Federal Government Mandates PLA’s On Certain Government Projects (Part 2)
January 23, 2024
In this Surety Today: The Blog post we finish our two part blog on the new federal government regulations regarding mandatory Project Labor Agreements (“PLAs”). In the first post, we discussed the Executive Order and new Regulations, What are PLA’s and How Prevalent will the PLA’s be under the new Regs. In this post, we will discuss the History of PLA’s in construction, the Opposition to the Biden Order and new Regs and What Sureties need to be aware of going forward.
The History Of Federal Construction PLA’s
As you might imagine, PLA’s have been something of a political football over time as the powers that be have changed. On October 23, 1992, President George H. W. Bush signed Executive Order 12818 prohibiting federal agencies from exclusively contracting union labor for construction projects and prohibiting the use of PLAs in federal construction projects. The Clinton administration rescinded that Order in February 1993 with Executive Order 12836, shortly after he took office. The Clinton Order allowed federal agencies to fund construction projects where contractors required a PLA. One month after Clinton issued his Order, the U.S. Supreme Court in a narrow ruling in the case of Building & Construction Trades Council v. Associated Builders & Contractors, 113 S. Ct. 1190 (1993), the so-called Boston Harbor cleanup case, unanimously upheld the use of PLA’s on public projects under certain conditions. The Supreme Court ruled that if the government was acting in the role of a regulator, it was not able to require PLA use under labor law preemption principles, however, it could choose to do so as a market participant without being preempted by the NLRA. The Court did not address the separate question of whether government-mandated PLAs are lawful under federal or state competitive bidding laws.
In 1997, President Clinton proposed an executive order stating that federal agencies must consider use of PLAs for federally funded projects. Republicans staunchly opposed the move, believing it would restrict federal projects to union contractors only. Clinton eventually abandoned the proposed executive order, but issued a memorandum on June 5, 1997, encouraging federal departments to consider the use of PLAs for “large and significant” projects. The memorandum required that government agencies review each project to decide whether a PLA would allow the agency to increase efficiency and reduce costs.
On February 17, 2001, President George W. Bush signed Executive Order 13202, titled “Preservation of Open Competition and Government Neutrality Towards Government Contractors’ Labor Relations on Federal and Federally Funded Construction Projects”, prohibiting the use of PLA mandates for construction projects with federal funding. This order stated that construction projects receiving federal funding would not be allowed to impose project labor agreements. Specifically, the order declared that neither the federal government, nor any agency acting with federal assistance, shall require or prohibit construction contractors to sign union agreements as a condition of performing work on federally funded construction projects.
In August 2001, the U.S. District Court for the District of Columbia in the case of Building and Construction Trades Department, AFL-CIO, v. Joe M. Allbaugh, Director, Federal Emergency Management Agency, ruled that the Bush Executive Order 13202 was invalid because it conflicted with the NLRA. The case examined the use of a PLA by the State of Maryland for the Woodrow Wilson Bridge replacement project (a $1.5 Billion federally funded project). The judge in that case issued a permanent injunction to block enforcement of the order on November 7, 2001. In July 2002, the U.S. Court of Appeals for the District of Columbia overturned the District Court’s decision and ordered the removal of the injunction. 295 F.3d 28 (D.C. Cir. 2002), the Supreme Court later denied certiorari.
On February 6, 2009, President Obama signed executive order 13502, which urged federal agencies to consider the use of PLAs on federal construction projects costing $25 million or more on a case-by-case basis. This Order also revoked the Bush executive orders 13202 and 13208 that prohibited government-mandated PLAs on federal and federally funded construction projects. The President Obama order states that federal agencies can require a PLA if such an agreement will achieve federal goals in economy and efficiency. According to the terms of that order, non-union contractors could compete for contracts subject to PLAs, but they must agree to the various terms and conditions contained in each PLA in order to win a federal contract and build a project.
Surprisingly, President Trump did not rescind the Obama Order, which has remained in effect until President Biden’s new Order, which now does expressly rescind the Obama Order in favor of the Biden Order and the new mandatory PLA Regs. It is interesting to note that from FY 2009 to FY 2021, federal agencies only required PLAs on just 12 out of the more than 2,000 federal construction contracts covered by the Obama order. Despite the “encouragement” of the Obama Order, government procurement officials seem to have had very little interest in PLA’s when they were not mandatory.
At the state level, as of March 2023, through legislation or by executive order issued by the state governor, 25 states have active laws banning government-mandated PLA’s on state, state-assisted and/or local taxpayer-funded construction projects to some degree. Those states include: Alabama, Arizona, Arkansas, Florida, Georgia, Idaho, Iowa, Kansas, Kentucky, Louisiana, Michigan, Mississippi, Missouri, Montana, North Carolina, North Dakota, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, West Virginia, Wisconsin and Wyoming. State policies restricting government-mandated PLAs were repealed in Maine, Minnesota, Nevada and Virginia. States with executive orders, or that have enacted legislation authorizing or encouraging the use of PLAs on public projects include: California, Connecticut, Hawaii, Illinois, Maryland, Maine, New Jersey, New York, Virginia, and Washington State.
The Opposition to the Biden Order and New Regs
The Associated Builders and Contractors (ABC) organization has vehemently opposed the new mandate stating “Hardworking taxpayers deserve efficient and effective policies that will encourage all qualified contractors to compete to build long-lasting, quality projects at the best price. Government-mandated project labor agreements discourage quality contractors and the more than 88% of U.S. construction workers who choose to not join a union from bidding and working on projects in their own communities.” Similarly, the Associated General Contractors has opposed the mandate stating “AGC strongly believes that the choice of whether to adopt a collective bargaining agreement should be left to the contractor-employers and their employees, and that such a choice should not be imposed as a condition to competing for, or performing on, a publicly funded project. Government mandates and preferences for PLAs can restrain competition, drive up costs, cause delays, lead to jobsite disputes, and disrupt local collective bargaining.” The ABC and AGC opposition to the proposed Regs was shared by more than 50 members of the U.S. Senate and House, 19 Republican governors and a diverse coalition of construction industry, small business and taxpayer advocates.
According to a recent ABC survey of its contractor members, 98% oppose the mandate. Additionally, 97% said a construction contract that required a PLA would be more expensive compared to a contract procured via fair and open competition, 99% said they were less likely to bid on a taxpayer-funded construction contract if the bid specifications required the winning firm to sign a PLA with labor unions and 97% of respondents said that government-mandated PLAs decrease economy and efficiency in government contracting.
The AGC also conducted a survey of its members. Of all respondents, 88% believe that a PLA will make it more expensive to complete the project; 78% believe it will make it harder to find workers and subcontractors; 73% believe it will take more time to complete projects and 82% believe that PLA’s will make it harder to subcontract with small disadvantage businesses; and 73% responded that they would not be interested in bidding if there is a government mandated PLA.
Federal legislation, entitled the “Fair and Open Competition Act” (H.R.1209/S.537) has been introduced in Congress, which would prohibit government-mandated PLAs on federal and federally assisted projects. The legislation received 79 original co-sponsors in the House and 23 in the Senate. An ABC-led coalition of organizations from the construction industry and the business community representing thousands of businesses employing millions of construction industry employees sent a letter to Congress voicing strong support for the Fair and Open Competition Act.
Numerous commenters on the proposed Regs echoed the ABC and AGC and raised concerns that the policy shift reflected from discretionary use of PLAs to a mandate, will have a negative impact on agencies’ ability to use competition to achieve best value for the taxpayer. They point out that even if a solicitation is open to all contractors, a Government mandate for use of a PLA will limit the number of competitors able or willing to compete on a project, especially with respect to non-unionized contractors and small businesses. It was also noted that reduced participation would increase costs to the government and, ultimately, the taxpayers. Of course, the Administration and proponents argue the exact opposite and there are third party studies that have been done over the years supporting both sides.
Sureties Need To Be Aware
The new Regs become effective January 22, 2024. Sureties need to be aware that many bonded federal projects going forward may be subject to PLAs. Surety underwriting may wish to ensure that their principals understand the PLA terms, wage rates, benefits, work rules that will apply to projects they bid on as part of the underwriting process. PLA requirements will impact profit margins and increase risk to its principals and increase risk of potential future losses. On a positive side, underwriting may see an uptick in requests for union related bonds that may be required under the PLA.
On the claim side, sureties will need to become familiar with the terms of such agreements and make sure they get copies of the PLA early in the claims process. PLAs will impact everything from wage rates and work rules to benefits and reporting requirements. As the ABC/AGC surveys suggest, PLAs on projects may impact the available pool of potential completion contractors, because non-union contractors may not want to become involved in PLA projects. Moreover, paying union wage rates and benefits will likely increase the costs of completion in takeovers, tenders and financing. With PLAs in place, sureties may face issues relating to unpaid union benefits and claims by union funds against its principals and the bonds.
If you have questions regarding the issues discussed in this post, please do not hesitate to contact Michael A. Stover, Esq. (410-659-1321/mstover@wcslaw.com) or any member of the Surety and Fidelity Practice Group.
