What are project labor agreements, and how do they impact the housing market?￼
On February 4, 2022, President Biden signed an executive order regarding the use of Project Labor Agreements (PLAs). What are PLAs? What are the parameters of the executive order? How might the executive order affect the housing market? Let’s take a deep dive into PLAs and answer these questions.
What is a PLA?
According to Construction Dive, “A PLA is a pre-hire collective bargaining agreement between employers and labor organizations that establishes terms of employment on a specific construction project. They are often required on construction projects that involve state or federal funds.”
When a construction project includes a PLA, the PLA ensures work will be completed exclusively by union employees. Other terms are up for negotiation.
Because non-union employees/companies are ineligible for work, use of PLAs leads to winners and losers. Therefore, PLAs are controversial.
What are the pluses and minuses of PLAs?
A 2011 report from the Office of Labor Relations (OLR) compiled the advantages and disadvantages of PLAs. The advantages include that PLAs:
1. provide uniform wages, benefits, overtime pay, hours, working conditions, and work rules for work on major construction projects
2. provide contractors with a reliable and uninterrupted supply of qualified workers at predictable costs
3. ensure that a project will be completed on time and budget due to the supply of qualified labor and relative ease of project management
4. ensure no labor strife by prohibiting strikes and lockouts and including binding procedures to resolve labor disputes.
The disadvantages of PLAs include that they:
1. increase costs by mandating union wages and work rules and inhibiting competition
2. create an inherent unfair disadvantage to nonunion contractors and nonunion employees
3. hinder the use of nonunion contractor training programs that may operate more efficiently and are job-specific, instead of union apprenticeship programs of fixed duration
4. create unnecessary work because existing prequalification procedures screen contractors that bid on public projects.
Ben Brubeck, vice president of regulatory, labor, and state affairs for the Associated Builders and Contractors trade association is vehemently opposed to the recent PLA signed by the president. He said, “… it will exacerbate the construction industry’s skilled workforce shortage, needlessly increase construction costs and reduce opportunities for local contractors and skilled tradespeople.” Brubeck adds that the executive order is a payout to “well-connected special interests.”
Note the executive order to implement PLAs is for federal construction projects that have a budget of $35 million and above. According to the White House, the executive order will impact around 200,000 construction workers on $262 billion worth of federal government projects.
Nearly 90% of construction workers do not belong to a union. This means they are locked out of projects that use PLAs.
In his rejection of PLAs Brubeck cites additional issues. PLAs “…hold a third of employees’ compensation for ransom unless they join a union, pay union fees and prop up struggling union pension plans. PLAs also create excessive cost burdens and risks for high-performing nonunion contractors, which built more than half of the federal government’s large-scale construction projects during the past decade and are more likely to be small, women- and/or minority-owned businesses.”
Beauty is in the eye of the beholder
Are the issues with PLAs as cut and dried as Brubeck states?
After all, the OLR lists the same number of pluses as minuses for PLAs. In addition, a White House press release claimed the executive order is beneficial for taxpayers, contractors, and workers. It cited alleviating coordination challenges, raising contractor quality standards, reducing uncertainty in the contracting process, and increasing training for the associated workforce.
Are PLAs simply a quid pro quo for union support of a political candidate? Is Brubeck just trying to protect members of his association?
As one might expect, the perspective on the pluses and minuses of PLAs depends on the impact of PLAs on the speaker/company/researcher. A study by Jason M. Ward of the Rand Corporation, a nonprofit that aims to help improve policy and decision-making through research and analysis, said, “… most research on PLAs has been conducted by researchers with clear pro- or anti-PLA affiliations.”
The Rand study also cites that it’s hard to judge the pluses and minuses of PLAs because it’s hard to find comparable PLA and non-PLA projects. With analogous projects one could measure the outcomes and come to a less biased conclusion.
The Rand study was done to understand “…the trade-offs involved in combining housing and labor policies.” The study used Proposition HHH, “…a $1.2 billion bond earmarked for the development of up to 10,000 units of affordable and permanent supportive housing aimed at addressing chronic homelessness in Los Angeles,” to understand the impact of PLAs.
Ward found the PLA led to a 14.5% increase in construction costs. Developers proposed building more units below the threshold where the PLA kicked in. Ward estimates that absent a PLA, approximately 800 more units would have been built (11% of the total) with the equivalent amount of funding.
Based on Ward’s findings, it seems clear that PLAs lead to higher construction costs. The market adjusts to the increase in costs and develops projects that have the potential to return a greater profit.
While PLAs may lead to multiple benefits (see the list from the OLR above), the executive order may seem ill-timed. After all, construction costs are rising because of inflation, availability of materials, etc.; PLAs may add another element that contributes to increased construction costs.