The Truth About Project Labor Agreements

Corruption, Big Labor’s powerful special interest lobby, a change in Ohio’s political leadership, and poorly researched and half-baked public policy are all variables in a complicated equation the people of Euclid, Ohio, are desperate to solve.

In November 2009, Euclid City School District voters barely passed Issue #105 – a $40.3 million bond measure (see election results here) to finance an estimated $60 million to $65 million worth of school construction for four new schools to be built on land adjacent to the aging Roosevelt, Upson, Thomas Jefferson and Glenbrook elementary schools. Once the new schools are finished, the existing schools will be demolished.

Euclid School Board Member Kent Smith promised that the bond measure funding the Euclid school construction would benefit the Euclid community because the Euclid School Board passed a Community Inclusion Plan on 9/14/09:

The Community Inclusion Plan aims to promote business opportunities for local businesses and guarantee construction jobs for Euclid residents if Issue 105 passes. Specifically, it ensures that local businesses will participate in the building project at a minimum level of 20% for all contracts issued over $100,000. There are “good faith provisions” in this agreement which will ensure that Euclid businesses do not exceed normal pricing levels for their products and services. The Community Inclusion Plan will also guarantee that a minimum of 25% of the construction hours will be worked by Euclid residents. We can establish this guarantee by signing a Project Labor Agreement with the Cleveland Building Trades Council. These unions have members who live in Euclid and those Euclid members will get a chance to work on the project that builds four new elementary schools in their home city.

But Euclid’s qualified nonunion contractors and their skilled employees disagree with Smith and the rest of the Euclid School Board, which approved the PLA 10/25/10 by a vote of 5-0. They argue promises that the Community Inclusion Plan’s union-favoring PLA will deliver contracts to local businesses and create jobs for local labor are misleading. These Euclid taxpayers and businesses have asked public officials to keep the Community Inclusion Plan, but refrain from requiring a discriminatory and costly PLA.

PLA opponents maintain the PLA makes it difficult to achieve the Community Inclusion Plan’s goal to hire local businesses for 20 percent of all local projects exceeding $100,000 because few local contractors are unionized or willing and able to sign a PLA.

The Euclid School PLA forces nonunion contractors to hire most of their workforce from union hiring halls (for nonunion contractors, these are unfamiliar workers of unknown quality) and follow inefficient and costly union work rules.

Nonunion contractors are permitted to hire a maximum of five existing employees on Euclid school projects (known as core employees in Section L of the PLA), but those employees are forced to pay union dues, and the employer must pay pension and other fringe benefit payments on behalf of their core workers into union-managed programs for the life of the project (even if employers have existing programs they must continue to pay into on behalf of existing employees). Benefit payments from nonunion contractors participating on PLA projects are a windfall for union accounts, as nonunion employees will never benefit from these fringe benefit contributions unless they join a union and meet vesting requirements. (Here is a study on the problems with fringe benefit contributions typically mandated by PLAs).

While it is true that nonunion contractors can submit bids on PLA projects, the added costs from the various PLA rules make it virtually impossible for nonunion contractors to win contracts when competing against union contractors, giving unions a monopoly on supplying labor for Euclid school construction and ensuring union contractors have a huge, if not absolute, competitive advantage.

In addition, Euclid’s nonunion construction community argues that the PLA makes it difficult to meet the Community Inclusion Plan’s Workforce Participation Program goals:

The Workforce Participation Program aspires to achieve the following goals; Euclid resident of twenty-five percent (25%) of all hours dedicated to the Project. Contractors are required by the Workforce Participation Program to use Good Faith Efforts to employ Euclid residents to supply services in connection with the Project and to otherwise achieve the goals of the Workforce Participation Program.

PLA opponents say the Community Inclusion Plan’s goals are merely “Good Faith Efforts” and have no teeth. They argue that the PLA will fail at maximizing local job creation and hiring because with the PLA, unions – not the contractors – control the labor dispatched to Euclid school jobsites. Union hiring hall rules typically dispatch labor from a list that gives hiring priority to union members who have been out of work the longest. Because the union bosses dispatching labor have out-of-work union members from outside of the Euclid region as members, the PLA and the unions can’t guarantee local hiring (see list of major trades and their membership jurisdiction here).

There is a strong chance that nonlocal union members will be hired under this PLA ahead of local union members. And let’s not forget about the skilled nonunion Euclid construction workers who will be denied job opportunities by the PLA.

In short, the only beneficiary is Big Labor.

The bond measure was a victory for the Ohio State Building Construction Trade Council’s Cleveland Construction and Building Trades Council.  According to this March 2010 International Brotherhood of Electrical Workers (IBEW) newsletter, the unions supported the bond measure under the condition that the Euclid School Board agrees to a union-favoring PLA for the construction of the project:

Grassroots Politics Key to School Construction Contracts

Local 38’s success in Cleveland has helped push forward pro-labor politics and the creation of good jobs in neighboring Euclid.

Six years ago, Euclid’s school board proposed a levy to provide for more school construction. The school board at first refused to consider a project labor agreement, relying upon a 1997 measure passed by the Republican-dominated state legislature that eliminated requiring such agreements on school construction.

The building trades and other trade unionists agreed to campaign in support of the school levy if the municipality dropped its resistance to a PLA. The measure passed, with the building trades picking up the work.

Last November, another school levy was proposed. Once again, the building trades promised support under the condition that the school board agree to a PLA.

“We got our people energized,” says Meaney. Like in Cleveland, yard signs were posted around town. Local members conducted volunteer phone banking and a letter-writing campaign from the union hall. The school levy passed by only 71 votes. The measure provides $65 million for new school construction, 10 percent of which will be electrical work performed by Local 38 members.

Construction trade unions supported the bond measure by contributing to the Citizens for Euclid Schools.  A May 25, 2010, Ohio Campaign Finance Disclosure report indicates that the Citizens for Euclid Schools campaign raised $58,664.36 to support Euclid Bond Issue #105. Of the money raised, construction trade unions benefiting directly from the PLA raised at least a total of $1,650.

Such a small sum of $1,650 for a virtual monopoly on $65 million worth of construction contracts is an incredible return on investment for Big Labor that would make Bernie Madoff salivate, but of course, this windfall will be financed on the backs of Ohio and federal taxpayers.

A small portion of construction funding for the Euclid schools came from the federal government, administered through the Ohio School Facilities Commission Qualified School Construction Bonds (QSCB) program funded by the federal American Recovery and Reinvestment Act (ARRA) of 2009, commonly known as the stimulus bill. As a condition of receiving federal funding, Euclid school construction projects are subject to federal prevailing wage and benefit rates under the federal Davis-Bacon Act (review rates here under Ohio’s Cuyahoga County “Building” Construction Type).  These government-determined super-minimum wage and benefit rates are typically linked to union collective bargaining rates and are usually inflated above what employees would earn in the free market. Taxpayers foot the bill for these premium wages and benefits, and they apply even if a PLA is not used on these projects.

According to Euclid School Board Member Kent Smith, the State of Ohio will pay 41 percent of Euclid School District’s new school construction costs through the state’s tobacco settlement money administered by the Ohio School Facilities Commission (OSFC).

TheTruthAboutPLAs.com readers may recall that in August 2010, the Ohio Inspector General Tom Charles issued a scathing report that accused Gov. Ted Strickland’s appointee, OSFC Executive Director Richard Murray, of pressuring local school districts to require project labor agreements and pay prevailing wages on their school construction projects as a condition of receiving OSFC funding.  Murray generally provided unions “with undue access and accommodations. In ways large and small, Murray repeatedly failed in his responsibility to remain neutral on union matters,” according to the IG report.

Murray — a construction union member, union leader of Local 423 and paid consultant employed by a construction union advocacy group, the Laborers-Employers Cooperation and Education Trust — personally pushed PLAs on OSFC-funded projects that directly financially benefitted Local 423, Murray’s former union contractor employers, and the union advocacy groups he used to represent. Editorial boards across the state called for the resignation of Murray, but he refused to step down, even after Gov. Strickland was defeated in the 2011 November elections.

But just a few days after Gov. John Kasich took office, Murray resigned from his post.

This article describes how the change in Ohio’s political leadership and OSFC may impact Euclid’s PLA controversy:

However, the most immediate change to the Ohio School Facilities Commission is likely to be a reversal of the policy of Democratic Governor Ted Strickland’s policy that allows school districts to apply prevailing wage requirements and project labor agreements to construction contracts, non-voting commission member, State Senator Gary Cates (R-West Chester) said recently. [snip]

While the commission’s policies relating to PLAs and payment of prevailing wages are likely to change under the Republicans, it’s unlikely that this will affect construction contracts the commission has already approved.  It’s unclear how it would affect those still awaiting bids, however.

“The question will be will the new commission honor that PLA entered into at a time when PLAs were legal and it was the policy of this commission? I don’t know that answer,” Murray said. The Euclid City School District adopted the labor agreement, but likely won’t bid the project until after the new administration takes office.

Opponents of the Euclid PLA are furious because as a final act of unethical behavior before leaving office, Murray released the OSFC Bid Package #1(District-Wide Temperature Controls for Glenbrook, Roosevelt, Thomas Jefferson, and Upson Elementary Schools; estimated construction cost of $995,539) with a PLA and a bid deadline of Dec. 9, 2010. The Euclid School District and the OSFC will not be awarding that contract directly, but will assign the management and award of future contracts to each of the four low HVAC bidders on each elementary school.

But a public records request uncovered that OSFC staffer John Eufinger did not approve the PLA until Dec. 16, 2010:

Please be advised that I have reviewed the Euclid Schools PLA (authorized under the Responsible Bidder Criteria previously approved by the Commission) and, on behalf of the OSFC, approve it as to form.

Explicit language stating that the PLA has “no force or effect” until the OSFC approves the PLA in writing, complicates the applicability of the PLA even further:

This agreement and the board’s rights and obligations hereunder are expressly contingent upon the due authorization of, and approval by, the Ohio School Facilities Commission. Until such approval is given in writing, this agreement is of no force or effect.

So until OSFC leadership makes a decision about whether the PLA applies to Euclid school district projects, the citizens of Euclid will continue trying to solve this harrowing equation: Four schools plus one anti-competitive, government-mandated PLA equals discrimination against local labor, waste and crony contracting.

With Ohio and federal budgets facing record deficits, there is no place for costly and crony PLA schemes. The OSFC should remove the PLA, keep the Community Inclusion Plan and let fair and open competition help deliver to Euclid and federal taxpayers the best possible project at the best possible price.

Taxpayers might be surprised to see that the savings will be enough to build another Ohio school.