The District of Columbia Council Is Wasting Taxpayer Money on Project Labor Agreement Schemes

0 August 13, 2020  Featured, State & Local Construction

District of Columbia voters and businesses monitoring revenue shortfalls and proposed tax hikes in the D.C. Council’s FY2021 budget, passed July 23 and awaiting future action from Mayor Bowser, should be concerned about $50 million to $100 million in waste and increased costs resulting from a scheme by some D.C. Council members and construction trade union lobbyists to steer taxpayer-funded construction contracts to unionized contractors and create construction jobs almost exclusively for unionized construction workers from outside the District.

On July 12, 2016, the D.C. Council passed the Procurement Integrity, Transparency and Accountability Amendment Act of 2016  (Bill 21-334, D.C. Law 21-158) with a provision requiring government-mandated project labor agreements on taxpayer-funded construction projects exceeding $75 million procured by the District of Columbia. The law allows Mayor Bowser to exempt projects from the PLA requirement under certain circumstances, but the District of Columbia’s new policy is effectively a default PLA mandate for qualifying large-scale projects.

While the threshold was raised to $75 million from the original $50 million threshold proposed by lawmakers, requiring wasteful and discriminatory PLAs on any construction contracts procured by the District of Columbia government is bad public policy for many reasons—no matter the project type or size—as discussed in detail in this space.

Even District of Columbia officials recognize the negative impact PLA mandates have on cost and competition.

A July 12, 2016, fiscal note on this wasteful measure prepared by the District of Columbia Office of the Chief Financial Officer Jeffrey S. DeWitt (PDF) concedes that government-mandated PLAs on applicable District of Columbia construction projects exceeding $75 million will “increase contract costs by an estimated 10%,” and will “cost the district an extra $26.2 million annually or $157 million over the six-year capital improvement plan period…:”

The requirement to have Project Labor Agreements for construction projects over $75 million is expected to increase contract costs by an estimated 10 percent. Project labor agreements require non-union contractors to follow union practices, such as hiring through union halls and contributing to union pension plans. This is found to discourage contract bids from non-union contractors, thus removing some of the competitive pressure to offer lower-priced bids among the remaining bidders. Studies of school projects in Boston, MA and California demonstrate that a project labor agreement could increase construction project costs anywhere from approximately 4.9 percent to 14 percent, even when prevailing wage laws eliminate wage differentials between unionized and non-unionized labor. The midpoint of these estimates is a 10 percent cost increase. In the current six-year Capital Improvement Plan, construction projects over $75 million account for approximately $262 million in annual spending. Thus, the estimated annual cost of the Project Labor Agreements is $26.2 million annually or $157 million over the six-year capital improvement plan period. This amount must be budgeted in the Capital Improvement Plan to ensure that the District can deliver its planned construction projects.

Many industry experts argue that 10% is an extremely conservative estimate and the increased costs resulting from PLA mandates is actually closer to 20% in this market, where more than nine out of 10 people employed in the construction industry do not belong to a union.

Since passage of this bill, the District of Columbia is budgeting the increased costs due to government-mandated PLAs into their six-year Capital Improvement Plan.

According to page 7 of the DC CFO’s June 26, 2018 report, Fiscal Impact Statement – Fiscal Year 2019 Budget Support Act of 2018 Bill 22-753, Amendment in the Nature of a Substitute, Circulated June 25, 2018, (PDF) the District plans to spend an extra $51.3 million because of PLA mandates on just three large-scale construction projects.

That means the District of Columbia’s PLA scheme is diverting $51.3 million (and likely closer to $100 million in reality) away from the construction of new roads, bridges, schools, hospitals and other important pieces of infrastructure so unionized campaign donors can receive inflated public works contracts with little competition.

Of course, the D.C. Council can repeal its pro-PLA policy and reallocate at least $51.3 million to other projects in the CIP, or use the $51.3 million to offset revenue shortfalls or pay for new programs, instead of cutting other programs or hiking taxes. Such a wise move would ensure all local businesses and construction workers can compete on a level playing field for public works contracts and also create more local construction jobs and improve more local infrastructure projects.

The Truth About Government-Mandated Project Labor Agreements

Just 12.6% of the U.S. construction workforce belongs to a union, according to the Bureau of Labor Statistics. Construction union membership is even less in the District of Columbia (8.5%), Maryland (5.7%) and Virginia (0.6%). As a result, construction trade unions have turned to their friends in government to mandate PLAs on public projects to help win market share and increase union membership.

Union lobbyists contend PLAs—master collective bargaining agreements with multiple construction unions governing a construction project—are a tool to prevent union strikes, ensure the use of local labor, and deliver projects on time and on budget. But the truth is these goals will and have been achieved without PLAs. In addition, many PLA projects have failed to reduce costsimprove local job creation, and prevent jobsite strikes, accidents and delays.

Typical government-mandated PLAs contain anti-competitive and costly terms and conditions that favor union contractors and workers and hurt the local area’s construction industry and taxpayers.

While all contractors are technically free to bid on construction contracts subject to a government-mandated PLA, the terms of a PLA require contractors to replace most or all of their existing employees with union members dispatched from union hiring halls, use apprentices exclusively from union training programs, follow inefficient union work rules and pay into union benefits plans even if firms have their own existing benefits plans. Additionally, nonunion tradespeople are forced to accept unwanted union representation, pay union dues and then forfeit benefits earned during the life of the project unless they join a union and become vested in union benefits programs, resulting in a loss of compensation by at least 20%.

Qualified local businesses and nine out of 10 of the district’s construction professionals can’t win a contract and work on a jobsite unless they agree to these anti-competitive and costly pro-union terms. It’s no surprise such red tape and discrimination discourages competition from experienced merit shop firms and well-trained nonunion craft professionals in the region.

Fewer bidders, coupled with costly and restrictive provisions in PLAs, needlessly increase construction costs. For example, academic research by various government and private institutions have determined school projects subject to PLA mandates are 12% to 20% more expensive than projects not subject to PLA mandates.

DC PLA Fight Kids Ad Snap

Are D.C. residents willing to accept four schools, infrastructure and transportation projects for the price of five? Are taxpayers willing to support shameless lawmakers who steer jobs and contracts to out-of-area union construction workers and firms so local residents can forego another school, transportation or infrastructure improvement?

Increasing costs, chilling competition, placing barriers to new jobs for qualified D.C. residents and rewarding well-connected special interests with government contracts is no recipe for equitable economic development and progress for the District of Columbia.

The District of Columbia, Virginia and Maryland’s Past Government-Mandated PLA Projects Have Failed to Deliver on PLA Promises

Despite claims to the contrary by PLA proponents, the region’s federal, city and local government-mandated PLA projects have suffered from increased costs, delays, accidents and poor local hiring outcomes.

In 2010, the General Services Administration awarded a $52.3 million federal contract to build the Lafayette Building in Washington, D.C., but then forced the contractor to sign a change order and build it with a union-favoring PLA that cost taxpayers an additional $3.3 million.

In 2010, the GSA Headquarters Building at 1800 F St. in Washington, D.C., suffered a 107-day delay and millions of dollars in cost increases as a result of failed PLA negotiations by labor unions.

In 2013, data collected by Del. Eleanor Holmes-Norton (D) on federal projects subject to PLA mandates located in the District of Columbia demonstrated that PLAs delivered worse local hiring outcomes than other large-scale federal projects not subject to a PLA.

Research from 2009 found D.C. council’s mandated PLA on the budget-busting Washington Nationals stadium failed to deliver on promises. Just 26% of journeyworker hours went to D.C. residents, rather than the 50% unions promised in the PLA. Half of the project contractors hired no new apprentices, and of the companies that hired new trainees, only 17 of 56 firms met the PLA requirement that 100% of new apprenticeships go to D.C. residents.

Due to a special-interest handout by ex-Mayor Vincent Gray, the new DC United soccer stadium was subjected to an even more restrictive PLA mandate, despite the failure of the PLA requirement on the Nationals stadium. According to The Washington Post, “initially estimated to cost $300 million, the project has swelled to about $400 million,” and data on local hiring outcomes and project performance for the D.C. United stadium has remarkably not been made available to the public.

Local hiring data collected in 2012 by the Metropolitan Washington Airport Authority for Phase 1 of the $2.8 billion Silver Line project in Northern Virginia found subcontractors performing work without a voluntary PLA hired a greater percentage and number of local workers than the prime contractor performing under a PLA voluntarily negotiated and executed with labor unions. Bids for Package A for Phase 2 of the Silver Line were 16% to 27% below the $1.4 billion to $1.6 billion estimate following the removal of controversial PLA mandate and PLA preference policies proposed by MWAA.

In 2014, The Baltimore Sun reported that a union-favoring PLA required by Prince George’s County on the construction of the library in Laurel, Maryland, was scrapped because it caused delays, increased costs, and reduced competition from local contractors and construction workers.

In 2012, bids for a fire station construction project in Brandywine, Maryland, that was estimated to cost $2.9 million came in at $4.2 million – a 41% increase over the estimated cost of the project. The fire station was subject to a PLA mandated by Prince George’s County.

In 2003, the District of Columbia Convention Center finished 40% over budget, used out of town contractors and labor, failed to meet LSDBE contractor and local labor participation targets, and experienced an accident when the roof collapsed, which investigators said was due to the improper installation of a 180-foot steel truss by union ironworkers employed by a contractor from Texas.

In 2001, the Woodrow Wilson Bridge’s superstructure contract was temporarily subjected to a union-favoring PLA requirement by former Maryland Gov. Parris Glendening (D). Originally estimated to cost $450 million to $500 million, in December 2001 the Wilson Bridge’s superstructure contract received just one bid at a price of $860 million, – $370 million more than engineering estimates, (a 78% cost overrun). Eventually, the Wilson Bridge superstructure project was rebid without the government-mandated PLA into three smaller bid packages. In October 2002, multiple bids were received on each of the smaller contracts, and the winning bids came in significantly below the engineering estimates.  While the bridge was delayed more than a year for re-bidding, it was eventually completed below the original budget and completed on time, free from a government-mandated PLA.

In contrast, hundreds of PLA-free private and public construction projects, such as the District’s recent successful completion of the $376 million 11th Street Bridge project, demonstrate PLA mandates are not needed to deliver a project on time and on budget, and PLA-free projects create jobs for local companies and construction professionals.

In addition, the D.C. market has virtually no history of jobsite strikes and work stoppages, rendering moot one of labor’s more preposterous and extortionary arguments for a PLA. For example, according to a list of construction industry work stoppages recorded by the Federal Mediation and Conciliation Service, there have been no work stoppages in the District of Columbia and just 13 work stoppages in Maryland and Virginia between 1984 and 2017 (with just one event occurring after 2000). Using a PLA to grant labor a monopoly to build a project in exchange for their promise not to strike has never made sense anywhere, but there is absolutely no theoretical benefit in this market.

In 2010, the D.C. Council considered the District Resident Employment and Trade Stimulus Act of 2010 (Bill 18-650), which would have mandated PLAs on all government-assisted projects costing more than $200,000 in Washington, D.C. The fight over this bill received considerable media attention and additional coverage at TheTruthAboutPLAs.com. Following a June 30 hearing, community outrage, a new report and a damaging fiscal impact statement from the D.C. CFO, Bill 18-650 eventually died. As we predicted in 2010, the construction trade unions would continue to push for PLA mandate policies at the expense of District of Columbia residents, businesses and infrastructure needs. When will lawmakers and the public take action against this shameful public policy?

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