at $68 million, $4.5 million below the next lowest (and PLA compliant) bidder. NYSDOT did not accept Lancaster’s PLA-free bid and litigation ensued. In short, NYSDOT rejected $4.5 million of savings (6.6 percent) on a $72.5 million highway contract due to the PLA. This anecdote demonstrates there is a cost to PLA requirements on highway projects.

Washington, DC (GSA Building)

In 2010, the U.S. General Services Administration (GSA) awarded a $52.3 million federal contract to a general contractor to build the Lafayette federal building in Washington, D.C., but then forced the contractor to sign a change order and build it with a union-favoring PLA. This change order cost taxpayers an additional $3.3 million. While not a direct comparison of a project bid with and without a PLA, this is an anecdote demonstrating PLAs increase construction costs on federal projects.

California

Four PLA-free bids to construct the Glen Arm Power Plant in Pasadena, Calif., were submitted in November 2002, with the low bid of $14,947,520 from Sermaatech. Due to political pressure, the Pasadena City Council rebid the project with a government-mandated PLA and received just three bids in March 2003. In the second round of bidding, Sermatech again turned in the lowest bid, offering to do the work for $17,231,697 (a 15.2 percent increase). According to news reports and supporting documents, the contractor said the additional cost of $2,284,177 was “100 percent” due to the PLA, and that the city actually removed several work items from the contract.

Virginia/Maryland

The Wilson Bridge spanning the Potomac River between Maryland and Virginia, was temporarily subjected to a union-favoring PLA requirement. Originally estimated to cost $450 million to $500 million, in Dec. 2001 the Wilson Bridge’s superstructure contract received just one bid at a price of $860 million – $370 million more than engineering estimates (a 78 percent cost increase).  Eventually, the Wilson Bridge superstructure project was rebid without the government-mandated PLA into three smaller bid packages. In Oct. 2002, multiple bids were received on each of the smaller contracts, and the winning bids came in significantly below the engineering estimates.

Ohio

In Jan. 2001, bid prices for general contractor, mechanical and electrical contracts to build Elyria City Hall subject to a government-mandated PLA totaled $8,005,300. In February, 2001, following pressure from the contracting industry and a legal challenge to the PLA requirement, the project was rebid without a PLA mandate.  According to media reports and primary bidding documents, the PLA-free bids came in at $7,606,000 which is a savings of $399,300 or five percent.

Bottom Line

This anecdotal evidence suggests government-mandated PLAs have an impact on both cost and competition.  When considering whether to mandate PLAs on taxpayer-funded projects, it is wise for lawmakers go back in time to consider evidence to predict the future.

Let us know if you have any similar examples of projects bid with and without PLAs from your neighborhood.