More Evidence That Project Labor Agreements Reduce Competition and Increase Costs

0 November 16, 2010  School Construction, State & Local Construction, Uncategorized

Big Labor Bosses and their hand-picked political puppets claim that anti-competitive and costly government-mandated project labor agreements (PLAs) are in the public’s best interest.  In reality, PLAs are crony contracting schemes implemented by corrupt elected officials that funnel lucrative public works contracts to union contractors and their union employees in exchange for political support.

Numerous academic studies have found that PLAs increase the cost of construction by an estimated average of 12 percent to 18 percent and reduce competition from qualified merit shop contractors and their skilled employees.

PLA proponents and academic shills for Big Labor’s special interest agenda affiliated with college and university Labor Studies Institutes have gone to great lengths to discredit studies proving that PLAs increase the cost of construction and reduce competition in specific construction markets. Of course, these attacks have little merit.

However, Big Labor’s spindoctors have been unable to refute convincing arguments why PLAs increase costs and reduce competition on a number of projects that have been bid both with a PLA requirement and without a PLA requirement.  These real world “experiments” offer direct apples-to-apples comparisons that illustrate how PLAs are not in the public interest and are nothing more than tools used by Big Labor bosses to regain lost market share with a little help from their government cronies.

Such is the case with the Ohio State School for the Blind and the Ohio School for the Deaf.  Recent reports demonstrate that construction bids for the residential portion of the project, free from an initial PLA mandate, came in 22 percent below bids subject to a PLA that were rejected this summer. The results also demonstrated more bidders on most bid packages compared to those bid packages initially bid with a PLA.  Besides clear evidence that PLAs increase costs and reduce competition, this case study has all of the ingredients and signs of corruption associated with typical PLA schemes.

Background
In April, Ohio School Facilities Commission (OSFC) Director Richard Murray announced he would impose a PLA for the $28.2 million project, which includes the construction of academic buildings and residential dormitories of two schools, which sit side by side in Clintonvile, Ohio. That decision touched off a firestorm of opposition from taxpayers, citizens and leaders in the construction community, including Associated Builders and Contractors of Ohio.

Director Murray claimed bidding would be brisk and the PLA would not adversely affect the cost of the project. He was wrong on both accounts. After two bid extensions to drum up more bidders, in late July the few bids received came back totaling $39.6 million, which is $11.4 million or 40 percent over budget.

Regular readers of www.TheTruthAboutPLAs may remember that the Ohio Inspector General’s (IG) office released a scathing report on August 5 that brought OSFC Director Murray’s corrupt efforts to promote Big Labor’s PLA agenda to light.  The IG’s report outlines Murray’s advocacy for PLAs and repeated displays of misfeasance and ethical violations in carrying out his duties.

For example, the probe said that Murray, a former Laborers Union official hired about a year ago by Gov. Strickland at the request of Big Labor Bosses (the previous OSFC director was ousted for not funneling enough work to unions via OSFC PLAs), should not have unilaterally negotiated and signed a PLA to use union labor to build the school buildings for the deaf and blind.

The labor agreement would have resulted in payments possibly topping $145,000 to a union local, of which Murray is a member, and to the Laborers-Employers Cooperation and Education Trust – a union slush fund with little public scrutiny of its activities, which Murray directed for 12 years. The report criticized Murray for creating the appearance of impropriety.

After intense media scrutiny of Murray’s corruption, in October 2010, the OSFC decided not to require contractors to enter into wasteful and discriminatory PLAs in order to work on the construction of two new dormitories.

The Results of PLA-Free and Open Competition
Last week, the bidding results for the project’s residential buildings package were released. The results demonstrate that PLAs increase the cost of construction and reduce competition.

According to the Columbus Dispatch (“New bids drop cost of work on deaf, blind schools,” 11/10/10):

The initial package included the residential buildings at an expected cost of $6.1 million, but the bids came back as high as $8.9 million, 46 percent over the estimate, said Robert Grinch, the commission’s senior project administrator in charge of the schools’ reconstruction.

Because of design changes to comply with building codes and an increase in average construction costs since early summer, the new estimate for the residential construction rose to $6.7 million. With the PLA off and nonunion companies bidding, the bids came in at just under $7 million.

That is 22 percent cheaper than what the package would have cost if the initial round of bids were accepted under the PLA, yet the OSFC spokesman Rick Savors couldn’t immediately say when the bids for the rest of the project, which includes academic, office and food-service buildings, would be let or whether they would retain a labor agreement.

The fact that the OSFC is reluctant to drop the PLA on the rest of the project after the most recent results of non-PLA bidding is stunning.  What do OSFC officials think is the cause of increased costs and reduced competition?

A bastardization of President Clinton’s 1992 political catch phrase is appropriate for this situation:  “It’s the PLA, stupid!”  The evidence is clear that PLAs increase the cost of construction and reduce competition. It is time for the OSFC to remove the PLA for the rest of the project and put an end to this corruption.

UPDATE: An editorial in The Columbus Dispatch agrees with our analysis (“Second Time’s A Charm,” 11/17/10):

Proof that project labor agreements drive up construction costs by reducing competition is plain to see in the second set of bids for work on dormitories at the Ohio State School for the Deaf and Ohio State School for the Blind.

The project had to be rebid after the first set of bids came in more than 40 percent above the project’s cost estimate.

Common sense suggested that the high bids were due in large part to the requirement that all bidders submit to a project labor agreement, which inflates labor costs by requiring that all workers be members of a union, if only temporarily. Along with higher labor costs, such agreements discourage nonunion bidders, and fewer bidders generally means higher bids.

Sure enough, the second set of bids, which were recently opened and didn’t require a project labor agreement, attracted 12 general-trades contractors, compared with two for the first bidding. The low general-trades bid in the first set was 44 percent over the estimate; in the second set, the apparent winning bid is 20 percent under the estimate. The second set of bids overall came in 22 percent below the previous set.

While other factors in the second bidding, such as a higher cost estimate and a looser deadline for completing the project, might have contributed to the second set of bids coming in closer to the estimate, the cost-inflating effect of the project labor agreement is clear.

The Ohio School Facilities Commission served taxpayers, however belatedly, by dropping it.

Taxpayers deserve the best possible product at the best possible price, but this PLA debacle is undermining the principles of good government and harming taxpayers and the blind and deaf students attending these schools.

Read the full Columbus Dispatch article from 11/10 after the jump.

Columbus Dispatch (“New bids drop cost of work on deaf, blind schools,” 11/10/10).

New bids drop cost of work on deaf, blind schools

Wednesday, November 10, 2010  09:44 PM

By Bill Bush

The Columbus Dispatch

Construction bids at the state schools for the deaf and blind came in 22 percent below bids that were rejected this summer, and one group says it’s because workers are no longer required to be union.

The lower bids for dormitories come after design changes and a less-competitive construction environment, which drove up the state’s cost estimate 10 percent, an official said.

The Ohio School Facilities Commission solicited bids in July to build new dormitories at the Ohio School for the Deaf and the Ohio State School for the Blind, but contractors’ proposals came in 46 percent over projections.

Nonunion construction firms said a “project labor agreement” that mandated union labor caused the overruns. The agreement had been ordered by commission Executive Director Richard Murray, a former union official who was the focus of a critical inspector general’s report this summer for his dealings promoting unions.

“I think it was a good demonstration that the PLA was a cost inflator,” said Bryan Williams, a lobbyist with the nonunion Associated Builders and Contractors of Ohio.

Pasquale “Pat” Manzi, executive secretary-treasurer of the Columbus/Central Ohio Building and Construction Trades Council, said it’s difficult to say why the bids, which were opened recently, are lower. He noted that some sub-contract bids were cheaper when the labor agreement was in place.

“This is just the voodoo of construction,” Manzi said. “Construction is kind of a strange world.”

The overall $28.2 million project would revamp the campuses, which sit side by side on a large, wooded lot in Beechwold. But the original bids came back totaling $39.6 million, or 40 percent over budget.

That package included the residential buildings at an expected cost of $6.1 million, but the bids came back as high as $8.9 million, 46 percent over the estimate, said Robert Grinch, the commission’s senior project administrator in charge of the schools’ reconstruction.

Because of design changes to comply with building codes and an increase in average construction costs since early summer, the new estimate for the residential construction rose to $6.7 million. With the PLA off and nonunion companies bidding, the bids came in at just under $7 million. The project can move forward because it is within 10 percent of the estimate, Grinch said.

Contractors were given an additional 65 days to complete the project, Grinch said. Manzi had previously said that a tight deadline might have caused firms to increase their bids during the summer bidding.

Commission spokesman Rick Savors couldn’t immediately say when the bids for the rest of the project, which includes academic, office and food-service buildings, would be let nor whether they would retain a labor agreement. The agreement would force nonunion firms that win bids to either unionize their work forces or hire union workers instead of their own employees.

“Before, companies that were not signatory to a union, if they bid on it, they wouldn’t be able to use their own employees,” said Mary Tebeau, president of the central Ohio chapter of the Associated Builders and Contractors.

Only two firms bid this summer for the residential project’s general trades contract, the “bricks and mortar” work that accounts for about 60 percent of the total cost. The lowest bid of those two was 44 percent over the estimated cost.

Without the PLA, 12 firms bid for the general trades work, and the apparent winner is about 20 percent under estimate.

Of the other contracts for windows, the fire-protection system, plumbing, heating and air-conditioning, and electrical systems only the window work received fewer bids the second time around, according to commission bid records. There was one bid for that work instead of two.

The electrical contract had nine bidders the second time instead of three, but the costs still came in 10 percent higher than under the labor agreement.

“This is all voodoo,” Manzi said. “Tell me, what’s going on here? I can’t decipher this.”

bbush@dispatch.com

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