DC Council Saddles More City Construction With Project Labor Agreement Schemes

0 May 22, 2024  Featured, School Construction, State & Local Construction

On May 7, 2024, the D.C. Council approved controversial legislation, the Revised Labor Agreement Cost Threshold Amendment Act of 2024. Bill 25-469 lowers the cost threshold from $75 million to $50 million for the required use of inflationary and anti-competitive project labor agreements on construction contracts procured by the District of Columbia.

D.C. Council Chairman Phil Mendelson-D, introduced the bill in Council Period 24 in 2022, but it was not acted upon.  It was reintroduced in Council Period 25 on Sept. 18, 2023.

Starting in late 2023, Councilmember Brianne Nadeau, D-Ward 1, took heat for successfully using a loophole to bypass a committee hearing on the legislation so the full Council could quickly pass the bill along party-line votes without appropriate transparency and accountability, as local stakeholders and the construction industry raised concerns about the legislation’s long-term costs and questioned its ability to help District residents and small and local certified contractors participate on future construction projects procured by the District.

Government-Mandated PLAs Increase DC Construction Costs

Opponents of government-mandated PLAs and Bill 25-469 argued that the threshold should not be lowered because research found that government-mandated PLAs consistently increase the cost of school construction between 12% and 20% compared to similar school construction projects not subject to a PLA requirement. Likewise, opponents pointed to increased costs and other broken PLA-related promises on construction jobs in the District and around the region as additional evidence.

As expected, the bill’s March 18, 2024, fiscal impact statement prepared by D.C. Chief Financial Officer Glenn Lee indicated that the bill would increase construction costs by 10% on applicable projects subject to PLAs because “when non-union contractors choose not to bid on a project, it reduces competition and removes the competitive pressure among the remaining bidders to offer lower priced bids.”

The fiscal impact statement estimates the legislation’s PLA mandates will increase the cost of building seven projects—at least four of which are DC schools­­—by $43.1 million during the six year window:

“Funds are not sufficient in the fiscal year 2024 through fiscal year 2027 budget and financial plan to implement the bill. The project labor agreement requirement at the new lower threshold of $50 million will increase capital costs for four projects over the financial plan period. The bill increases these costs by $1 million in fiscal year 2024 and $27.3 million over the four-year financial plan period. … Three additional projects fall within the approved six-year capital improvements plan, starting in fiscal year 2028. A ten percent cost increase for these projects is $15.8 million over fiscal years 2028 and 2029.”

Remarkably, the District Government’s own budget experts have acknowledged the added costs of government-mandated PLAs on construction projects for almost a decade and have padded District budgets to account for the added costs as a result of the District’s original legislation mandating PLAs.

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 PLAs on taxpayer-funded construction projects exceeding $75 million procured by the District. The law allows Mayor Muriel Bowser to exempt projects from the PLA requirement under certain circumstances, but the District’s policy change 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 government is bad public policy for many reasons—no matter the project type or size—as discussed in detail in this space.

A July 12, 2016, fiscal note on this wasteful measure prepared by D.C. Chief Financial Officer Jeffrey S. DeWitt (PDF) concedes that government-mandated PLAs on applicable District 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 8 out of 10 people employed in the construction industry do not belong to a union. While studies can differ in estimating the magnitude of increased costs, what is clear is that PLAs drive up the cost of projects, creating signification opportunity costs.

Likewise, according to page 7 of the D.C. 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.

What that means is that the District has budgeted millions of dollars worth of additional funds on account of government-mandated PLAs that could have otherwise been spent on building more schools, funding other key programs or reducing taxes for constituents.

How can D.C. Council members afford such waste, given the sorry state of city public schools and other community needs?

Government-Mandated Project Labor Agreements Hurt Local Construction Workers and Contractors

Local workers and companies––many of which are Certified Business Enterprises––pushed back on the false arguments by PLA advocates that PLAs help local residents and contractors, via this January 2024 letter signed by CBEs to Nadeau, this January 5, 2024, letter from ABC Metro Washington, and this video message and campaign:

In short, the alleged benefits of PLAs creating local jobs and opportunities for local businesses and construction workers have not always come to fruition.

DC, 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 Washington, D.C., region’s federal, city and local government-mandated PLA projects have suffered from increased costs, delays, accidents and poor local hiring outcomes for District residents and businesses.

The federally funded Frederick Douglass Memorial/South Capitol Street Bridge project procured by DDOT, the largest public infrastructure project in the District’s history, was subjected to a government-mandated PLA later celebrated by U.S. Labor Department Secretary Marty Walsh, U.S. Transportation Secretary Pete Buttigieg and local elected officials at a May 19, 2021, event at the bridge announcing a new U.S. DOT policy expanding local hiring requirements. The $480 million project, which broke ground in 2018, was already subject to a U.S. DOT local hire policy pilot program administered via the PLA through CHOICE, the DC Baltimore Building Trades union, and their affiliated unions.  As expected, the project failed to meet the PLA’s promised goal of hiring District residents to perform 51% of new project-related jobs. According to a Nov. 18, 2021 government presentation, just 20.27% of new hires went to District residents. The project met CBE contractor hiring goals, but it was reported that the majority of these CBE firms were not local and brought in out-of-state labor. Finally, the project suffered from concrete defects and the related repairs and litigation cost millions of dollars.

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

Local hiring data collected in 2012 by the Metropolitan Washington Airports 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.

The D.C. Council’s mandated PLA on the budget-busting Washington Nationals stadium failed to deliver on local hire, construction quality and cost savings promises. Research from 2009 by DC Progress found that just 26% of journeyworker hours went to District 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 District residents.

Due to a special-interest handout by ex-Mayor Vincent Gray, the D.C. United soccer stadium construction 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.

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 2010, the General Services Administration awarded a $52.3 million federal contract to build the Lafayette Building in Washington, 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 suffered a 107-day delay and millions of dollars in cost increases as a result of failed PLA negotiations by labor unions.

In 2003, the Walter E. Washington 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. 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 rebidding, 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 successful completion of the $376 million 11th Street Bridge project, federal office buildings, hundreds of millions of dollars worth of multi-family housing projects in the stadium district and more, -demonstrate PLA mandates are not needed to deliver a project on time and on budget, and PLA-free projects best create jobs for local companies and construction professionals.

In addition, the District market has virtually no history of jobsite strikes and work stoppages caused exclusively by union labor, 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 and just 13 work stoppages in Maryland and Virginia between 1984 and 2019 (with just three events occurring after 2000). The U.S. Department of Labor Bureau of Labor Statistics’ Work Stoppages Program, which tracks major work stoppages involving 1,000 or more workers, found there have been just seven major work stoppages in the construction industry in the last 10 years, and none occurred in the DMV area. Likewise, according to the recently launched Labor Action Tracker by Cornell University’s School of Industrial and Labor Relations, none of the construction industry’s 12 labor actions in 19 U.S. locations from 2021 to May 2024 were in the DMV area. Justifying a costly PLA requirement to grant labor a monopoly to build a project in exchange for the union’s promise not to strike has never made sense anywhere, but there is absolutely no theoretical benefit in the DMV market.

Local government employees, free from union political pressure, seem to agree with concerns that PLA mandates increase costs and reduce local worker and contractor participation. In 2023, Loudoun County government workers presented the findings of an independent study they conducted on PLAs to the Loudoun County Board of Supervisors. It found that PLA mandates would not benefit Loudoun County.

Controversial Grassroots Campaign Can’t Stop Lawmaker Fiscal Insanity

The grassroots campaign pushing back on Nadeau and the costly pro-PLA legislation drew the attention of the Washington City Paper’s Loose Lips columnist Alex Koma, whose article covering the measure and campaign was refuted by advocates of fair and open competition for its pro-union bias and lack of understanding of the impact of PLA policies on city residents, the construction industry and taxpayers.

Nonetheless, the measure passed after D.C. Councilmembers Zachary Parker, D-Ward 5, and Nadeau, successfully introduced amendments addressing fiscal impact and representation of workers from historically marginalized backgrounds on construction projects.

In a move to obscure the true costs of the new PLA policy,the Council engaged in irresponsible fiscal gimmickry. Chairman Mendelson and Councilmember Nadeau jointly authored an amendment to exempt all PLA projects in the District’s current FY 2026-2031 capital improvement plan that cost $50 to $75 million, new projects not within the capital improvement plan that cost $50 million or more, as well as existing projects that are budgeted at less than $50 million that will be modified to cost more. This way, the Council can pretend Bill 25-469 and other projects subjected to Council-mandated PLAs have “no fiscal impact” and avoid appropriating the additional funds necessitated by the PLA scheme.  In reality, however, the Council merely delayed an accounting of those added PLA costs until new projects are added to the city’s capital plan in the future. The responsibility to fund the 10% PLA “tax” will instead fall to the Mayor, who sends a new capital plan to the Council annually in March.

The Truth About Government-Mandated Project Labor Agreements

In 2023, just 10.7% of the U.S. construction industry workforce belongs to a union, according to the latest U.S. Bureau of Labor Statistics report. Construction union membership is even less in the District, Maryland (11.7%) and Virginia (5.2%). 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, including contractors not already signatory to a union agreement 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 total compensation by an estimated 34%.

Qualified local businesses employing almost 9 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 is 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 affordable housing and school projects subject to PLA mandates are 12% to 20% more expensive than projects not subject to PLA mandates.

Are District residents willing to accept four schools, affordable housing, infrastructure and transportation projects for the price of five?

Are taxpayers willing to support shameless lawmakers who steer jobs and contracts primarily to out-of-DC 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 District residents and rewarding well-connected special interests with government contracts is no recipe for equitable economic development and progress for District.

Contact Mayor Bowser and your District Council lawmakers and express your concerns about the bill today.

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