ABC Members Testify in Support of Legislation Restoring Fairness in Federal Contracting

0 June 7, 2011  Federal Construction, Uncategorized

On June 3, the House Oversight and Government Reform Committee’s Technology, Information Policy, Intergovernmental Relations and Procurement Reform Subcommittee held a hearing, “H.R. 735 and Project Labor Agreements: Restoring Competition and Neutrality to Government Construction Projects.”

The subcommittee, chaired by Rep. James Lankford (R-Okla.), heard testimony about the negative impact of President Obama’s controversial Executive Order 13502 and related regulations, which encourage federal agencies to evaluate whether to require project labor agreements (PLAs) on federal construction projects exceeding $25 million in total cost on a case-by-case basis.

UPDATE 12/9/11: Here is a transcript of the hearing.

Because federal and federally assisted construction projects subject to government-mandated PLAs and preferences discourage competition from qualified contractors and their skilled employees that are capable of performing these taxpayer-funded projects, witnesses and Republican subcommittee members explained how the Obama order has resulted in a dysfunctional federal procurement system rife with favoritism and waste.

“Does requiring a small business with no union affiliation to sign a labor agreement as a condition of doing business with the government increase opportunities for small businesses?” chairman Lankford asked in his opening statement. “Requiring a PLA as a condition to compete serves only to restrict, not increase, competition. The current policy discourages or even excludes nonunion firms, including the vast majority of small businesses, from competing for government projects.”

“Project labor agreements mandated by federal agencies result in increased costs for contractors and taxpayers, unnecessary procurement delays and inject uncertainty and favoritism in the federal procurement process, ” said Associated Builders and Contractors (ABC) member Kirby Wu, 2011 chair of the ABC New Jersey Chapter and president of Wu & Associates, Cherry Hill, N.J.

“Our company and other quality small businesses, general contractors, subcontractors and their skilled employees deserve a fair opportunity to provide the public with the best construction product at the best price.”

Witnesses Say PLA Mandates Are Bad Public Policy
Similar to the testimony at a March 16 House Oversight and Government Reform subcommittee hearing chaired by Rep. Jim Jordan (R-Ohio) on PLA mandates and other regulations harming the construction industry, witnesses described how government-mandated PLAs harm their businesses, employees and taxpayers.

Wu testified about how government-mandated PLAs harm merit shop employees and discourage competition:

“Government-mandated PLAs have the practical effect of creating jobs exclusively for unionized construction tradespeople by forcing union representation or compulsory union membership, inefficient and archaic union work rules, payment of union dues, forced contributions to union pension and benefit plans, and a host of other problems on merit shop employees – like my firm’s employees – that have freely decided not to join a union.

Injecting PLA mandates into the federal procurement process discourages competition from qualified contractors – like my company – who employ 87 percent of the U.S. construction workforce.

It is needless discrimination based on labor affiliation and it hurts merit shop employees as much as it hurts their general contractor and subcontractor employers.”

Wu described his unfortunate experience with a PLA mandated by the U.S. Army Corps of Engineers (USACE) on a 2010 federal project in Camden, N.J., that was eventually the subject of a bid protest filed by Wu with the Government Accountability Office (GAO). In the face of the bid protest, the USACE dropped the PLA mandate and replaced it with an illegal and discriminatory PLA preference that awarded additional credit/points in the best value procurement process to contractors that voluntarily submit a bid containing a promise to utilize a PLA:

“We did not pursue the contract further because we felt it was not worth the investment of additional company resources to prepare the bid and compete against contractors submitting PLA offers in this distorted playing field.

This entire exercise resulted in lost time and money for our small business that we could have invested back into our workforce and company.  It also resulted in needless procurement delays exceeding two months, as the Corp’s bid submission deadline was extended a number of times to accommodate the PLA controversy.

Remarkably, the contract was eventually awarded to a merit shop general contractor at a bid price nearly 15 percent below the $16.5 million estimate without a PLA offer. And today the project is reportedly on time and on budget.  The winning contractor would have been discouraged or eliminated from competing, if not for our efforts to fight the PLA mandate.”

Broad Support for the Government Neutrality in Contracting Act (H.R.735)
Witnesses also advocated for Congressional passage of the Government Neutrality in Contracting Act (H.R. 735), introduced by Congressman John Sullivan (R-Okla.), which prohibits the federal government from mandating anti-competitive and costly PLAs on federal and federally assisted construction projects.

H.R. 735 essentially codifies into law President George W. Bush’s Executive Orders 13202 and 13208, which ensured that taxpayers received the best construction at the best price on more than $147 billion worth of federal construction projects and hundreds of billions of dollars of federally assisted construction projects by prohibiting government-mandated PLAs on federal and federally assisted construction projects. The orders, which maintained fairness and neutrality in government contracting, were repealed by President Obama’s pro-PLA Executive Order 13502 in February 2009, just a few weeks after he assumed the presidency.

“It is clear to us that only Congress can bring a timely halt to the political favoritism in contract awards that is being promoted by the administration in the guise of Executive Order 13502,” ABC General Counsel Maurice Baskin told the subcommittee.  “The bill will prohibit federal agencies once and for all from awarding construction projects based on the willingness or unwillingness of contractors to enter into labor agreements. As the bill states, agencies shall neither require nor prohibit contractors from adopting PLAs as a condition of being awarded federal construction work, nor discriminate on that basis.”

“AGC opposes federal mandates for project labor agreements and supports H.R. 735,” testified Associated General Contractors General Counsel Mike Kennedy.

A diverse coalition of construction industry and employer groups support H.R. 735:

Associated Builders and Contractors (ABC)
Associated General Contractors (AGC)
Construction Industry Roundtable (CIRT)
Independent Electrical Contractors Association (IEC)
Electronic Security Association (ESA)
Merit Elevator Contractors Association of America (MECAA)
National Association of Minority Contractors (NAMC) – Philadelphia Chapter
National Association of Government Contractors (NAGC)
National Association of Women in Construction (NAWIC)
National Black Chamber of Commerce (NBCC)
National Federation of Independent Business (NFIB)
National Ready Mixed Concrete Association (NRMA)
National Stone, Sand & Gravel Association (NSSGA)
National Utility Contractors Association (NUCA)
Small Business and Entrepreneurship Council (SBEC)
U.S. Chamber of Commerce
Women Construction Owners and Executives, USA (WCOE)

Congressman Sullivan Testifies in Support of H.R. 735
Rep. Sullivan testified before the subcommittee in support of H.R. 735 and cited examples of federal and federally assisted construction projects that resulted in favoritism and increased costs as a result of a government-mandated PLA:

“Government-mandated PLAs are not only discriminatory, but they are also hurtful to a struggling industry that is already facing unemployment above 17 percent. For example, yesterday The Wall Street Journal reported on a $70 million highway construction contract in New York – funded at least 80 percent by the Federal Highway Administration – that has been scrutinized for the decision to subject it to a PLA. While 27 percent of New York’s private construction workforce is unionized, that means  the employers of 73 percent of New York’s construction workforces, who having been facing steep job losses over the past few years, are discouraged from bidding for this project. Unfortunately, limiting competition comes at taxpayer expense. The article (pdf) mentions that the PLA cost taxpayers an additional $4.5 million because the lowest responsible bidder, a merit shop contractor, was thrown off the project in favor of a union contractor, because the merit shop contractor would not sign a PLA.”

Rep. Sullivan highlighted the added costs to the federal Lafayette Building project in Washington, D.C., a project has written about numerous times:

“A U.S. General Services Administration (GSA) renovation project for the Lafayette Federal Building in Washington, D.C. was awarded to a federal contractor without a PLA at $52.3 million.  However, after this contractor agreed to a PLA pushed by the GSA for the project, the contractor added $3.3 million to the cost of the project.  The added $3.3 million isn’t the result of increased material costs, revised blueprints or a more aggressive completion deadline. The contract was awarded to the same contractor with the same proposal, and the only difference was the PLA.

These are just two examples, but there is no doubt that there are many more stories reflecting the true colors of government-mandated PLAs.”

Rep. Sullivan’s office issued this media statement on the hearing:

“In granting my bill, HR 735, the Government Neutrality in Contracting Act, a hearing today, the subcommittee has taken an important step in reestablishing fair and open competition in federal construction contracting. By overturning President Obama’s executive order, which was designed to funnel contracts to unions, this bill will save and create jobs in the struggling construction industry and potentially save taxpayers billions of dollars in inefficiencies.”

“It is simply unacceptable to allow the federal government to discriminate against 87 percent of the U.S. private construction workforce – and the 98 percent in Oklahoma – who seek federal contracts. American tax payers deserve to know that federal contracts are being awarded based on sound, credible criteria such as quality of work, experience and most importantly cost. Government mandated PLAs can drive up the cost of construction projects as much as 18 percent, which is the last thing our economy can afford right now. We owe it to businesses in Oklahoma and across the country whose livelihood depends on their ability to bid on construction projects in a fair and open process.”

(Note: Read a Feb. 16 statement from Rep. Sullivan on H.R. 735 here.)

Are PLA Mandates a Solution in Search of a Problem?
Professor David Tuerck of the Beacon Hill Institute (BHI) at Suffolk University in Boston summarized BHI’s extensive research on government-mandated PLAs, which found that on average, government PLA mandates add an additional 12 percent to 18 percent in construction costs when compared to similar construction projects without a PLA.

Tuerck discussed 2009 research by BHI on federal contracting from 2001 until early 2009, when President Bush’s Executive Orders 13202 and 13208 prohibited government-mandated PLAs on federal and federally assisted construction contracts.

If President Obama and PLA proponents’ claims that PLAs are needed to advance the economy and efficiency in federal contracting are true, “President Bush’s ban on mandatory PLAs should have produced many instances of the delays, strikes and cost overruns against which PLA advocates frequently warn,” said Tuerck.

Tuerck testified that BHI’s research found no federal agencies “could substantiate the occurrence of any delays or cost overruns on Bush-era projects costing $25 million or more that were attributable to the absence of a PLA.”

Tuerck’s research was attacked by union friendly lawmakers and witnesses during the hearing, which he responded to at the hearing and in writing (see “Beacon Hill Institute Responds to Attacks on Project Labor Agreement Research,” 7/22/11).

GSA Witness Admonished for Agency PLA Preference Policy, Questioned About GSA’s Study Critical of PLA Mandates
Susan Brita, deputy administrator for the GSA, provided testimony (pdf ) about the GSA’s experiences with PLA mandates and PLA preferences since President Obama signed Executive Order 13502.

Brita described the GSA’s pilot program, launched in August of 2009 according to this GSA memo, which is in the process of evaluating the performance of PLAs on seven of 10 large-scale federal construction projects managed by the GSA:

“During the implementation of our Recovery Act Spend Plan, GSA conducted a pilot program with Recovery Act projects to consider the use of a PLA. For this pilot program, GSA selected projects with budgets of more than $100 million. Ten projects met this criterion and were selected for the pilot. Of these ten projects, seven have PLAs and three do not.”

Rep. Tim Walberg (R-Mich.) questioned Brita about the GSA’s negative experiences with PLAs on two of the GSA’s PLA pilot projects in Washington, D.C.: the GSA HQ at 1800 F Street (40:55) and the Lafayette Building previously mentioned by Rep. Sullivan (44:13), which experienced added costs and procurement delays.

Brita also explained the GSA’s PLA preference policy, launched April 30, 2010, according to this GSA memo, which applies to all GSA projects exceeding $25 million in total cost.  The GSA’s anti-competitive and discriminatory PLA preference policy awards 10 points in the best value procurement process only to contractors that voluntarily submit a bid containing a PLA agreement.

Drawing from his experience bidding on projects in the private sector prior to becoming a Congressman, Rep. Mike Kelly (R.-Pa.) argued that the GSA’s PLA preference discourages some contractors from competing for federal contracts by tilting the RFP process in favor of contractors submitting PLA offers.

“A 10 percent bonus doesn’t level the playing field, that totally tilts it,” said Kelly. “You set those type of parameters [in GSA RFPs], you are setting them to get one type of a bidder to get the award.”

“I see it as exclusionary,” said Kelly. “I don’t see it as increasing the field of bidders, I see it as narrowing it down.”

Chairman Lankford and Kelly questioned Brita about the findings of a consultant’s report funded by the GSA that was critical of government-mandated PLAs on construction projects in the GSA’s PLA pilot program in various construction markets across the country.

Brita’s testimony indicated the consultant’sJan. 27, 2010, report was “suspended” and only remains in draft form. Brita said it was shelved to “let the marketplace determine the applicability of PLAs rather than rely on the report.”

Chairman Lankford and Kelly suggested the report was suspended because its initial findings contradicted the GSA’s existing PLA pilot program, which had already been well underway since its launch in August 2009.

“It seems to me that the information they [the GSA] got back is not consistent with what they were looking to find,” said Kelly.

In addition, subcommittee members and witnesses raised objections to the GSA’s April 2010 implementation of the anti-competitive and discriminatory PLA preference policy that awards additional credit to PLA offerors since the GSA’s report was critical of PLAs in various markets across the country.

Note: This exchange between Kelly and Brita pretty much sums up the problems with the GSA’s PLA preference policy.

Brita and Office of Management and Budget’s Office of Federal Procurement Policy administrator Dan Gordon defended the GSA’s PLA pilot program and PLA preference policy.

Gordon explained that in the GSA’s pilot program, there were instances where bidders submitting a PLA offer won the project and there were instances where a bidder submitting a non-PLA offer won. He maintained that the GSA was not “tilting it one way or another” but did not provide any data or meaningful analysis to support this claim. has long argued that the GSA’s PLA preference policy reduces competition and is a de facto PLA mandate when a PLA offeror submits a PLA bid.

Brita explained there would be a future report issued on the results of the GSA’s 10 PLA pilot projects, but that the initial findings indicated there was no evidence of reduced competition or increased costs resulting from PLAs on these projects.  However, Brita did not provide the subcommittee with any evidence to support this claim.

Of course, it would be fallacious reasoning to jump to broad conclusions about the impact of federal PLA mandates on competition and cost from the GSA’s bidding results when the GSA is skewing the participation of qualified and available bidders by awarding additional credit to voluntary PLA offerors through their PLA preference policy.  It is also unlikely that this flawed experiment will perform any meaningful analysis about the added costs resulting from reduced competition from the pool of qualified and experienced federal subcontractors.

In any case, because the hearing exposed the GSA’s track record of suppressing data that conflicts with their existing politically-motivated policies, the GSA should present the results and raw data of their bidding experiment to an independent evaluator and make the raw data available to the public in a transparent manner.

Hearing Witnesses

Panel I
Congressman John Sullivan (1:09)
1st District of Oklahoma
Panel II
The Honorable Daniel Gordon (17:08)
Administrator, Office of Federal Procurement Policy
Office of Management and Budget

Susan Brita (22:14)
Deputy Administrator
General Services Administration

Note: Panel II concludes at 16:00 of second video:

Panel III
Maurice Baskin, Venable LLP (17:00)
General Counsel
Associated Builders and Contractors

David Tuerck (22:13)
Executive Director
The Beacon Hill Institute

Kirby Wu, AIA, LEED AP (28:40)
Wu & Associates, Inc.

Mike Kennedy (34:50)
General Counsel
The Associated General Contractors of America

Further Reading:

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