NYC Developers Say PLAs Save Less Than Claimed

0 May 2, 2009  State & Local Construction, Uncategorized

According to this 4/30/09  NY Times article by Charles V. Bagli, New York City’s real estate developers, contractors and construction unions have been trying to negotiate wage concessions and other cost saving measures that labor and political spindoctors are touting as a solution to revive New York’s stalled construction and real estate market.

The writers here at TheTruthAboutPLAs.com affectionately refer to PLAs as “a solution in search of a problem” so it should come as no surprise to those familiar with PLAs that NYC construction unions are offering PLAs as a way to achieve cost savings (and the only way unions are willing to budge on their artificially high labor costs and inefficient union work rules) and “get New York building again” is if project owners sign a PLA.

It is reported that the deal has yet to be announced because some labor unions are afraid to make wage concessions they fear may become the status quo. There is also disagreement among the parties on whether the pending agreement would cut costs by 20 percent, as claimed by the union, or by a range of 5-12 percent, as suggested by a spokesman for private developers.

But Stephen Spinola, president of the powerful Real Estate Board of New York, the developers’ lobbying arm, said that the agreement would not result in big savings or a new building boom.

“The feedback I’m getting from developers and some contractors is that it’s not very deep in terms of having an impact on costs,” Mr. Spinola said. “The cost savings could be as little as 5 percent, or as high as 12 percent. Nobody really knows.”

Mayor Bloomberg is anxious to participate in a news conference announcing the tentative deal, but it is reported that the city will not “benefit” from PLAs because they won’t apply to publicly funded city construction projects.

Mr. Bloomberg routinely seeks endorsements from unions. So, even as he has asked city employees for concessions, the project labor agreement would not apply to city projects, which are often more likely to proceed during an economic downturn than private developments.

So why aren’t politicians trying to pressure labor unions into cost savings on public projects too?  If PLAs are beneficial and cut costs, don’t taxpayers deserve to reap the same alleged benefits from a PLA as private developers? 

I would love to write that the real reason Mayor Bloomberg and the NYC council have not attached PLAs to city projects is because they know PLAs discriminate against construction workers who do not belong to a union and increase the cost of construction.  But we are in the business of telling the truth here at TheTruthAboutPLAs.com.

The reality is that public construction projects in the NYC market are essentially already union-only due to a variety of pro-union New York City and New York construction laws.  The unions wouldn’t agree to wage concessions on projects they already control and if Mayor Bloomberg unwisely pushed for union concessions on city projects, it would anger the politically powerful labor unions because they would be giving up something for nothing.  Also, those public projects will likely proceed as planned – even in a down economy – because they are being funded by taxpayers. 

A 4/1/09  NY Times article by the same reporter makes an interesting observation that reveals Big Labor’s impetus behind a sudden willingness to negotiate “wage concessions” and other cost saving measures:

Nonunion projects are showing up in what has been a union bastion: Manhattan. The Atlantic Development Group is putting up an 89-unit apartment house at 10th Avenue and 23rd Street in Chelsea with nonunion contractors. And at a union job on the Upper West Side, the Chetrit Group and Stellar Management took the highly unusual step of asking contractors for new bids on three 15-story buildings already under construction on Columbus Avenue, between 97th and 100th Streets. Developers and union officials expect nonunion contractors to take over the project.

FACT: Construction unions use PLAs to protect their stanglehold on construction markets by eliminating nonunion competitors on construction contracts.

This fact holds true in NYC’s private construction market. Times are tough. The construction market has changed and financing behind development has dried up because of the banking crisis or deals just aren’t profitable in the declining real estate market so developers are looking to cut costs. Big Labor knows that nonunion contractors can complete a project on time and cheaper with as good or better quality as an all union job. 

The economy has forced developers to say, “We can’t let unions monopolize the construction market and dictate labor costs anymore.  We need to build more efficiently.”

The result has been more nonunion construction in markets once dominated by unions. In response to this threat of increased nonunion penetration into private NYC markets the unions are offering this PLA.

PLAs to the rescue.

Think of a PLA as a giant roach trap. The unions have set it with phony “wage concessions” and “public benefits” used to entice developers into theoretical labor cost savings. Before the project has been competitively bid, alleged cost savings are predicted by a cookie cutter study with pre-determined results produced by an “independent consulting firm” employing little credible analysis or true cost comparison data.  If developers take the bait and sign a PLA, they have just elminated nonunion competition and cost saving opportunities for this project. 

Because labor cost savings can’t be accurately predicted where a significant source of competition has been eliminated (as is the case when nonunion contractors don’t compete for PLA contracts), once a project is completed, there is no evidence to suggest that a PLA has failed to deliver a labor cost savings promise.  Now more developers and public entities are likely to take the PLA bait and poison other projects with these sweetheart deals. 

PLAs are a slick tool to increase or maintain union market share and funnel future work to Big Labor – unions guarantee more work for their members and signatory union contractors and get good PR for making a “concession” while developers are happy about promised cost savings. 

Bankers, analysts, developers and unions are going to have a hard time documenting genuine labor cost savings once projects are completed.  Any predictions of alleged cost savings are illusory as long as a PLA prevents genuine competition from qualified nonunion contractors who would have submitted a low bid but did not because they were effectively shut out of the bidding process because of the PLA.

We will be monitoring the NYC Private Development PLA issue closely.

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