The subcommittee, chaired by Rep. James Lankford (R-Okla.), heard testimony about the negative impact of President Obama’s controversial Executive Order 13502 and related regulations, which encourage federal agencies to evaluate whether to require project labor agreements (PLAs) on federal construction projects exceeding $25 million in total cost on a case-by-case basis.

UPDATE 12/9/11: Here is a transcript of the hearing.

Because federal and federally assisted construction projects subject to government-mandated PLAs and preferences discourage competition from qualified contractors and their skilled employees that are capable of performing these taxpayer-funded projects, witnesses and Republican subcommittee members explained how the Obama order has resulted in a dysfunctional federal procurement system rife with favoritism and waste.

“Does requiring a small business with no union affiliation to sign a labor agreement as a condition of doing business with the government increase opportunities for small businesses?” chairman Lankford asked in his opening statement. “Requiring a PLA as a condition to compete serves only to restrict, not increase, competition. The current policy discourages or even excludes nonunion firms, including the vast majority of small businesses, from competing for government projects.”

“Project labor agreements mandated by federal agencies result in increased costs for contractors and taxpayers, unnecessary procurement delays and inject uncertainty and favoritism in the federal procurement process, ” said Associated Builders and Contractors (ABC) member Kirby Wu, 2011 chair of the ABC New Jersey Chapter and president of Wu & Associates, Cherry Hill, N.J.

“Our company and other quality small businesses, general contractors, subcontractors and their skilled employees deserve a fair opportunity to provide the public with the best construction product at the best price.”

Witnesses Say PLA Mandates Are Bad Public Policy
Similar to the testimony at a March 16 House Oversight and Government Reform subcommittee hearing chaired by Rep. Jim Jordan (R-Ohio) on PLA mandates and other regulations harming the construction industry, witnesses described how government-mandated PLAs harm their businesses, employees and taxpayers.

Wu testified about how government-mandated PLAs harm merit shop employees and discourage competition:

“Government-mandated PLAs have the practical effect of creating jobs exclusively for unionized construction tradespeople by forcing union representation or compulsory union membership, inefficient and archaic union work rules, payment of union dues, forced contributions to union pension and benefit plans, and a host of other problems on merit shop employees – like my firm’s employees – that have freely decided not to join a union.

Injecting PLA mandates into the federal procurement process discourages competition from qualified contractors – like my company – who employ 87 percent of the U.S. construction workforce.

It is needless discrimination based on labor affiliation and it hurts merit shop employees as much as it hurts their general contractor and subcontractor employers.”

Wu described his unfortunate experience with a PLA mandated by the U.S. Army Corps of Engineers (USACE) on a 2010 federal project in Camden, N.J., that was eventually the subject of a bid protest filed by Wu with the Government Accountability Office (GAO). In the face of the bid protest, the USACE dropped the PLA mandate and replaced it with an illegal and discriminatory PLA preference that awarded additional credit/points in the best value procurement process to contractors that voluntarily submit a bid containing a promise to utilize a PLA:

“We did not pursue the contract further because we felt it was not worth the investment of additional company resources to prepare the bid and compete against contractors submitting PLA offers in this distorted playing field.

This entire exercise resulted in lost time and money for our small business that we could have invested back into our workforce and company.  It also resulted in needless procurement delays exceeding two months, as the Corp’s bid submission deadline was extended a number of times to accommodate the PLA controversy.

Remarkably, the contract was eventually awarded to a merit shop general contractor at a bid price nearly 15 percent below the $16.5 million estimate without a PLA offer. And today the project is reportedly on time and on budget.  The winning contractor would have been discouraged or eliminated from competing, if not for our efforts to fight the PLA mandate.”

Broad Support for the Government Neutrality in Contracting Act (H.R.735)
Witnesses also advocated for Congressional passage of the Government Neutrality in Contracting Act (H.R. 735), introduced by Congressman John Sullivan (R-Okla.), which prohibits the federal government from mandating anti-competitive and costly PLAs on federal and federally assisted construction projects.

H.R. 735 essentially codifies into law President George W. Bush’s Executive Orders 13202 and 13208, which ensured that taxpayers received the best construction at the best price on more than $147 billion worth of federal construction projects and hundreds of billions of dollars of federally assisted construction projects by prohibiting government-mandated PLAs on federal and federally assisted construction projects. The orders, which maintained fairness and neutrality in government contracting, were repealed by President Obama’s pro-PLA Executive Order 13502 in February 2009, just a few weeks after he assumed the presidency.

“It is clear to us that only Congress can bring a timely halt to the political favoritism in contract awards that is being promoted by the administration in the guise of Executive Order 13502,” ABC General Counsel Maurice Baskin told the subcommittee.  “The bill will prohibit federal agencies once and for all from awarding construction projects based on the willingness or unwillingness of contractors to enter into labor agreements. As the bill states, agencies shall neither require nor prohibit contractors from adopting PLAs as a condition of being awarded federal construction work, nor discriminate on that basis.”

“AGC opposes federal mandates for project labor agreements and supports H.R. 735,” testified Associated General Contractors General Counsel Mike Kennedy.

A diverse coalition of construction industry and employer groups support H.R. 735:

Associated Builders and Contractors (ABC)
Associated General Contractors (AGC)
Construction Industry Roundtable (CIRT)
Independent Electrical Contractors Association (IEC)
Electronic Security Association (ESA)
Merit Elevator Contractors Association of America (MECAA)
National Association of Minority Contractors (NAMC) – Philadelphia Chapter
National Association of Government Contractors (NAGC)
National Association of Women in Construction (NAWIC)
National Black Chamber of Commerce (NBCC)
National Federation of Independent Business (NFIB)
National Ready Mixed Concrete Association (NRMA)
National Stone, Sand & Gravel Association (NSSGA)
National Utility Contractors Association (NUCA)
Small Business and Entrepreneurship Council (SBEC)
U.S. Chamber of Commerce
Women Construction Owners and Executives, USA (WCOE)

Congressman Sullivan Testifies in Support of H.R. 735
Rep. Sullivan testified before the subcommittee in support of H.R. 735 and cited examples of federal and federally assisted construction projects that resulted in favoritism and increased costs as a result of a government-mandated PLA:

“Government-mandated PLAs are not only discriminatory, but they are also hurtful to a struggling industry that is already facing unemployment above 17 percent. For example, yesterday The Wall Street Journal reported on a $70 million highway construction contract in New York – funded at least 80 percent by the Federal Highway Administration – that has been scrutinized for the decision to subject it to a PLA. While 27 percent of New York’s private construction workforce is unionized, that means  the employers of 73 percent of New York’s construction workforces, who having been facing steep job losses over the past few years, are discouraged from bidding for this project. Unfortunately, limiting competition comes at taxpayer expense. The article (pdf) mentions that the PLA cost taxpayers an additional $4.5 million because the lowest responsible bidder, a merit shop contractor, was thrown off the project in favor of a union contractor, because the merit shop contractor would not sign a PLA.”

Rep. Sullivan highlighted the added costs to the federal Lafayette Building project in Washington, D.C., a project TheTruthAboutPLAs.com has written about numerous times:

“A U.S. General Services Administration (GSA) renovation project for the Lafayette Federal Building in Washington, D.C. was awarded to a federal contractor without a PLA at $52.3 million.  However, after this contractor agreed to a PLA pushed by the GSA for the project, the contractor added $3.3 million to the cost of the project.  The added $3.3 million isn’t the result of increased material costs, revised blueprints or a more aggressive completion deadline. The contract was awarded to the same contractor with the same proposal, and the only difference was the PLA.

These are just two examples, but there is no doubt that there are many more stories reflecting the true colors of government-mandated PLAs.”

Rep. Sullivan’s office issued this media statement on the hearing:

“In granting my bill, HR 735, the Government Neutrality in Contracting Act, a hearing today, the subcommittee has taken an important step in reestablishing fair and open competition in federal construction contracting. By overturning President Obama’s executive order, which was designed to funnel contracts to unions, this bill will save and create jobs in the struggling construction industry and potentially save taxpayers billions of dollars in inefficiencies.”

“It is simply unacceptable to allow the federal government to discriminate against 87 percent of the U.S. private construction workforce – and the 98 percent in Oklahoma – who seek federal contracts. American tax payers deserve to know that federal contracts are being awarded based on sound, credible criteria such as quality of work, experience and most importantly cost. Government mandated PLAs can drive up the cost of construction projects as much as 18 percent, which is the last thing our economy can afford right now. We owe it to businesses in Oklahoma and across the country whose livelihood depends on their ability to bid on construction projects in a fair and open process.”

(Note: Read a Feb. 16 statement from Rep. Sullivan on H.R. 735 here.)

Are PLA Mandates a Solution in Search of a Problem?
Professor David Tuerck of the Beacon Hill Institute (BHI) at Suffolk University in Boston summarized BHI’s extensive research on government-mandated PLAs, which found that on average, government PLA mandates add an additional 12 percent to 18 percent in construction costs when compared to similar construction projects without a PLA.

Tuerck discussed 2009 research by BHI on federal contracting from 2001 until early 2009, when President Bush’s Executive Orders 13202 and 13208 prohibited government-mandated PLAs on federal and federally assisted construction contracts.

If President Obama and PLA proponents’ claims that PLAs are needed to advance the economy and efficiency in federal contracting are true, “President Bush’s ban on mandatory PLAs should have produced many instances of the delays, strikes and cost overruns against which PLA advocates frequently warn,” said Tuerck.

Tuerck testified that BHI’s research found no federal agencies “could substantiate the occurrence of any delays or cost overruns on Bush-era projects costing $25 million or more that were attributable to the absence of a PLA.”

GSA Witness Admonished for Agency PLA Preference Policy, Questioned About GSA’s Study Critical of PLA Mandates
Susan Brita, deputy administrator for the GSA, provided testimony (pdf ) about the GSA’s experiences with PLA mandates and PLA preferences since President Obama signed Executive Order 13502.

Brita described the GSA’s pilot program, launched in August of 2009 according to this GSA memo, which is in the process of evaluating the performance of PLAs on seven of 10 large-scale federal construction projects managed by the GSA:

“During the implementation of our Recovery Act Spend Plan, GSA conducted a pilot program with Recovery Act projects to consider the use of a PLA. For this pilot program, GSA selected projects with budgets of more than $100 million. Ten projects met this criterion and were selected for the pilot. Of these ten projects, seven have PLAs and three do not.”

Rep. Tim Walberg (R-Mich.) questioned Brita about the GSA’s negative experiences with PLAs on two of the GSA’s PLA pilot projects in Washington, D.C.: the GSA HQ at 1800 F Street (40:55) and the Lafayette Building previously mentioned by Rep. Sullivan (44:13), which experienced added costs and procurement delays.

Brita also explained the GSA’s PLA preference policy, launched April 30, 2010, according to this GSA memo, which applies to all GSA projects exceeding $25 million in total cost.  The GSA’s anti-competitive and discriminatory PLA preference policy awards 10 points in the best value procurement process only to contractors that voluntarily submit a bid containing a PLA agreement.

Drawing from his experience bidding on projects in the private sector prior to becoming a Congressman, Rep. Mike Kelly (R.-Pa.) argued that the GSA’s PLA preference discourages some contractors from competing for federal contracts by tilting the RFP process in favor of contractors submitting PLA offers.

“A 10 percent bonus doesn’t level the playing field, that totally tilts it,” said Kelly. “You set those type of parameters [in GSA RFPs], you are setting them to get one type of a bidder to get the award.”

“I see it as exclusionary,” said Kelly. “I don’t see it as increasing the field of bidders, I see it as narrowing it down.”

Chairman Lankford and Kelly questioned Brita about the findings of a consultant’s report funded by the GSA that was critical of government-mandated PLAs on construction projects in the GSA’s PLA pilot program in various construction markets across the country.

Brita’s testimony indicated the consultant’sJan. 27, 2010, report was “suspended” and only remains in draft form. Brita said it was shelved to “let the marketplace determine the applicability of PLAs rather than rely on the report.”

Chairman Lankford and Kelly suggested the report was suspended because its initial findings contradicted the GSA’s existing PLA pilot program, which had already been well underway since its launch in August 2009.

“It seems to me that the information they [the GSA] got back is not consistent with what they were looking to find,” said Kelly.

In addition, subcommittee members and witnesses raised objections to the GSA’s April 2010 implementation of the anti-competitive and discriminatory PLA preference policy that awards additional credit to PLA offerors since the GSA’s report was critical of PLAs in various markets across the country.

Note: This exchange between Kelly and Brita pretty much sums up the problems with the GSA’s PLA preference policy.

Brita and Office of Management and Budget’s Office of Federal Procurement Policy administrator Dan Gordon defended the GSA’s PLA pilot program and PLA preference policy.

Gordon explained that in the GSA’s pilot program, there were instances where bidders submitting a PLA offer won the project and there were instances where a bidder submitting a non-PLA offer won. He maintained that the GSA was not “tilting it one way or another” but did not provide any data or meaningful analysis to support this claim.

TheTruthAboutPLAs.com has long argued that the GSA’s PLA preference policy reduces competition and is a de facto PLA mandate when a PLA offeror submits a PLA bid.

Brita explained there would be a future report issued on the results of the GSA’s 10 PLA pilot projects, but that the initial findings indicated there was no evidence of reduced competition or increased costs resulting from PLAs on these projects.  However, Brita did not provide the subcommittee with any evidence to support this claim.

Of course, it would be fallacious reasoning to jump to broad conclusions about the impact of federal PLA mandates on competition and cost from the GSA’s bidding results when the GSA is skewing the participation of qualified and available bidders by awarding additional credit to voluntary PLA offerors through their PLA preference policy.  It is also unlikely that this flawed experiment will perform any meaningful analysis about the added costs resulting from reduced competition from the pool of qualified and experienced federal subcontractors.

In any case, because the hearing exposed the GSA’s track record of suppressing data that conflicts with their existing politically-motivated policies, the GSA should present the results and raw data of their bidding experiment to an independent evaluator and make the raw data available to the public in a transparent manner.

Susan Brita (22:14)
Deputy Administrator
General Services Administration

Panel II concludes at 16:00 of second video.

Panel III
Maurice Baskin, Venable LLP (17:00)
General Counsel
Associated Builders and Contractors

David Tuerck (22:13)
Executive Director
The Beacon Hill Institute

Kirby Wu, AIA, LEED AP (28:40)
Wu & Associates, Inc.

Mike Kennedy (34:50)
General Counsel
The Associated General Contractors of America

Further Reading:

• GSA’s Policy of Big Labor Favoritism Draws Congressional Inquiry (12/18/10).
• ABC News Release: ABC Testifies on Problems with Project Labor Agreements before House Committee (06/03/2011) (pdf)

A recent Columbus Dispatch points to evidence that PLAs in Ohio increase the cost of construction (“Value of Labor Agreements Open to Debate,” 6/26):

The state Legislative Service Commission seemed to vindicate the Republicans when, in 2002, it determined that state taxpayers saved $487.9 million – or almost 11 percent – because there was no prevailing wage on state-funded school projects. Although that study did not directly address the effect of PLAs, all PLA projects pay the prevailing union wage.

Here is a link to that study.

After a commission meeting Thursday, Murray declined to answer any questions about how PLAs affect prices. Murray is under investigation by the Ohio inspector general’s office over accusations that he pressured some school districts to sign PLAs.

Even the previous OSFC director, Mike Shoemaker - who was ousted from his OSFC position after Strickland’s Big Labor cronies complained that he wasn’t promoting PLAs and steering enough contracts to Big Labor – says that PLAs increase the cost of construction:

Mike Shoemaker, who was Gov. Ted Strickland’s first director of the facilities commission, said his rule of thumb was that prevailing wage adds about 5 percent to 7 percent to the cost of a job. A PLA, because of benefits payments and union dues, adds roughly an additional 5 percent to 7 percent, he said.

You never know what a project is going to cost until it’s done, said Shoemaker, who was forced out of his job last fall. Change orders, the tool that contractors use to demand more than they bid, were equally common among union and nonunion firms, Shoemaker said.

TheTruthAboutPLAs.com readers know that pro-PLA claims by Fred Kotler, who until last year was an associate director at Cornell University’s AFL-CIO-affiliated Union Leadership Institute, are bogus.

Kotler said there is no evidence to support claims that project labor agreements either limit the pool of bidders or drive up final construction costs, particularly on jobs already paying the prevailing union wage.

Owners enter into PLAs “for the promise of sustained work, which is a powerful incentive,” said Kotler, who now lectures at the Cornell program, which trains high-level union officials.

Plenty of anecdotal evidence and peer reviewed research contradicting Kotler’s obvious pro-Big Labor bias is available at www.abc.org/plastudies. 

For example, the three Beacon Hill Institute (BHI) studies evaluating the cost impact of PLAs on school construction in prevailing wage states of Massachusetts, Connecticut and New York all demonstrate a robust correlation between PLAs and increased costs.

However, Big Labor’s allies, like Kotler, have done everything possible to discredit BHI’s research.

BHI Professor David Tuerck responded to attacks on BHI studies in a September 2009 BHI study “Project Labor Agreements on Federal Construction Projects: A Costly Solution in Search of a Problem” which we blogged about here. (See page 24-29, where BHI refutes Kotler’s study, as well as other critics such as Belman, Bodah and Phillps).

BHI’s article in the Cato Journal, “Why Project Labor Agreements Are Not in the Public Interest,” dismantles some of the methodology and false logic often employed in studies (such as Kotler’s) promoting PLAs as a mechanism to reduce construction costs. (See pages 53-62 of the report).

Academic squabbles aside, here is the key point in the OSFC corruption probe that taxpayers need to remember in order to hold appointed officials and the Strickland administration accountable:

“Our state potentially faces an $8 billion budget shortfall next year,” state Rep. Kris Jordan, a nonvoting member of the commission, wrote Murray in a letter last week. “Why is the commission not going with the lowest and best bidders for every project?”

Meanwhile, according to the Sidney Daily News, the OSFC decided to reverse its decision to deny a local nonunion contractor a waiver request regarding the Hardin-Houston School District’s K-12 building project (“State approves school project,” 6/26). Denying the waiver request would have ensured a union contractor would get the work but would have added costs.

The nonunion contractor was a victim of Murray’s zealous modus operandi to do everything possible to “find something wrong with nonunion contracts,” according to Shoemaker, and steer contracts to union contractors.

Read the Columbus Dispatch article to get the full details on the OSFC shenanigans.  According to the Sidney Daily News article, the corruption probe appears to have loosened Murray’s grip on the OSFC. 

Ohio school children and taxpayers are already better served.

A new survey conducted by the Suffolk University Political Research Center for the Beacon Hill Institute shows that 69% of Massachusetts voters oppose a requirement under which private contractors who perform public projects must hire workers through union hiring halls. The finding is important because the requirement is a key feature of Project Labor Agreements (PLAs), which are strongly favored by construction unions for conducting public projects.

Last year, President Obama issued an executive order encouraging the use of PLAs on federal construction projects. The order is controversial in part because PLAs require contractors to use labor provided by the unions, whether or not their own workers are union members.

Proponents argue that PLAs guarantee the availability of a skilled workforce and labor “peace.” Opponents argue that nonunion workers are just as a skilled as union workers and that the requirement puts nonunion contractors at a competitive disadvantage, penalizes the vast majority of construction workers, who do not belong to unions, and increases construction costs. Worries about labor peace, say opponents, are an empty threat.

Opposition to the idea of requiring construction contractors to hire through union hiring halls runs counter to voters’ otherwise sympathetic attitudes to unions. The same survey showed that a majority (52%) of Massachusetts voters have a favorable opinion of unions. It also found that only 19% of voters believe that public sector union workers are overpaid.

The requirement that construction contractors hire their workers through union hiring halls is opposed by almost every segment of the electorate. Eighty‐eight percent (88%) of Republicans, 76% of Independents and 52% of Democrats oppose the requirement. Even among households with union members, 59% are opposed. Opposition is consistent across voters segmented according to age, gender, race and attitudes toward candidates for governor and the U.S. Senate. Only the 15% of voters who have a “very favorable” view of unions support the requirement.

The survey suggests that public opinion of project labor agreements may be sensitive to perceptions about the degree to which construction workers are unionized. Seventy‐three percent (73%) of the respondents estimated that the fraction belonging to unions is 40% or more. In fact, only about 20% of private construction workers in Massachusetts belong to unions. Respondents were given this fact before they were asked about hiring through union hiring halls.

David G. Tuerck, Executive Director of the Institute said that “elected officials who must decide whether to enter into PLAs on public construction projects should be interested in the results of the survey. Apparently, when voters are informed of the facts concerning union membership, they do not support a key feature of PLAs.”

The statewide survey of 500 Massachusetts registered voters was conducted Feb. 21‐24, 2010.

The margin of error is +/‐ 4.4 percent at a 95 percent level of confidence. Cross-tabs.

See The Boston Herald for additional coverage, (“Poll: Don’t Mandate Unions on Projects,” 3/4/10).

While some PLAs permit a nonunion contractor to use a limited number of their core workforce (usually the lesser of 8 employees or 12 percent of the trade’s total workforce), most PLAs require an all-union workforce.

For those few nonunion employees that work on a PLA project, PLAs require that they are hired through the union hiring hall where they are often subject to union intimidation to join a union. While on the jobsite, PLAs force nonunion employees to follow unfamiliar union work rules and pay union fees for the life of a PLA project. 

Employer contributions to employee benefits must be paid into labor-management (union) run plans rather than existing plans offered by their nonunion employer. Employees will forfeit these contributions earned for hours worked on a PLA jobsite to the union plans unless they join a union and become vested. 

A 2009 study by Dr. John R. McGowan, “The Discriminatory Impact of Union Fringe Benefit Requirements on Nonunion Workers Under Government-Mandated Project Labor Agreements” found that nonunion employees of nonunion contractors that are forced to perform under government-mandated PLAs suffer a reduction in their take home pay that is conservatively estimated at 20 percent because of the “pension” provision in typical PLAs.  Hundreds of millions of dollars of their income would be distributed to union pension funds, from which the nonunion workers will receive no benefits. It’s no wonder why nonunion contractors and their employees oppose PLAs.

The study found that had President Obama’s pro-PLA Executive Order 13502 applied to federal contracts in 2008, additional costs incurred by employers related to wasteful PLA pension requirements would likely have ranged from $230 to $767 million per year. In total, the move to PLAs could cost nonunion workers and their employers $414 million to more than $1.38 billion annually.

In short, nonunion employees experience a Big Labor shakedown on PLA projects.

Big Labor will be quick to refute this poll with arguments that PLAs don’t require an all-union workforce and nonunion contractors can bid on PLA projects. While both claims may be technically true, the reality is that PLA proponents must rely on distorted facts instead of superior value and performance to secure work for their members and regain lost market share.

“Why Project Labor Agreements Are Not in the Public Interest” surveys the historical decline of construction union membership and track-record of government-mandated PLAs.   The article also documents the nexus between PLAs and federal and state prevailing wage laws, both of which are government-run special interest schemes used by Big Labor to artificially prop union wage premiums and market share.

For example, Tuerck explains that PLAs place nonunion contractors at a competitive disadvantage because of added “double benefit” costs in typical PLA agreements:

Thus, a PLA on a public project has the purpose and effect of reducing the competitive advantage of nonunion contractors, first by forcing them to pay twice for benefits already offered their workers and second by forcing pay cuts on their workers.  It amounts to a straightforward effort by the construction unions to put nonunion firms and workers at a competitive disadvantage.

While making a strong case that PLAs are not in the public’s best interest, Tuerck summarizes arguments for and against PLAs that often fuel the debate surrounding this contentious issue.  For example, Tuerck dismantles some of the methodology and false-logic often employed in studies promoting PLAs as a mechanism to reduce construction costs:

All such studies implicitly adopt a methodology in which they:

1. Take, as a given, the existence of costly work rules that benefit the unions (e.g., holiday pay concessions, favorable apprenticeship ratios, high overtime pay).
2. Identify work rules, among them costly rules given in (1), above, that would be modified under a PLA.
3. Show how much more it would have cost to perform the project had those rules not been modified.
4. Count (3) as a cost saving that argues for the PLA.

This methodology presupposes that we can count as a cost “saving” some feature of a PLA that corrects for a problem that might otherwise go uncorrected once the project gets under way. But therein lays the error: Why, if correcting for a problem cuts cost, would it go uncorrected? An open bidding process forces firms competing for a project to cut costs to the end of submitting a winning bid. If the unions want their employers to succeed in bidding for a project, they have every incentive to remove problems that lead to higher costs.

It is not a cost saving to modify work rules that are inefficient to begin with and that would not survive a competitive bidding process.

If union contractors are underutilizing apprentices, then they are operating inefficiently and should not expect to win projects on which they bid. It makes no sense to score the modification of a work rule as a “cost saving” when a competitive bidder would have modified that work rule anyway.

On the other hand, it hardly matters in an open bidding process if the unions refuse to modify inefficient work rules or to cooperate in cutting costs. Some contractor, most probably a nonunion contractor (given the existing dominance of nonunion contractors over market share), will be perfectly willing to work out cost-saving adjustments in the work day or in the use of apprentices, without help from a PLA. Presumably, the contractor that is most successful in working out problems of this kind will submit the lowest bid. It makes no sense to say that failure to adopt a PLA precludes the adoption of cost-cutting measures, when those measures would have been adopted anyway without a PLA.

The purpose of the bidding process is to induce bidders to fashion work rules and assign tasks in such a way as to get the job done at the lowest cost. And the best way to achieve that purpose is to make sure that the bidding process is unencumbered by measures, such as a PLA, whose real purpose is to preserve work rules that benefit the unions at the expense of efficiency.

The unions want policymakers to believe that PLAs are effective for removing inefficient work rules before a project goes up for bid.

But the unions push for PLAs for the very reason that a PLA is the best way to make sure that some of the inefficient work rules from which they benefit will survive the bidding process.

Keep in mind Tuerck’s attack on the false logic used by PLA proponents next time you stand up against special interests when a PLA is being considered at the federal, state or local level – especially when a PLA is promoted as a tool to decrease construction costs in markets where nonunion contractors are strong.

Professor Tuerck, author of a new BHI study called ”Project Labor Agreements on Federal Construction Projects: A Costly Solution in Search of a Problem,” makes a strong case that PLAs and President Obama’s Executive Order 13502 are special interest handouts to Big Labor and are solutions to “a contracting process that was never broken.”

LAST YEAR as a presidential candidate, Barack Obama told the Building Trades National Legislative Conference that “we need to make sure the government uses project labor agreements to encourage completion of projects on time and on budget.’’ He complained that project labor agreements had been banned by the Bush administration.

PLAs require construction firms to follow union work rules and to hire their workers through a union hiring hall. Workers hired under PLAs have to pay union dues whether they belong to the union or not.

Candidate Obama’s audience knew perfectly well that his speech had more to do with their wallets than with any high-minded concern for the public interest. The real purpose of PLAs is to discourage nonunion contractors from bidding on public projects. It’s a matter of the 16 percent of construction workers who belong to unions protecting their jobs and perks from the other 84 percent.

The unions claim that PLAs are necessary in order to avoid labor disputes and to assure labor “peace’’ during the course of a construction project. But where does the threat to labor peace come from, if not the unions themselves? When the unions say they want a PLA, they are making the builder an offer he can’t refuse.

PLAs can be seen as one leg of a three-legged stool that supports the union monopoly over public construction projects. The second leg is the prevailing wage law, which compels contractors to pay what amounts to the union wage. The third leg is a government willing to subordinate the interests of the taxpayers to a powerful lobby.

The effect of the union monopoly over public construction is to raise construction costs. The Beacon Hill Institute found that PLAs have added 12 to 18 percent to school construction costs in Massachusetts and Connecticut.

Obama has made good on his campaign promise by lifting the ban on PLAs imposed by President Bush. The Obama administration will permit PLAs on federal construction projects costing $25 million or more.

It turns out, however, that Obama is fixing a contracting process that was never broken. If PLAs are really effective for avoiding labor disputes, then there should have been dozens of such disputes over the course of the PLA-free Bush administration. To test this hypothesis, the Institute conducted a study aimed at identifying labor disputes that took place under the Bush administration and that affected projects costing $25 million or more.

We inspected documents obtained from federal agencies that were asked to report any disputes for which they had records. We searched Internet sources, talked to contractors, and examined surveys of contractors who worked on federal projects during this period.

How many disputes attributable to PLAs did we find? None. We did find one labor dispute, but it took place for reasons unrelated to the absence of a PLA and involved only two days delay at a cost of $16,000. And that was out of almost $60 billion in projects. Did we miss any disputes? Maybe, but it seems unlikely. The President’s Office and Management and Budget has oversight for all federal procurement. The OMB has every incentive to reveal any dispute that makes the president’s point for him. Yet, when queried, it reported none.

While we couldn’t find any projects initiated under the Bush administration that were delayed or that ran over budget because of the absence of a PLA, it is easy to find projects that suffered from delays or cost overruns despite the presence of a PLA. The granddaddy of all of these is the Big Dig, notorious for its delays, cost overruns, and shoddy workmanship. An Iowa Events Center has a similar history. The City of Fall River had to cancel its plans to build schools under a PLA when the result was to attract only a few bidders and when the bids submitted were way over budget.

Obama’s kowtow to the construction unions is the same politics-as-usual against which he campaigned last year. The voters expected and deserved better.

The institute’s latest report on PLAs casts doubt on the only rationale for the agreements – to assure labor “peace.” We were certainly fed that bill of goods when the Big Dig was put under a PLA. What Tuerck found in examining the eight years of non-PLA construction during the Bush administration was that there were no instances of labor dispute that resulted in significant delays or cost escalations – repeat, none!

What the institute study did confirm is that PLAs add anywhere from 12 to 18 percent to construction costs. Tuerck calculated that had the executive order been in effect in 2008, taxpayers would have been picking up the tab for an additional $1.6 billion to $2.6 billion.

“Our report found that there is no reason to implement a PLA on a federal construction project except . . . for political payback to union leaders,” Tuerck said.

That’s the sad truth, and we’ll all be paying that price.

TheTruthAboutPLAs.com agrees that in the public construction market, government-mandated PLAs are nothing more than a poorly disguised and conceived mechanism to repay Big Labor for their political support.  At the expense of taxpayers and qualified non-union employees and contractors, PLAs funnel construction contracts to unionized contractors and their union workforce, or subject those few non-union employers willing to sign a PLA into forcing employees to pay union dues and work without benefits for the life of a PLA project paid for by their own tax dollars. 

Government-mandated PLAs and Executive Order 13502 deny hardworking taxpayers the accountability they deserve from government.

Stimulus for some

By Boston Herald Editorial staff | Wednesday, April 8, 2009

 Jobless Americans – including a quarter million Massachusetts residents – need to get back to work. What they don’t need are artificial obstacles to their re-employment. But that is what many will confront if organized labor has its way.

Yes, Bay State labor leaders are still pushing to require “project labor agreements” on large public construction projects financed with federal stimulus money, The Associated Press reported over the weekend.

Under a PLA, an owner agrees to use union labor in exchange for unions agreeing not to strike. Sporting of them, no?

The agreement restricts non-union contractors from bidding on the job.  (As if non-union carpenters and masons aren’t showing up in unemployment lines too.)

Research has also indicated that by limiting competition PLAs drive up both bid and actual construction costs. And frankly taxpayers deserve to get more for their bucks, not less.

Unions argue that, thanks to a steady supply of highly-skilled union labor, PLAs ensure that projects are completed on schedule and within budget. But the Big Dig shreds that argument. Labor also tries to make the case that PLAs magically ensure on-the-job safety, which simply strains credulity.

If Gov. Deval Patrick buys what the unions who supported his campaign are selling – as an administration task force has recommended he do – then the 16 percent of the Massachusetts construction industry that is unionized will have cause to celebrate. Some stimulus.

We couldn’t have said it better.

On 3/22 The Boston Globe ran a fierce op-ed debate between ABC Mass. President Greg Beeman and Mark Erlich, executive secretary-treasurer of the New England Regional Council of Carpenters here (pdf).

Erlich attacked the Beacon Hill Institute’s (BHI) study on PLAs for Massachussetts school construction (the same study cited in the San Diego Union-Tribune Editorial) which found that PLAs increase the cost of construction.  BHI Executive Director David G. Tuerck responded to Erlich’s misguided attack on the study in  The Boston Globe (“Protecting Monopoly,” 3/26). It is worth revisiting because Tuerck’s response is accurate and strong, and unions frequently attack BHI’s studies because they tell The Truth About PLAs increasing the cost of construction.

Protecting Monopoly 3/22/09

IN HIS op-ed defending project labor agreements (“Unions a stabilizing force,” March 22), Mark Erlich claims that that our first 2003 study of school building projects had to be “completely revised” following “a stinging critique of the data, methodology, and conclusions.” The fact is that we updated that study when several additional months of investigation permitted us to double the number of schools in our sample. In the second study, we found that PLAs added 14 percent to the minimum project bid, rather than 17 percent, as in our original study. Somehow, Erlich did not feel compelled to recognize that finding, or our finding, in subsequent studies that, for school building projects in Connecticut and New York, PLAs increased bids by 15 percent and 20 percent, respectively.

PLAs and the Prevailing Wage Law are aimed at protecting the union monopoly over the minority of construction workers who belong to unions. The effect of that monopoly is to limit the number of construction projects that can be undertaken and to limit the number of construction workers who can be hired – a result that gives the lie to Erlich’s hypocritical expression of sympathy for blue-collar workers.

DAVID G. TUERCK
Boston
The writer is executive director of the Beacon Hill Institute