The Truth About Project Labor Agreements

There is a new chapter in the public record of poor performance of government-mandated project labor agreements (PLAs).  Facing bid prices that were at least 35 percent higher than the proposed budget for the construction of a new town hall and library complex, the Moorestown Township Council decided to withdraw its requirement that all contractors agree to a PLA in order to work on this project.

While it appears that there may have also been issues with the initial price projections, it is clear that the PLA mandate played a significant role in potentially denying taxpayers the value they deserve on this project.

Here is an excerpt from the CourierPostOnline.com’s coverage (“Council Ponders Next Move on Project,” 5/18) of the town hall debacle:

Last week, council rejected all 10 construction bids for town hall, library and police complex on Second Avenue after the lowest bid came in 35 percent higher — $15.7 million – than the initial construction estimate of $11.6 million.

“The quality of cost estimates relative to design were way off. Kitchen [Kitchen and Associates is the architect on this project], we are disappointed with what you sold us compared to what we got,” Mayor Daniel Roccato said at a meeting in the existing library building, which council intended to replace as part of a two-building town hall project.

He told an audience of residents, including non-unionized general contractors, that council will have to evaluate if the two professional firms are the “right team” and that the entire project may have to be “recast.”

[snip]

Contractors Crag Alper and Kirby Wu disagreed with Kerin’s [Ronald C. Kerins Jr, of project management consultant Greyhawk] contention that the labor agreement for union contractors was not a major factor in the higher prices bid and that construction bids are going up.

Alper, chairman of the Association of Builders and Contractors, said a state Department of Labor study of school construction concluded the labor agreement contracts are 32 percent higher than bids submitted by non-unionized contractors. They still have to pay the prevailing wage for tradesmen and can opt to hire union labor

The council has since decided to keep the current architectural and consulting team, but abandon the PLA requirement.  Here is an excerpt from the Moorestown Sun’s (“Council Keeping Project Pros,” 6/30) coverage of the issue:

Should Council decide to re-bid the contract after hearing the professional team’s new plan in August, professionals said the project could be ready to go out to bid again in October with a notice to proceed to the selected bidder going out in November. The project would then take about 20 months to complete, with an anticipated end date of summer 2012.

It has already been established that, if re-bid, the project will not include a project labor agreement, as the original bids requirements had.

Clearly, the council recognizes that PLAs have a significant impact on cost.  With local budgets stretched to the limit all over the country, now is the worst possible time to reward special interests at the expense of local taxpayers.  This is a positive development for the people of Moorestown. Hopefully fair and open competition without a PLA will help taxpayers get the best possible product at the best possible price.

The report referenced by Mr. Alper in the article above is from research conducted and released in June 2009 during New Jersey Gov. John Corzine’s (D) administration by the New Jersey Department of Labor and Workforce Development (LWD) titled, “2007 Annual Report to the Governor and Legislature: Project Labor Agreement (PLA) Act, P.L. 2002, Chapter 44 (C.52:38-et seq.).” [Here are reports from 2005 and 2006].

In order to determine the impact of PLA on construction costs, LWD conducted a review that, “consists of 64 new schools, of which half (32) were built using PLAs, and includes school construction projects that were started and completed between July 2002 and June 2007.  All non-school construction projects were excluded from the analysis because of the small number of non-school PLA projects and because of major differences in the types of buildings constructed.  Due to the limited availability of data, all projects that were not considered new construction were excluded. “

The results are not surprising:

The average indexed cost per square foot and the average indexed cost per student were both higher for all categories of PLA schools than for non-PLA schools.  The indexed cost per square foot for all PLA projects was $246.28, or 34.2 percent higher than for all non-PLA projects, which averaged $183.50 per square foot.

LWD even produced a chart, which is included on page 10 of the report:

New Jersey LWD researchers were also able to isolate some of the variables that influence cost in order to take them into account.  Here is one more excerpt from the report:

The regression analysis was able to explain approximately 35 percent of the cost difference between PLA and non-PLA projects. The effects of geographic location, size of school and type of school were all found to be statistically significant factors in explaining cost differences. School projects built in the northern region of the state on average were found to cost more, as did middle and high schools. There were economies of scale on larger projects which reduced average costs. After controlling for the effects of these factors, the average cost of PLA projects remained higher than that of non-PLA projects, and the difference was significant at a 99-percent confidence level. These results are in contrast to a previous report which found the cost differences to be statistically insignificant.

The 65 percent of the cost difference remaining after LWD’s regression analysis of the cost difference between schools build with PLAs verse non-PLAs represents a 19.9 percent cost increase for schools built with PLAs.

This is the level of cost increase that numerous studies show that we should expect when government entities mandate PLAs.  For example, several studies conducted by the Beacon Hill Institute at Suffolk University between 2003-2006 found that PLAs increase both bid costs and final construction costs on school construction projects in New York, Massachusetts and Connecticut by as much as 20 percent.  This matches the nearly 20 percent cost differential that the New Jersey LWD found between schools built with and without PLAs after isolating school location, size and type.

This is just one example of the failed policies that led to the $11 billion budget deficit that the Christie administration was forced to confront upon taking office.

Please visit our earlier posts for more information on PLAs in New Jersey.