MWAA Officials Overlook Cause of Potential Phase 2 Project Labor Agreement Cost Increases

0 July 6, 2011  State & Local Construction, Transportation & Infrastructure, Uncategorized

Recent correspondence from Metropolitan Washington Airports Authority (MWAA) officials indicate that despite months of education and discussion with local stakeholders and the business community, MWAA does not fully understand the potential negative economic impact of its April 6 resolution mandating a union-favoring project labor agreement (PLA) that contractors are required to agree to in order to win construction contracts on the $3.5 billion Phase 2 Dulles Metro Rail Silver Line project in Northern Virginia.

(See previous blog posts from on this project and MWAA’s resolution here).

A letter from MWAA President and Chief Executive Officer Lynn Hampton also provides some interesting economic data, shared publicly for perhaps the first time, pertaining to construction contracts awarded to regional businesses for Phase 1 of the Silver Line.

In response to a Washington Post editorial that urged MWAA to abandon the Phase 2 PLA mandate in order to trim “skyrocketing price projections” that threaten to derail the project (“Containing Costs on the Silver Line,” 6/23), MWAA chairman Charles D. Snelling wrote (“A labor pact that would help Dulles Metro construction,” 7/2):

The editorial misrepresented our planned PLA by expressing concern that such an agreement could increase the project’s costs partly because it would impose “cumbersome union rules.” For the record, a PLA will most likely set wages based on rates established by the Labor Department under the Davis-Bacon law. But construction will be done at Davis-Bacon prevailing wage rates regardless of whether there is a PLA, because federal law requires such rates for construction projects that receive federal assistance.

Snelling argues a Phase 2 PLA will have no impact on labor or construction costs because the payment of Davis-Bacon prevailing wage and benefit rates to construction workers is already required on the project, regardless of whether a PLA is mandated on the project.

Clearly, Snelling is either confused or misrepresenting the facts to Washington Post readers.

While Snelling is correct that Phase 2 bid documents can require payment of Davis-Bacon wage and benefit rates to craft professionals with or without a PLA (assuming MWAA voluntarily includes this rule or the project receives federal dollars), the inclusion of such government-determined rates is not why a Phase 2 PLA mandate will increase costs.

PLA opponents have never argued that the applicability of Davis-Bacon rates is the source of anticipated cost increases resulting from the Silver Line’s Phase 2 PLA mandate.

Rather, the “cumbersome union rules” contained in PLAs – such as requirements that contractors hire most or all employees from a union hiring hall, follow archaic and inefficient union work rules, pay into union-controlled slush funds, and pay benefits to union trust funds their employees will never benefit from unless they join a union and become vested in these plans – are the key reasons why PLAs increase costs and discourage competition from qualified nonunion contractors and their skilled local workforce.

The ABC Virginia Chapter sent an April 21 letter (pdf) to Snelling and MWAA highlighting specific provisions in the Phase 2 PLA Heavy Highway Agreement/PLA circulated to the public by MWAA staff that will reduce competition, increase costs, harm Virginia’s construction industry and result in out-of-state union members receiving what amounts to a discriminatory monopoly supplying labor to build the Phase 2 project. The letter never listed Davis-Bacon wage and benefit rates as an area of concern.

Finally, the Beacon Hill Institute studies, often cited as the basis of the estimate that a Phase 2 PLA mandate will increase construction costs between 12 percent and 18 percent ($300 million to $450 million of $2.5 billion in Phase 2 construction costs), sampled construction projects built with government-mandated PLAs and without PLAs in three states subject to state prevailing wage laws (Mass., Conn. and NY). This demonstrates that the added costs resulting from a government-mandated PLA occur on projects subject to prevailing wage laws.

In short, Davis-Bacon rates are a non-issue, so why is Snelling suddenly raising this argument?

Is it because Snelling is intentionally deflecting legitimate criticism of the Phase 2 PLA mandate by fusing these two issues because the special interest contracting scheme cannot be defended?

Or, do Snelling and the MWAA board members need additional education about how a PLA will increase costs and discourage competition from the experienced employers of 94 percent of Virginia’s construction workforce (those who choose not to belong to a construction union)?

MWAA needs to either shoot straight with the public or learn the facts about PLAs before executing another poor and costly decision that has the potential to derail the Silver Line and harm Virginia taxpayers, job creators and stakeholders.

In a June 8 letter responding to objections to the Phase 2 Silver Line PLA mandate from Congressman Andrew Harris (R-Md.), Hampton issued a similar defense of the Phase 2 PLA as Snelling:

Your concern that a PLA will cause a substantial increase in Phase 2 costs appears to be based on the view that wages paid by Phase 2 contractors operating under a PLA will be significantly higher than the wages contractors would pay absent a PLA, and that these higher wages will cause a significant increase in Phase 2 labor costs. I want to respond to these concerns.

A PLA on Phase 2 will likely provide for wages to be based upon either the prevailing wage rates established by the U.S. Department of Labor pursuant to Public Law 107-217 Davis-Bacon) or, like the Phase 1 PLA, comparable wage rates established pursuant to local Collective Bargaining Agreements (CBA). However, Davis-Bacon prevailing wage rates will be applied to Phase 2 even without a PLA. As you know, federal law requires that construction projects receiving federal financial assistance must apply Davis-Bacon wage rates. Along with our funding partners, the Airports Authority has been actively pursuing federal assistance for Phase 2. In particular, we are working to obtain federal credit assistance under the Transportation Infrastructure Finance and Innovation Act (TIFIA). The receipt of a TIFIA loan, or any other federal assistance on Phase 2, would require utilization of Davis-Bacon wage rates. It is the Airports Authority’s intent to require the use of such rates by Phase 2 contractors, irrespective of a PLA.

As a result, the use of a PLA in Phase 2 is not expected to have any significant impact on wage rates, labor costs or overall Phase 2 costs.  It is possible that a Phase 2 PLA, were it to utilize local CBA rates, (as does the Phase 1 PLA), might add a slight premium to comparable Davis-Bacon wage rates. If so, that premium would not cause an appreciable increase in overall Phase 2 costs. Morever, the benefits associated with a PLA i.e., by ensuring the ability to attract and retain a skilled workforce, access to well-established training programs, and providing a mechanism for resolving all workplace disputes and eliminating workplace disruptions and work stoppages that may occur — are, viewed as outweighing any such marginal increase in labor costs.

Once again, an MWAA official ineptly defends the Phase 2 PLA, as Rep. Harris never identified Davis-Bacon rates as the source of increased costs resulting from a Phase 2 PLA mandate. Hampton doesn’t understand that there is a competitive advantage to using nonunion contractors independent of whether a project requires prevailing wage and benefit rates and a PLA mandate typically discourages participation from qualified nonunion contractors.

In addition, Hampton fails to understand that you don’t need an anti-competitive and costly PLA to achieve the benefits MWAA is hoping to achieve.

Hampton rattles off some interesting economic data about first-tier contracts awarded to nonunion contractors under the voluntary Phase 1 PLA Dulles Transit Partners signed, but completely ignores the fact that nonunion/merit shop subcontractors did not have to sign the Phase 1 PLA. (See paragraph 8 of Dulles Corridor Metrorail Project Labor Agreement Final Addendum, Heavy and Highway Construction Project Agreement, Construction of Phase 1 – Fairfax County, Virginia. “Subcontracting:…It is further understood that in the event any covered work is awarded to a merit shop contractor the contractor shall not be required to sign this agreement or sign any other agreement as a condition of performing work on this project.”):

Second, the Project’s experience to date in Phase 1 with the Dulles Transit Partners, LLC, (DTP), the firm under contract with the Airports Authority to design and construct Phase 1, has demonstrated that, notwithstanding the existence of a PLA, non-union local contractors have achieved a high level of participation in Phase 1 contracts.  For example, of the first-tier contracts executed to date by DTP – contracts with a value of $460 million – 58 percent of the contract’s value, or $266 million, has been awarded to non-union contractors, while 42 percent of the value, or $194 million, has been awarded to union contractors.

Further, of the first-tier contractors executed to date by DTP with contractors and suppliers of equipment and materials, including contracts in the area of utility relocations – contracts with a value of $880 million – 60 percent of the contracts’ value, or $528 million, has been awarded to contractors and businesses based in the Commonwealth of Virginia, the District of Columbia, and the State of Maryland (VA/DC/MD), with the remaining 40 percent of the contracts’ value, or $352 million, awarded to contractors and businesses based outside of VA/DC/MD.  This Phase 1 experience shows that the Phase 1 PLA has not had any significant negative effect on the ability of non-union local contractors to successfully bid on and obtain Phase 1 work.
Even though this may be the first time this data has been publicly released, it is essentially meaningless to the PLA debate unless it articulates how many of these contractors actually signed the PLA and how many of those contracts were awarded to Virginia businesses.

However, the data supplied by Hampton confirms that nonunion contractors played an integral role in building Phase 1 of the Silver Line. Yet Hampton does not promise an exemption for nonunion subcontractors in the Phase 2 PLA, nor acknowledge the truth that nonunion/merit shop contractors did not have to sign the Phase 1 PLA.

While the terms and conditions of the Phase 2 PLA have not been finalized, evidence suggests that MWAA board members oppose a provision similar to the language in Phase 1 exempting nonunion subcontractors from signing the Phase 2 PLA.

For example, the Washington Examiner quoted Laborers union (LiUNA) senior official and MWAA board member Dennis Martire insulting the workforce of PLA opponents and nonunion contractors (“Airport agency’s pro-union pact angers Va. Officials,” 4/14):

“All this does is establish worker rules and where you get your workers from,” said Martire, vice president of Laborers’ International Union of North America. “They’d rather get a guy off of a bar stool and give him a tool and a lower wage. I don’t know how productive that is.”

MWAA’s April 6 resolution mandating a Phase 2 PLA directs the Dulles Corridor and Business Administration committees, to approve and implement the final Phase 2 PLA with the assistance of MWAA staff. Michael Curto, who introduced the resolution, and Martire sit on these committees. The employers of Martire and Curto have a strong and existing financial relationship and both would directly and/or indirectly financially benefit from a Phase 2 PLA mandated by MWAA.

Curto’s employer, Patton Boggs, has received between $1.25 milion and $1.44 million per year since 2005 from Martire’s employer, LiUNA, according to union financial disclorure reports filed with the U.S. Department of Labor.

Snelling’s Washington Post letter to the editor said this:

The benefits associated with a PLA include the ability to attract and retain skilled workers, access to training programs and a mechanism for resolving workplace disputes to avoid disruptive work stoppages.

Both quotes from Martire and Snelling insinuate that it is difficult to have a plentiful supply of skilled workers building projects without a PLA. This is offensive to nonunion tradespeople in Virginia and the greater metropolitan area, and undermines the long and rich history of local, state, federal and private construction projects built without special interest government-mandated PLAs.

These statements are just as illogical as they are factually inaccurate, as subcontractors that performed hundreds of millions of dollars worth of construction work on Phase 1 of the Silver Line did not have to sign the PLA. The arguments used by MWAA officials to defend a Phase 2 PLA have no merit.

The PLA mandated by MWAA on Phase 2 must be removed and MWAA members should devise a plan to encourage full and open competition that will help all qualified contractors deliver to taxpayers the best possible construction project at the best possible price.

Update: This Aug. 22, 2011 correspondence between MWAA and the Purcellville Business and Professional Association again indicates that nonunion contractors built a significant potion of Phase 1. It also indicates that MWAA incorrectly argues (again) that PLA opponents have attributed the predicted additional costs resulting from the Phase 2 PLA to the application of federal prevailing wage and benefit rates (determined by the U.S. Department of Labor under the Davis-Bacon Act) on Phase 2. Of course, these rates would be used regardless of whether a PLA is used. In reality, PLA opponents oppose the Phase 2 PLA because it will increase costs due to reduced competition, archaic and inefficient union work rules, and fees imposed on nonunion firms and employees they must swallow to work on a PLA project.

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