Federal Government Mandates PLA’s On Certain Government Projects (Part I)
January 16, 2024
In this Surety Today: The Blog post we start a two part blog on the new federal government regulations regarding mandatory Project Labor Agreements (“PLAs”). These new regulations will undoubtedly affect sureties in the underwriting and claims functions. Accordingly, the surety industry needs to be aware of this new environment. In this first post we will discuss the Executive Order and new Regulations, What are PLA’s and How Prevalent will the PLA’s be under the new Regs. In the second 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 Executive Order and New Regulations
Let’s get started by discussing the Executive Order (No. 14063) and the new regulations that were just issued. On February 4, 2022, President Biden issued the Executive Order which was the impetus for the new regulations. The new Regs implementing the Order have been interspersed in the Code of Federal Regulations (the CFR) by amending 48 CFR parts 1, 7, 22, 36 and 52. Essentially, the new regulations follow the provisions of the Order very closely, if not identically.
The ostensive purpose, as stated in the Order and Regs, is for Federal Government “agencies to use project labor agreements in connection with large-scale construction projects to promote economy and efficiency in Federal procurement.” To accomplish the stated purpose and policy, the Order states that
“in awarding any contract in connection with a large-scale construction project, or obligating funds pursuant to such a contract, agencies shall require every contractor or subcontractor engaged in construction on the project to agree, for that project, to negotiate or become a party to a project labor agreement with one or more appropriate labor organizations.”
48 CFR 22.503. So, this is the primary operative provision of the Order and we need to do a little unpacking to get a better understanding of what this provision means and what the new Regs apply to. First, this provision establishes a mandatory requirement that a Project Labor Agreement (which I will refer to as a PLA) be utilized on all applicable projects and that all contractors/subcontractors on the applicable project be party to the PLA.
Second, the Regs seem to limit the application to subcontractors “engaged in construction on the project,” which would seem to exclude off-site personnel, engineers, architects, inspectors, etc., but it remains to be seen how the parties, the government and the courts will interpret the scope of who must be a party to the PLA.
Third, the new Regs define “Construction” very broadly to include “construction, reconstruction, rehabilitation, modernization, alteration, conversion, extension, repair, or improvement of buildings, structures, highways, or other real property.” 48 C.F.R. § 22.502. The Regs also apply the PLA requirement to Indefinite-Delivery Indefinite-Quantity (IDIQ) contracts on an order-by-order basis, rather than for the entire IDIQ contract. 48 C.F.R. § 22.503(d). Another phrase used in the primary operative provision is “Large-scale construction project,” the Regs define this term as “a Federal construction project within the United States for which the total estimated cost of the construction contract to the Federal Government is $35 million or more.” 48 C.F.R. § 22.502. Thus, the threshold floor on the applicability of the new Regs is $35M estimated cost.
Another phrase used in the primary provision is “Project labor agreement,” which is defined for purposes of the Regs as a “pre-hire collective bargaining agreement with one or more labor organizations that establishes the terms and conditions of employment for a specific construction project and is an agreement described in 29 U.S.C. §158(f).” Id. 29 U.S.C. 158(f) is part of the National Labor Relations Act authorizing PLA’s.
The Regs further set forth the minimum requirements for the terms of solicitations for applicable covered projects and any PLA entered into on such projects stating that any PLA reached pursuant to the Order/Regs shall:
- bind all contractors and subcontractors on the construction project through the inclusion of appropriate specifications in all relevant solicitation provisions and contract documents; 48 CFR 22.504(b)(1)
- allow all contractors and subcontractors on the construction project to compete for contracts and subcontracts without regard to whether they are otherwise parties to collective bargaining agreements; (b)(2)
- contain guarantees against strikes, lockouts, and similar job disruptions; (b)(3)
- set forth effective, prompt, and mutually binding procedures for resolving labor disputes arising during the term of the project labor agreement; (b)(4)
- provide other mechanisms for labor-management cooperation on matters of mutual interest and concern, including productivity, quality of work, safety, and health; (b)(5) and
- Include any additional requirements as the agency deems necessary to satisfy its needs (b)(6).
Exceptions To The PLA Requirement May Be Granted
The new Regs authorize senior officials within an agency to grant an exception from the PLA requirements for a particular contract by identifying in writing that at least one of the following conditions exists with respect to the specific contract:
(1) Requiring a project labor agreement on the project would not advance the Federal Government’s interests in achieving economy and efficiency in Federal procurement. 48 C.F.R. § 22.504(d)(1)(i). Such a finding shall be based on the following factors:
- (A) The project is of short duration and lacks operational complexity;
- (B) The project will involve only one craft or trade;
- (C) The project will involve specialized construction work that is available from only a limited number of contractors or subcontractors;
- (D) The agency’s need for the project is of such an unusual and compelling urgency that a project labor agreement would be impracticable; or
- (E) The project implicates other similar factors deemed appropriate in regulations or guidance.
(2) Based on an inclusive market analysis, requiring a project labor agreement on the project would substantially reduce the number of potential bidders so as to frustrate full and open competition. 48 C.F.R. § 22.504(d)(1)(ii).
(3) Requiring a project labor agreement on the project would otherwise be inconsistent with statutes, regulations, Executive Orders, or Presidential Memoranda. 48 C.F.R. § 22.504(d)(1)(iii).
It remains to be seen how liberally or restrictively those exceptions will be utilized.
Another aspect of the new Regs to note is that one provision expressly states that agencies are not precluded from using PLA’s for projects that are smaller than the threshold for Large Construction Projects. Thus, agencies are given the discretion to utilize PLA’s on all projects.
The Executive Order became effective upon its issuance, but did not apply to solicitations until after the effective date of the final regulations issued by the FAR Council, which will be January 22, 2024. On December 18, 2023, the Office Of Management And Budget (OMB) issued Memorandum No. M-24-06 providing guidance to agencies on the reporting and exception aspects of the Regs.
So, What Are PLA’s
A PLA is an agreement that is entered into for a specific project between one or more unions and the prime contractor, agreeing that all labor utilized on the project will be union members or follow union rules in the PLA. Thus, all subcontractors on the project who perform labor will be required to agree to being a signatory of the PLA and to be bound by its terms and conditions regardless of whether they themselves are union members or not. Ordinarily, if you are a union shop you will have entered into a Collective Bargaining Agreement (CBA) with the unions which governs all projects that your company performs and your labor comes from the union hiring halls or are union members. On a PLA project, it is recognized that the prime contractor that is awarded the contract and/or the subcontractors may not be union shops and so the PLA is required to treat the non-union contractor/subcontractor as a union shop for that specific project. It is important to note that if the contractor/subcontractor is a non-union shop its other contracts and business are not affected by the PLA. The PLA is only binding for the specific project.
As mentioned, PLAs are authorized under the National Labor Relations Act which makes special exceptions from other requirements of the NLRA in order to permit employers to enter into pre-hire agreements with labor unions in the construction industry. 29 U.S.C. §§ 158(e) and (f). Such agreements have been used on private and government jobs, local, state and federal. Indeed, PLAs have been used on federal construction projects since the 1930s and have been expressly recognized in the FAR since 2010, but they have never been mandatory before in federal government contracting.
A PLA generally specifies the wages and fringe benefits to be paid on a project, and it usually includes binding procedures to resolve labor disputes. PLAs also typically include provisions requiring contractors to hire workers through a union hiring hall and/or employees to become union members after being hired.
In a recent PLA entered into between Hensel Phelps and a Construction Trades Council for an airport project, the agreement incorporated the local Collective Bargaining Agreement noting that if a subject is covered by the CBA but not the PLA, the CBA shall prevail. However, if there is conflict between the CBA and PLA, the terms and conditions of the PLA shall prevail. To me, any provision that incorporates another CBA in this manner opens the PLA up to all kinds of terms and conditions that were not expressly stated in the PLA. Anyone agreeing to be bound to the PLA must now review the terms of the CBA as well.
The Hensel Phelps PLA also notes that during the term of the PLA there are to be no strikes, picketing. work stoppages, slowdowns or other disruptive activity at the project site for any reason by the Union and there is to be no lockout by the Contractor. The Hensel Phelps PLA details procedures for determining its application to off-site fabrication and assembly work and required that such work comply with applicable off-site fabrication or assembly provisions in applicable Master Local Agreements, again incorporating other documents, terms and conditions. Shop stewards were required to be appointed. The assignment of work was to be in accordance with something called the “Plan for the Settlement of Jurisdictional Disputes in the Construction Industry” and was to be based upon the appropriate “agreements of record, decisions of record and previously provided local written agreements between or among the Unions and established trade practice prevailing in the locality.” Once again incorporating terms and conditions of other agreements. The Hensel Phelps PLA includes apprenticeship requirements, detailed wage rate requirements which must be in accordance with the current local craft labor agreement as identified in their individual CBA. Hensel Phelps was required to adopt and agree to be bound by the written terms of the legally established trust provisions for fringe benefits in the respective applicable local CBAs. Union dues or “representation fees” were required to be deducted from the pay of any employee. Free parking was required within a certain distance from the site if no parking was available, transportation between the parking area(s) and the work site was required at no cost and employees were required to be paid for time spent in travel from the work site to the parking area at the end of their shift. The Hensel Phelps PLA also spelled out that if an employee reported for work, but no work was available, the employee was to be paid for 4 hours of time and if an employee shows up and works, they are entitled to a minimum of 8 hours pay, even if they worked less.
How Prevalent Will The Order and New Regs Be?
According to the data collected by OMB, between the years of 2009 and 2021, there was a total of approximately 2,000 eligible contracts (that is projects over $35 million). Based on the data, during that time, on average there were approximately 167 eligible awards annually. Additional data from fiscal year 2019 through fiscal year 2021, shows that the average number of construction awards, including orders against IDIQ contracts valued at $35 million or more, were approximately 119 annually. As a result of the Order and new Regs the number of PLA’s will increase dramatically and will have an impact on a significant number of bonded projects, especially when you consider the prime contractor bond and the lower tier subcontractor bonds on each project.
Of course, the prior data does not account for the recent passage of the $1.2 trillion Infrastructure Investment and Jobs Act stimulation legislation, which will no doubt result in a large increase in projects over $35 million. The White House estimates that the mandate will affect an estimated $262 billion in federal construction contracting for nearly 200,000 workers.
In addition, the Biden administration is reportedly pushing state and local governments to require PLAs on federally assisted projects via more than $250 billion worth of federal agency grant programs that give grant applicants favorable treatment if PLAs are required on taxpayer-funded infrastructure projects. The Biden administration is also reportedly pushing PLA mandates on private construction projects receiving federal grants and tax breaks.
The bottom line is that sureties will start seeing PLA’s a lot more frequently in the future unless the Order and new Regs are derailed in some manner by a change in leadership at the White House, change in control of Congress to Republicans or even court action. The AGC has stated that they consider the mandate to be unconstitutional and plan to file a lawsuit. Don’t forget to check out our next blog post on this subject to get Part II.
If you have questions regarding the issues discussed in this post, please do not hesitate to contact Michael A. Stover, Esq. (email@example.com) or any member of the Surety and Fidelity Practice Group.
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