Project Labor Agreements diminish competition, raise costs

By Brian Sampson, President, Associated Builders & Contractors, Empire State

The Op-Ed as published in the Real Estate Weekly can be found here.

Last week it was reported in Real Estate Weekly that a deal on a Project Labor Agreement (PLA) would save the city an estimated $347 million dollars on a capital investment of roughly $8 billion dollars in construction projects.

While there is little doubt in my mind that these numbers are inaccurate and based on best case scenarios, were it in fact true, it would contradict numerous studies of major projects that have shown that PLA’s add huge amounts onto construction costs.   In fact, when you hear the term PLA you should reach for your wallet because government wants to take more of your money,

Mayor De Blasio and his team, and all government units, need not look hard to discover the numerous issues that can result from PLA’s. One of the more notable PLA’s most in the Northeast will remember: The Big Dig in neighboring Boston. Originally estimated as a $2.8 billion dollar project, it ended up costing tax payers over $22 billion dollars.

Studies show PLA’s add huge amounts onto construction costs.

While this was one of the more egregious projects that resulted in increased costs, there are more. Part of this proposed agreement with the City includes the School Construction Authority, who according to their website is, “dedicated to building and modernizing schools in a responsible, cost-effective manner while achieving the highest standards of excellence in safety, quality and integrity.”

Those goals run contrary to what happens when utilizing a PLA, so much so that mandating a PLA will all but ensure that they will not achieve these objectives. In fact, according a study conducted by the Beacon Hill Institute at Suffolk University, “The presence of a PLA increases a project’s base construction bids by $27 per square foot (in 2004 prices) relative to non-PLA projects.”  This number amounts to a 20% discrepancy between bids on PLA projects versus non-PLA projects.

There are a number of reasons why non-PLA projects cost so much less than those with PLAs. One has to do with the requirement that the contractors hire from union halls. Imagine if you owned a company and were told that in order to get a job, you would have to tell 3 out of every 4 of your employees that they couldn’t work on it. Not only would you not do it because of your loyalty to your employees, you also wouldn’t do it because you have no experience working with these new employees that you’ve been forced to employ. You don’t know their work ethic, their skills, and most importantly, you aren’t certain if they fully understand your safety procedures the way that you know your own employees do.

There is also another unmentioned twist with PLA’s that is another underlying reason that PLA’s cost more: jurisdictional work rules. What does that mean? Unions collectively bargain work rules with contractors.  So masons can only do mason work.  Carpenters can only do carpentry. Electricians can only do electrical work.  The result is a very structured and slow work construction job.

Construction projects driven by the jurisdictional work rules negotiated within the PLA are incredibly inefficient.  You lose economies of scale by not taking advantage of workers that are highly trained and skilled in many construction trades.  If you have a worker that can do masonry, carpentry and drywall, and do them really well, why shouldn’t you be able to use those skills across the project? It only makes sense that you would.  But under a PLA, that worker can only employ one of those three skills.

The end result of these issues? Contractors won’t bid jobs, meaning diminished competition and skyrocketing costs.
Perhaps this is why just weeks ago the Kingston, NY School District decided against attaching a Project Labor Agreement to their $137.5 million dollar renovation plan, adhering to a study that concluded there was a, “likelihood of higher bids to cover the benefits for union workers, legal administrative costs and other fees.”

There was one other issue in Real Estate Weekly’s article that I felt it prudent to address. It was touted that these new PLA’s would “include prohibition of strikes on jobs covered by the new PLAs. “ Are you familiar with any situation where the threat of walking off of a job would command a 20% higher premium before even being hired?  This amounts to extortion, and should not be accepted, let alone sold to us as a positive.

Government shouldn’t be in the business of picking winners and losers, and with this proposal they most certainly are. The winners? Taxpayer dependent special interests who represent only 25% of New York’s construction workforce. The losers? The 75% of workers who choose not to belong to a union who won’t get a fair shot at work and the taxpayers of New York, who will ultimately pay more money for less value.