American Spectator: Employers and Workers Lose Out Under Project Labor Agreements

0 June 3, 2010  Federal Construction, Uncategorized

An article in the American Spectator explains why anti-competitive project labor agreement (PLA) schemes and President Obama’s pro-PLA Executive Order 13502 are a bad deal for employees and employers in the construction industry (“Employers and Workers Lose Out Under Project Labor Agreements,” 6/2).

Labor bosses who have failed to secure pension obligations for their membership have successfully schemed with the Obama White House to coerce non-union workers into underfunded plans.

On May 13, an unheralded executive order that would pressure federal agencies into accepting Project Labor Agreements (PLAs) on construction projects that exceed $25 million officially went into effect at the expense of private industry and U.S. taxpayers.

PLAs stipulate that projects be awarded to contractors and subcontractors who agree to recognize unions as representing their employees during that particular job. Although nonunion contractors are permitted to bid on PLA projects, the reality is that the projects are awarded almost exclusively to unionized contractors, critics point out.

Only 15.6 percent of the nation’s private construction work force is unionized, Labor Department statistics show. This means PLAs could be used to discriminate against the more than eight out of 10 construction workers who are not part of a union. Moreover, PLAs put non-union contractors a great disadvantage where pension requirements are concerned because they are forced to pay twice.

Under PLA agreements, private shops must pay into union pension plans and existing 401 (k) company plans. Moreover, as a general rule non-union contractors cannot typically suspend and restart contributions to individual 401 (k) accounts meaning they must take double payments into account on their contract bid.

The PLA hex is also put onto individual workers since the employer contributions that are sent to union pension plans will not materialize as benefits unless they agree to leave their non-union company and join with the union until they are vested.

This unappetizing arrangement raises important questions about motivations. After posturing as strong advocates for retirements benefits, why would labor bosses insist on a provision precludes workers from receiving benefits unless they join with the union?

Employees who don’t belong to a union don’t benefit from PLAs. 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,” found that 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.

As the article points out, PLAs force employers to pay employee benefits into union-managed funds, but employees will never see the benefits of the employer contributions unless they join a union and become vested in these plans. Employers that offer their own benefits, including health and pension plans, often continue to pay for existing programs as well as into union programs under a PLA in order to “take care” of their loyal and productive existing workforce.

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 laws as a result of “double payment” of benefit costs as a result of a PLA. This makes them uncompetitive against union contractors.

McGowan 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 likely would have ranged from $230 million to $767 million per year. Lost wages for nonunion construction workers would have ranged from $184 million to more than $613 million, depending on the assumptions made for companies executing contracts via PLAs. In total, the move to PLAs would cost nonunion workers and their employers $414 million to more than $1.38 billion annually.

So while the construction industry’s nonunion employees and employers lose under pension provisions in anti-competitive PLAs, the article points out that Big Labor’s dirty little secret is that their multi-employer pension plans are in trouble, and they need PLA schemes to force nonunion employees (who will never be counted as a future liability) into multi-employer union pension plans:

Even as unions continue to market themselves to new members on the basis of generous pension programs, government figures show these plans are performing poorly in comparison with retirement packages that operate beyond the orbit of organized labor.

The average union pension has resources to cover only 62 percent of what is owed to participants, according to the Pension Benefit Guarantee Corp. Pensions with less than 80 percent of the assets needed to cover present and projected liabilities are considered “endangered,” while those that fall below a 65 percent threshold are classified as “critical” under the Pension Protection Act of 2006.

Think of government-mandated PLAs as a corrupt scheme to bailout union plans on the backs of nonunion employees and employers.Learn more about the nexus between PLAs and union multi-employer pension plans with this required reading.

Next, the article explains how PLAs are political payoffs to Big Labor Bosses:

PLAs are best understood within the context of other paybacks to labor bosses that were organized after President Obama and top congressional Democrats failed to advance the Employee Free Choice Act (EFCA), which included the anti-democratic card check provision and binding arbitration.

In the 2008 election cycle, labor union political action committees contributed more than $66 million to congressional candidates with 92 percent of those contributions going to Democrats, according to Labor PACs also contributed $531,711 to Mr. Obama’s campaign that year.

Obviously this cozy quid pro quo relationship between Big Labor and their political cronies is the impetus for E.O. 13502 and government-mandated PLAs, so these parties manufactured some bogus public policy objectives to mask such blatant corruption from the public. The article points this out:

Obama’s executive order 13502 claims that PLAs would heighten efficiency and alleviate labor disputes that prevent projects from being completed on time. The order reads in part as follows:

” The use of a project labor agreement may prevent these problems from developing by providing structure and stability to large-scale construction projects, thereby promoting the efficient and expeditious completion of federal construction contracts, the order says. “Accordingly, it is the policy of the federal government to encourage executive agencies to consider requiring the use of project labor agreements in connection with large-scale construction projects in order to promote economy and efficiency in federal procurement.”

But the justifications for PLAs provided by Executive Order 13502 are unproven.  A September 2009 report by the Beacon Hill Institute reviewed FOIA requests and data on federal construction projects from 2001-2008, the years under which government-mandated PLAs were prohibited under President George W. Bush Execuitve Order 13202 and 13208. Government records revealed there were no instances in which labor disruptions occurred that resulted in significant project delays or increased costs. In short, Executive Order 13502 is a solution in search of a problem and there is no evidence to suggest that PLAs promote economy and efficiency in federal procurement.

And then there are the studies and white papers demonstrating the increased costs and record of poor performance of government-mandated PLAs. More from the article:

But the ABC takes issue with the idea that PLA’s are necessary to ensure labor cooperation to keep projects running on time.

“This is a particularly disingenuous argument that flirts with blackmail, because unions cause many project delays through illegal organizing and jurisdictional disputes on jobsites,” according to an analysis posted on the ABC website. “Merit shop workers do not strike, yet they are excluded from working on PLA projects. [snip]

[snip] “Decades of studies have shown that PLAs increase the cost of construction,” said McMahon, who is also vice-president of Miller and Long, a Maryland-based concrete construction company. That’s a bad idea during good economic times, but it’s utterly foolish when we are already financially upside-down as a nation. We are financing these projects with debt that is underwritten by taxpayers — many of whom are not going to be able to work on these projects without paying union dues.”

The American Spectator article does an outstanding service to the public, media, elected officials and construction industry by exposing Big Labor and President Obama’s PLA schemes. Let’s hope these stakeholders take notice.

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