Project Labor Agreements
Released: 2012-06-28T00:00:00

The National Labor Relations Act of 1935 (NLRA) gives most private sector workers the right to join or form a labor union and to bargain collectively over wages, hours, and working conditions. The act allows workers in the construction industry to enter into a collective bargaining agreement (CBA) before a project begins. A project labor agreement (PLA) is a collective bargaining agreement that applies to a specific construction project and lasts only for the duration of the project.

In February 2009, President Barack Obama signed Executive Order 13502, which encourages federal agencies "to consider requiring" the use of PLAs on large-scale construction projects. Regulations implementing the Executive Order (EO) went into effect in May 2010.

This report begins with a description of PLAs. It then describes President Obama's EO and summarizes regulations to implement it. The report then examines arguments for and against the use of PLAs and reviews research on the economic effects of the agreements.

Project Labor Agreements

Most collective bargaining agreements are between an employer and a labor union and usually last for a specific period of time (e.g., for three years or five years). The NLRA allows employers and unions in the construction industry to enter into pre-hire agreements, which are CBAs between employers and unions that are reached before workers are hired for a project. Under one type of pre-hire agreement, one or more unions negotiate a contract with one or more building contractors. The agreement applies to projects before they arise and lasts for a specific period of time. A project labor agreement is another type of pre-hire agreement. A PLA applies to a specific construction project and lasts only for the duration of the project. All contractors and subcontractors on the project are bound by the agreement.

A PLA generally specifies the wages and fringe benefits to be paid on a project. A PLA may require contractors to hire workers through a union hiring hall. If not, it may require employees to become union members after being hired. After they are hired, employees may petition the National Labor Relations Board (NLRB) to decertify the union or reject the requirement that they join the union.

A PLA usually includes procedures for resolving labor disputes. For example, if there is a disagreement between management and the unions over the interpretation of the PLA, the dispute may go to mediation and then to arbitration. PLAs usually include a provision that unions agree not to strike and contractors agree not to lock out workers.

The Use of PLAs

PLAs have been used in the United States since at least the 1930s. According to a 1998 report by the Government Accountability Office (GAO), PLAs were used in the construction of the Grand Coulee Dam in Washington in 1938, the Shasta Dam in California in 1940, the Trans-Alaska Pipeline, Walt Disney World and the Kennedy Space Center in Florida, and the cleanup of Boston Harbor. PLAs were also used in the construction of nuclear power plants in Hanford, WA, and Oak Ridge, TN.

According to the GAO report, the total number of PLAs is not known. The report states that there is no identifiable group in either the private or public sectors that keeps comprehensive data on the number of PLAs. Nevertheless, GAO's research concluded that most PLAs are in the private sector and that they have been used in all 50 states and the District of Columbia on both private and public projects.

President Obama's Executive Order on PLAs

On February 6, 2009, President Obama signed Executive Order 13502, which encourages federal agencies "to consider requiring" the use of PLAs on large-scale construction projects. The EO defines large-scale projects as those where the total cost to the federal government is $25 million or more. The order states that agencies are not required to use PLAs. It also states that agencies are not prevented from using PLAs on projects not covered by the order.

The EO states that agencies may require a PLA if it will

advance the Federal Government's interest in achieving economy and efficiency in Federal procurement, producing labor-management stability, and ensuring compliance with laws and regulations governing safety and health, equal employment opportunity, labor and employment standards, and other matters.

On July 10, 2009, Peter Orszag, Director of the Office of Management and Budget (OMB), issued a memorandum requesting agencies to submit quarterly reports identifying all contracts awarded for large-scale construction projects and whether or not a PLA was required on the project.

On April 13, 2010, the Administration issued final regulations that implement President Obama's EO. The regulations went into effect on May 13, 2010, and they include general requirements for PLAs. A PLA shall

bind all contractors and subcontractors on a construction project to comply with the PLA; allow all contractors and subcontractors to compete for contracts and subcontracts whether or not they are otherwise a party to a collective bargaining agreement; contain guarantees against strikes, lockouts, and similar job disruptions; provide binding procedures for resolving labor disputes that may arise during the term of the PLA; provide other mechanisms for labor and management cooperation on matters of mutual interest and concern, such as productivity, quality of work, safety, and health; and include any additional requirements that an agency deems necessary.

The final rule encourages agencies to consider PLAs early in the acquisition process. The rule states that an agency may specify the terms and conditions of a PLA. In addition, the final rule identifies several factors that agencies may consider when deciding whether to use a PLA. These factors are

the construction project will require multiple contractors or subcontractors who employ workers in multiple crafts or trades; a shortage of skilled workers exists in the area of the construction project; a project will last an extended period of time; PLAs have been used on comparable public or private projects in the area; a PLA will promote the agency's long-term program interests, such as training workers to meet the agency's future construction needs; and any other factors that an agency thinks are appropriate.

Number of Projects Affected by President Obama's Executive Order

The Administration has estimated that, annually, federal agencies may use PLAs on approximately 30 construction projects of $25 million or more. The estimate is based on federal construction data for FY2008 and FY2009.

Advantages and Disadvantages of PLAs

Proponents of PLAs argue that the agreements have several advantages, including the following:

A PLA provides uniform wages, benefits, overtime pay, hours, working conditions, and work rules for work on major construction projects. A PLA provides contractors with a reliable and uninterrupted supply of workers at predictable costs for wages and benefits. PLAs prohibit strikes and lockouts. Because local unions are generally members of a national union, a union can recruit workers both locally and nationally. A large project is easier to manage if there is a PLA. Instead of dealing with several unions that may have different wages and benefits and whose contracts may have different expiration dates, contractors must deal with a single collective bargaining agreement. Because labor costs are predictable and because a PLA makes it easier to manage a large project, a PLA helps ensure that a project will be completed on time and on budget. A PLA may help train workers by requiring contactors to participate in apprenticeship and training programs. A PLA can improve worker safety by requiring contractors and workers to comply with project safety rules. A PLA can help ensure compliance with labor standards (e.g., wages and overtime) and workplace health and safety laws.

Opponents argue that PLAs have several disadvantages:

PLAs can increase costs. Because a PLA sets standard labor costs, nonunion contractors cannot win bids based on lower costs. Nonunion contractors may choose not to bid on projects that are covered by a PLA, resulting in fewer bids and higher costs. PLAs can impede efficiency. If a PLA requires contractors to hire workers through a union hiring hall, contractors may not be able to use their own workers. Standard work rules can prevent contractors from managing the project in the most efficient manner. If a contractor is able to use his own workers, the workers may have to join a union and pay union dues. If a contractor has to pay into a union pension plan, the employees may not be on the project long enough to vest in the plan. Nonunion contractors may operate more efficient worker training programs. Instead of apprenticeship programs of a fixed duration, nonunion contractors can train workers for specific tasks. Evidence does not indicate that nonunion construction projects are less safe than union projects. The Wage and Hour Division (WHD) of the U.S. Department of Labor (DOL) enforces federal wage, overtime, and other labor standards and either the federal Occupational Safety and Health Administration (OSHA) or states with their own plans enforce workplace health and safety standards.

PLAs and the Davis-Bacon Act

On some federal construction projects, workers may be paid a union wage whether or not the project is covered by a PLA. The Davis-Bacon Act requires employers to pay workers at least the locally prevailing wage and fringe benefits on construction projects of more than $2,000 to which the federal government is a party. Prevailing wages and fringe benefits are based on U.S. Department of Labor surveys of construction contractors, subcontractors, and building trades unions.

Under the Davis-Bacon Act, if more than 50% of workers in a job classification are paid the same wage, the majority wage is the prevailing wage. The majority wage may be a wage negotiated under a collective bargaining agreement. If a majority of workers in a job classification are not paid the same wage, the prevailing wage is the weighted average wage of workers in the job classification.

For some occupations in some areas, the Davis-Bacon locally prevailing wage may be the local union wage. Thus, on some federal construction projects, contractors may pay some, if not most, workers the local union wage, even if the project does not use a PLA. On some projects, workers in certain crafts may be covered by a collective bargaining agreement even if the project does not use a PLA.

The Economic Effects of PLAs

Opponents and proponents of PLAs disagree on the economic effects of PLAs. To some extent, projects that use PLAs may be different from projects that do not use them. Based on interviews it conducted, GAO observed that

Proponents and opponents of the use of PLAs said it would be difficult to compare contractor performance on federal projects with and without PLAs because it is highly unlikely that two such projects could be found that were sufficiently similar in cost, size, scope, and timing.

If projects that use PLAs are different from projects that do not use them, it may be difficult to isolate the economic effects of PLAs.

It may also be difficult to identify the economic effects of PLAs if contractors use PLAs because of the advantages that PLAs may provide. If, for example, contractors are more likely to use PLAs on large and expensive projects, it may be the size and cost of a project that determine the use of a PLA. Thus, it may be difficult to measure the economic effects of PLAs if the characteristics of a project determine whether a PLA is used.

Research

This section summarizes the findings of research on the economic effects of PLAs.

In a 1998 report, GAO summarized three studies on the effect of PLAs on project costs. The first study was conducted by the Associated Builders and Contractors. The study concluded that PLAs raised bids by 26% on two New York state projects. In the second study, the New York Thruway Authority hired a consultant to negotiate a PLA for a project to refurbish the Tappan Zee Bridge. The consultant concluded that the PLA reduced the cost of the project by $6 million (or 4.6%). Instead of 19 local CBAs (each of which would have expired during the project), the PLA standardized the terms and conditions of the project. The third study involved construction at the Department of Energy's Lawrence Livermore National Laboratory in Livermore, CA. An official from the laboratory provided GAO with documents that indicated that the project contractor estimated that the PLA lowered the cost of the project by about 0.4%. Most of the estimated savings were due to lower costs for overtime, shift differentials, and holiday pay, as well as the greater use of apprentices instead of higher-paid journeymen.

More recent studies have reached different conclusions about the economic impact of PLAs. The Beacon Hill Institute at Suffolk University in Boston has published a series of studies on the effects of PLAs. The studies conclude that PLAs raise the costs of construction. In a study of 62 school construction projects in the Boston area from 1995 to 2003, researchers at the institute concluded that PLAs raised the cost of construction by $16.51 per square foot (in constant 2001 dollars), or 12%. The study controlled for the size of construction (i.e., square feet) and whether the project was new construction or renovation.

The Beacon Hill Institute also published a study in 2004 of school construction projects in Connecticut. The study concluded that PLAs raised the cost of construction by $30.00 per square foot (in constant 2002 dollars), or 18%. The estimate controlled for the size of the project, whether the project was new construction or renovation, the number of stories, and whether the project was an elementary school.

On the other hand, a study of 70 new school construction projects in Massachusetts from 1996 to 2002 concluded that, after controlling for several characteristics of the projects, the relationship between PLAs and school construction costs was not statistically significant. The study found that projects with PLAs were larger and more expensive than projects that did not use PLAs. The authors concluded that their statistical model may not fully capture the relationship between construction costs and PLAs. If PLAs are more common on larger and more expensive projects, PLAs may not raise the costs of construction. Instead, the size and cost of a project may cause a contractor to use a PLA to take advantage of the benefits it may provide.

A study by the National University System Institute for Policy Research examined the effects of PLAs on the costs of school construction in California. The study collected information on 551 school construction projects, including 65 projects that used a PLA. The projects were built between 1996 and 2008 and were valued at $5 million or more. The study concluded that projects built using a PLA cost 13% to 15% more per square foot than projects not built with a PLA. But, 47 of the 67 projects built with a PLA were in the Los Angeles school district, where construction costs were higher. The overlap of high construction costs and the use of a PLA made it difficult to identify the unique contribution of PLAs to the costs of construction.

A study conducted for the U.S. Department of Veteran Affairs (VA) concluded that the effect of PLAs on construction costs is strongly influenced by the degree of unionization in an area. In highly unionized cities, where most large construction projects use union workers, the study concluded that PLAs can have a beneficial effect. In these areas, a PLA can provide consistent wages and work rules. But, in cities with a low degree of unionization, PLAs can increase construction costs by 5% to 9%.

Another study conducted for the U.S. Department of Veterans Affairs concluded that a PLA could raise the construction costs of a VA project in Pittsburgh, PA, by 3% to 5%.

Qualitative research has been conducted on other aspects of PLAs. For instance, a group of researchers interviewed approximately 40 people experienced with PLAs to identify advantages and disadvantages of the agreements. Results from such a small sample may not be representative of all PLAs. Nevertheless, the researchers concluded that "interviewees seemed most convinced that the greatest benefit of a PLA was in assuring timely completion of a project. Foremost, PLAs nearly guarantee a steady flow of qualified labor." One interviewee said, "Anything above five to eight million dollars we will go to a project labor agreement because we find it a more effective management tool.... Basically it's the labor pool, the supply of labor, [and] the quality of the workmanship." Interviewees were also critical of PLAs, however. The main criticism was that PLAs can increase the bargaining power of construction unions. According to the study, in areas where a large share of jobs are covered by PLAs, construction unions may make greater demands during negotiations over new union contracts. If one union is successful, other unions may make similar demands.

In short, much of the research on the effect of PLAs on the costs of construction is inconclusive. In part, it can be difficult to find similar projects where some use a PLA and the others do not. Instead of comparing similar projects, economists use statistical models that attempt to control for differences in the characteristics of construction projects. It can be difficult, however, to control for all the factors that affect the costs of construction. For example, if the Davis-Bacon locally prevailing wage is the local union wage, contractors may pay workers the union wage whether or not the project is covered by a PLA. In addition, statistical models may not take into account the quality of construction, whether projects are finished on time, or the safety records of different projects. Finally, the relationship between PLAs and construction costs may be interdependent. PLAs may affect construction costs, but the size and cost of construction may also affect the use of PLAs.