A Position Paper by AGC of California
When a private owner employs a contractor to perform a job, the competitive process of bidding and negotiation tends to enhance quality and the efficient use of resources. Specifications for a project are distributed to contractors and subcontractors to obtain cost-effective bids and ensure that the bidders fully understand all job requirements. Ordinarily, this bidding process forces contractors to compete with one another to offer the lowest price available that meets the project specifications. To be competitive in this environment, every contractor has significant day-to-day incentive to maintain labor policies with employees that promotes productivity, quality, and increases skill and teamwork while maintaining expenses. The owner benefits from this system.
I. How Government Mandated Labor Agreements Interfere With The Competitive Bidding Process
But when the government engages contractors, considerations other than price and quality may enter the equation. The obligation to serve the public’s best interests by obtaining highest quality construction at the lowest possible price can sometimes be overridden by partisan political agendas.
Government mandated labor agreements negotiated between government agencies and labor unions erode the competitive bidding process. Such agreements, which are becoming increasingly proposed on local, state and federal public works projects, undermine professionalism in collective bargaining and create an artificial and economically distorted environment for public works construction. They remove the contractor employer from the process of establishing and maintaining his own labor relations and costs. The government becomes the negotiator, perhaps without even understanding that it is assuming this role, of the contractor’s work rules, other terms and conditions and even of who of the employees of the contractor must be. The government is not significantly knowledgeable of the day-to-day construction process to know the practical effects of the cost of the terms it agrees to put in a project agreement. It is simply not involved in the day-to-day efforts of a contractor to produce a quality product at an efficient low cost. The typical government mandated labor agreement requires all participating contractors to recognize building trade craft unions as the sole and exclusive bargaining representatives for all craft employees on the project, and to pay such employees wages and fringe benefits prescribed in local union collective bargaining agreements. Government mandated labor agreements usually require that all employees be hired from local union hiring halls. To entice public agencies into using such agreements, the agreements typically include guarantees against strikes and work stoppages,and feature binding procedures for the prompt resolution of grievances.
The Building and Construction Trades Department, AFL-CIO, has promulgated and recommended a "Standard Project Labor Agreement." The Standard Project Labor Agreement contains the usual provisions covering referral of employees and payment of local union wages and benefits, together with provisions for the binding arbitration of grievances. The AFL-CIO Standard Project Labor Agreement also requires that the project contractor not permit any of its subcontractors to perform any work on the project unless they agree to become a party to the project agreement.
The AFL-CIO’s Standard Project Labor Agreement and similar agreements remove an important component of competitive bidding. Because contractors are not free to obtain the best terms available in the local employment market for qualified workmen, there is little incentive for competing contractors to develop creative ways to streamline staffing and eliminate the "bloat" of overstaffing and cumbersome craft work rule requirements. Public agencies are thus deprived of bids which reflect the best and most efficient staffing solutions for public works construction. But it is not just the public agencies that lose: the ultimate losers are the taxpayers that must finance the entire public works construction process.
II. The Clinton Administration’s Campaign To Promote Government Mandated Labor Agreements
In a meeting with AFL-CIO leaders in Los Angeles, Vice President Gore announced to the AFL-CIO Executive Council that the Administration planned to issue an Executive Order on union-only project labor agreements (GMLAs) for federally-funded construction projects. Like other GMLA’s, these pre-negotiated collective bargaining agreements would set the wages, terms and conditions of employment between a contractor and construction unions on a particular construction project. Under current law, federal agencies may enter into government mandated labor agreements, but are not required to do so. The planned Executive Order would have expressed a strong preference "as a matter of consistent policy" for government mandated labor agreements on federal construction in order "to ensure the economical and efficient administration and completion of federal construction contracts."
Because of strong congressional and industry opposition, culminating in a hold placed on the confirmation of Secretary of Labor-Designate Alexis Herman and the threat of anti-GMLA legislation, the Executive Order was not issued. However, in lieu of the Executive Order, an advisory memorandum for federal agencies was issued which could impact source solicitations.
Also, as part of its labor reform package, the Administration indicated that proposed regulations modifying Parts 9 and 31 of the Federal Acquisition Regulations (FAR) covering federal procurement and contracting would be issued. Specifically, FAR Part 9 would be modified to incorporate into "responsible contractor" determinations for federal contracts a review of a company’s past performance in labor relations and employment practices.
FAR Part 31 would be changed in two ways. First, it would make unallowable, and therefore non-reimbursable, the costs associated with a company’s defense against NLRB unfair labor practice complaints. Second, Part 31 would be revised to specify that, as a general rule, costs incurred by a federal contractor for resisting unionization of its employees would not be reimbursable. These proposals can only be construed as a direct effort by the Administration to insert itself into the labor relations policies of contractors working on federally-funded construction projects. The Clinton Administration’s actions have the effect of polarizing the construction community and potentially depriving federal agencies of bids from many contractors who do not wish to become involved in elaborately structured agreements mandating virtually every aspect of the employment process on public works construction.
Collectively, the proposals would have a chilling effect on non-signatory contractors and small businesses and have an adverse effect on industry. If these proposed actions are implemented, many federal contractors could be effectively barred from participation in government contracts. The government could be denied access to the services of some of industry’s best and most advanced contractors and suppliers.
III. The Hidden Costs Of Government Mandated Labor Agreements
A study by the Employment Policy Foundation has estimated the costs associated with President Clinton’s June, 1997 executive memorandum encouraging federal departments and agencies to use government mandated labor agreements (GMLAs) on large construction projects. "Over the three years for which the memorandum will apply," according to Max Lyons of the Foundation, "federally-owned construction costs will increase by $844 million to $3.44 billion." If PLAs are used on construction projects that are only partly funded by federal money, the study estimates that the costs could be as high as $3 billion to $13 billion.
The study’s estimate of the costs associated with President Clinton’s memorandum is based upon the higher wages that typically result from GMLAs. The study finds that even though the government already pays high labor costs on federal construction projects because of the Davis-Bacon Act, President Clinton’s memorandum will increase labor costs by a further 20 to 25 percent. The study does not account for the costs that arise from having fewer bidders on federal contracts, nor does it account for the costs associated with union work rules.
Moreover, the study notes that it is just as likely that the effect of this memorandum will be a 2 to 7 percent reduction in the amount of federal construction that takes place. The study concludes that there is little economic justification for the use of GMLAs and their use is largely a political decision.
Of special note are the significant hidden costs attributable to the reintroduction of strict craft jurisdictional lines. Beginning approximately twenty years ago union construction started its decline, driven by private owners seeing a major cost attributable to the numerous overlapping jurisdictional work claims by the unions. These claims by craft unions resulted in disputes and work stoppages in spite of strict "no work stoppage" language in the project/local labor agreements. Over the ensuing twenty plus years, local contractors have continued to negotiate with local unions and have established agreements with only those union with whom they have been able to create a relationship which allows for optimum productivity and competitiveness. Under the terms of the agency negotiated labor agreements (GMLAs) with the building trades unions, there is created a new bargaining relationship for local contractors. These GMLA’s mandate contractors to change their work practices and the employees they hire to conform to union jurisdictions with which the contractor is unfamiliar. The impact to the contractor and the project is increased costs driven by the multi-craft GMLA which mandates use of craft unions and, thereby craft workers, whose skills and productivity are unknown by the contractor, if known, cause the cost of new construction to become markedly increased.
Further, the interaction between the federal and State prevailing wage laws and the GMLA itself can increase costs. Virtually all projects wholly or partially funded with Federal or State money are subject to the federal Davis-Bacon Act or the State Prevailing wage laws. Both the Act and State laws establish a floor for the wages and benefits to be paid to those employed on the projects it covers. Any agreement subject to the ACT or State law covering wages on public work can only increase these wages and benefits. No statutory or regulatory authority exists that permits their reduction.
Both the ACT and State Law requires that all contractors and subcontractors performing work on a covered contract (project) pay prevailing wages to all "laborers and mechanics" (construction craft workers) they employ on the project.
Consistent with the discussion above on craft jurisdiction the determination of which wage rate is the correct rate for the work to be performed rests ultimately with the awarding agency under State Law and/or DOL under federal law. What may be a traditional jurisdictional dispute between two or more competing unions many times is shrouded in an argument by one or more craft unions as the failure by the contractor to pay the applicable rate of pay. Thus confusion is added to a reasonably straight forward dispute resolution process and the contractor responsible for performance under the contract falls prey to the investigation and decision of individuals not fully conversant in craft jurisdiction. Moreover the union can argue there is no dispute resolution process built into the GMLA for such disputes and a work interruption can ensue.
IV. Legal Turmoil Caused By Public Works Government Mandated Labor Agreements
The recent surge in the use of government mandated labor agreements at the local, state and federal level has generated a mass of litigation, significantly adding to the expense incurred by the agencies involved and by contractors seeking relief from such agreements.
The California Supreme Court held hearings in lawsuits challenging government mandated labor agreements involving projects of the Metropolitan Water District for Southern California and the San Francisco International Airport. The intermediate appellate courts upheld legal challenges to these agreements on several grounds.
But other courts have struck down public agency government mandated labor agreements. In George Harms Construction v. Turnpike Authority, the New Jersey Supreme Court in 1994 held that a public authority requirement that limited bidding on highway work to union affiliated firms conflicted with the state’s laws requiring award of public works to the lowest responsible bidder. Another New Jersey case, Tormee Const. v. Mercer County Imp. Auth. (1995), reached the same result.
In New York State Chapter, Associated General Contractors v. New York State Thruway Authority (1996), the New York Court of Appeals sought a middle ground. The court held that "PLA’s are neither absolutely prohibited nor absolutely permitted in state public construction contracts," and that the validity of a particular project labor agreement requirement depended upon a determination that the agreement "be both rational and essential to the public interest." The court found that the public entity "bears the burden of showing that the decision to enter into the PLA had as its purpose and likely effect the advancement of the interests embodied in the competitive bidding statutes" and that "PLA’s may not be approved in a pro forma manner." Applying its just-announced standards, the New York Court of Appeals found that the government mandated labor agreement imposed by the New York State Thruway Authority on the Tappan Zee bridge improvement project was valid, relying largely on a consultant’s report which "estimated labor savings if a PLA were adopted of at least $6 million or 13.51% of the anticipated labor cost for the project." By contrast, the Court of Appeals struck down a GMLA requirement imposed by the Dormitory Authority of the State of New York on the Roswell Park Cancer Institute modernization project. The absence of any specific information demonstrating the need for a project labor agreement was not lost on the Court of Appeals:
"Glaringly absent from this record is DANY’s contemporaneous projection of cost savings as a result of a PLA or any unique feature of the project which necessitated a PLA . . .."
The approach taken by the New York Court of Appeals seems to invite litigation over virtually every government mandated labor agreement requirement imposed by a public agency. While agencies may read the court’s decision as approving government mandated labor agreements when some evidence justifying the agreement appears in the underlying record, the court makes it clear that the burden of proof lies with the agency and that evidence in the record adverse to the imposition of a government mandated labor agreement might, in an appropriate case, cause the agreement to be invalidated.
The continuing disagreement of the courts over the validity of government mandated labor agreements means that public agencies that use them must build the cost of litigation into their overall project estimates. It is difficult to see how a program of use of agreements which virtually invites litigation, with the accompanying delay in expense, is in the public interest.
V. The Contractor’s Response To Government Mandated Labor Agreements
If bid specifications on a local or state project require that the successful bidder agree to be bound by a standard government mandated labor agreement, the potential bidder should: (1) determine what is required by the government mandated labor agreement; (2) analyze the short and long-term impact of entering into a government mandated labor agreement; (3) check with counsel to determine obligations/impacts and to determine if the local jurisdiction involved has considered the legality of the government mandated labor agreement; (4) decide whether to bid; and then, if bidding, (5) one should include in the bid the additional costs the GMLA would require, over and above the contractor’s usual costs.
AGC opposes government mandated labor agreements, for the simple reason that they interfere with the individual labor relations activities of public works contractors. Just as the competitive bidding process has always resulted in giving owners the benefit of the best and most efficient construction services necessary to do a project, agencies and owners benefit when individual construction employers are permitted to pursue employment policies which they find bring the best and most efficient labor resources to the job.