The Truth About Project Labor Agreements

A new study supports a key argument frequently made by nonunion employers and employees against government-mandated project labor agreements (PLAs): PLAs harm workers because they confiscate health and retirement benefits earned by nonunion employees working on PLA construction projects.

An October 2009 report by Dr. John R. McGowan, “The Discriminatory Impact of Union Fringe Benefit Requirements on Nonunion Workers Under Government-Mandated Project Labor Agreements,” finds that employees of nonunion contractors working on projects subject to government-mandated PLAs suffer a reduction in their take-home pay that is conservatively estimated at 20 percent.

Few merit shop contractors compete for contracts to build projects subject to a PLA for a variety of compelling reasons. The McGowan report examines the negative impact of PLAs on employees and nonunion contractors with respect to a provision in typical PLAs forcing employers to pay employee benefits into multi-employer pension plans (MEPPS) run by Big Labor.

Unfortunately, under a PLA, employees will never see the benefits of the employer contributions unless they join a union and meet vesting schedules defined by MEPPs. Union members enrolled in union plans receive a windfall from these “confiscated” contributions earned by nonunion employees on a PLA.

The rare merit shop contractor working on a PLA project typically offers their own benefits plans, so they continue to pay for existing programs as well as into union programs mandated by a PLA – referred to in the construction industry as paying double benefits – so their employees can continue to receive health care and retirement benefits in order for the employer to attract and retain top talent.

The McGowan report found that nonunion contractors are forced to pay in excess of 25 percent in benefit costs above and beyond existing prevailing wage benefit laws because of a PLA’s MEPP contribution mandate language, which prevents taxpayers from receiving the best possible price from nonunion contractors in the competitive bidding process.

Additionally, the study notes that nonunion contractors will also face increased and unnecessary exposure to pension fund liability if they perform work under PLAs, including possible withdrawal liability when a PLA project is completed.

Here’s an interesting tidbit that relates to the ongoing debate about the benefits of President Obama’s Feb. 6 2009, Executive Order 13502, which encourages federal agencies to require PLAs on federal projects costing more than $25 million.

McGowan found that had President Obama’s pro-PLA Executive Order 13502 been in effect in 2008, additional costs incurred by employers related to wasteful PLA pension requirements likely would have ranged from $230 million to $767 million per year. And McGowan estimates lost wages for nonunion construction workers would range from $184 million to more than $613 million, depending on the assumption made for companies executing contracts through PLAs.  In total, McGowan estimates a move to PLAs would have cost nonunion employees and their employers $414 million to more than $1.38 billion annually, had Executive Order 13502 been in effect on federal construction projects in 2008.

With more than $150 billion in federal and federally-assisted construction projects in the American Reinvestment and Recovery Act (ARRA) of 2009 potentially subject to Obama’s government-mandated PLAs, the additional costs incurred by nonunion employees and employers as a result of future PLAs will be in the billions.

Of course, these numbers assume that nonunion employees and employers participate on federal PLA projects.  Big Labor’s pro-PLA lobbyists are quick to state that any qualified firm, whether union or nonunion, can bid on a PLA project. While that is technically true, McGowan’s study demonstrates the extreme and often insurmountable monetary disadvantages that PLAs impose on nonunion contractors and employees. Big Labor and their political cronies have rigged the bid process to favor Big Labor.

Is there any doubt how PLAs discourage nonunion contractors and their employees from competing for contracts on PLA projects? Anti-competitive government-mandated PLAs put an end to fair bidding on public works contracts and deny taxpayers the opportunity to get the best possible product at the best possible price.

UPDATE:

Here is a quick summary of this problematic union benefit contribution requirements in typical PLAs:

PLAs require nonunion companies to pay their workers’ health and welfare benefits to union trust funds, even if these companies have their own benefits plans. Workers cannot access any of their union benefits accrued during the life of the PLA project unless they decide to leave their nonunion employer, join a union and remain with the union until vested. Because few nonunion employees choose to join a union after working on a PLA project, companies end up paying benefits twice: once to the union plans and once to the existing company plans to ensure employees have direct access to retirement and benefits plans. Nonunion contractors have to factor this double benefit cost into their bid, which needlessly increases costs and puts them at a competitive disadvantage against union contractors that are not saddled with these unnecessary costs. Research suggests this requirement reduces nonunion employee take home pay by 20 percent, confiscates future benefits earned by the employee, and forces contractors to pay an extra 25 percent in labor costs, making it difficult to compete for and win contracts under a PLA. In addition, paying into underfunded and mismanaged union-affiliated multi-employer pension plans may expose merit shop contractors to massive pension withdrawal liabilities. Depending on the health of a union-managed multi-employer pension plan, signing a PLA could bankrupt a contractor or prevent it from qualifying for construction bonds needed to build future projects for the USACE and other clients.