On Nov. 2, Northern California Power Agency (NCPA) board members voted to include a Project Labor Agreement in the plans for a natural gas-fired, combined cycle electrical generating facility in Lodi.
Project Labor Agreements (PLAs) between construction companies, project owners and labor union consortiums originated in the 1930s as a way to protect large projects from work stoppages that plagued many sites across the country. In exchange for labor agreeing to use high-speed arbitration to resolve workplace disputes, the contractor usually agreed to hire employees through a union hiring hall at union wages.
The first California project to be completed under the agreement was Shasta Dam. Bay Area Rapid Transit, Yerba Buena in San Francisco and Los Angeles Convention Center followed.
The construction landscape has changed since Lake Shasta was created. Nicole Goehring, government affairs director for Associated Builders and Contractors (ABC), a national trade association representing merit shop (non-union) contractors pointed out that in the current economy with construction companies scrambling for work, strikes are much less common. “The no-strike argument is not a strong one,” she said, pointing to projects like the San Francisco Airport, which despite a PLA experienced a strike.
Alex Leupp, state government relations representative for Northern California Power Agency said a PLA is not a no-strike guarantee; it is an agreement to expedite mediation to reduce the impact of any disagreements.
Leupp said the “hefty liquid damages” – $20,000 for the first shift missed, $25,000 for the second and $30,000 for every shift after that – included in the Lodi Power Plant PLA will act as insurance to make sure project goes forward.
Another difference is that today only 20.2 percent of the construction workforce belongs to a union, according to unionstats.com. That leaves the majority of the workforce out of the bidding unless they agree to pay union dues for the duration of the project.
“PLAs hurt competition,” said Goehring, citing the majority of minority and women-owned non-union contractors that can’t bid on PLA work. She cited projects in Brentwood and Riverside where PLA requirements reduced the number of bidding companies by 30 percent to 50 percent.
In the case of the Lodi Energy Center Project, which includes a priority of hiring residents within a 50-mile radius, Lodi-based TTS Construction won’t be able to bid. “That doesn’t help local hiring goals,” Goehring said.
Goehring said that lack of competitive bidding leads to more expensive projects – between 8 percent and 15 percent higher. Goehring pointed to construction of the Glenarm Power Plant in 2003 in Pasadena where the same contractor bid at $14.9 million under open bidding and raised the price to $17.2 million to accommodate the PLA requirements. “In the end, it is the taxpayer who is hurt,” Goehring said.
Competitiveness can be difficult to quantify, however. Many contractors opt out of the final bid for a variety of reasons. In the Brentwood example cited by Goehring, 25 contractors pre-qualified for a Civic Center project estimated to be a $45 million project, but only 11 bid. All of those were substantially below the estimate with the winning bid from union contractor Lathrop Construction Associates at $28.5 million.
Brentwood Project Coordinator Gail Leech said three of the companies dropped out because of the PLA requirement. Even if those three had bid, however, she didn’t think the price could have gone much lower.
A big part of the PLA agreement in addition to creating a “harmonious workplace” was the hire locally and veteran provisions.
“It seems to be working so far, but we only started last month,” Leech said. “Check back in six months.”
Another recent project that was considered for a PLA was the Central Marin Sanitation Agency Wet Weather Improvement Project. In 2007, the board unanimously voted against the requirement after getting feedback from pre-qualified contractors that they would have to raise their prices.
In the process of preparing an agreement, staff surveyed 20 pre-qualified contractors to find out what impact the requirement would have on their decision to bid and found a majority predicted higher prices and lower competition. Eleven (more than 50 percent) said PLAs increase costs, nine said they reduce the pool of bidders and three said they would not bid on the project if it included a PLA.
This was not a case of non-union shops complaining about being locked out. Fourteen of the companies were union contractors and one was variable. That means half of the union contractors agreed that a PLA would increase costs.
“PLAs include hidden costs that reduce flexibility and cause inefficiencies,” explained Ken Kreischer, CFO of Santa Rosa-based Western Water Constructors, a merit shop contractor that ultimately won the work with the best bid. Kreischer said his company would not have bid if a PLA had been a requirement.
Kreischer called PLAs a bad deal for his employees. If they work under a PLA, either the contractor or the employee has to pay into union benefit plans in addition to their existing private pension plan even though they may never receive the union benefits if they don’t work enough years to qualify. Employees also have to pay union dues for the privilege of limiting the types of jobs they can do and hours they can work.
At the dawn of 2010, Marin’s Wet Weather Improvement Project is being built on deadline and on budget with no strike issues. “This is a textbook example of how a project should be bid,” Kreischer said. “They asked the people who should know – the actual contractors who were going to bid on the project – and found out it would increase costs.”
“How can you fulfill your fiduciary role and enter into an agreement that will cost more? You can’t.” Kreischer said, answering his own question.
“Any cost difference is negligible,” said NCPA’s Leupp. He pointed out that $60 million of the $432 million project cost is labor-related and even non-union shops have to pay prevailing wages for large government-funded projects (another change since PLAs were introduced).
Leupp said that 11 of 12 of the most recent power projects included a PLA. “If they weren’t competitive, they wouldn’t use them,” Leupp said.
ABC’s Goehring called the PLA trend for power plants “greenmail” and said cities were simply caving into pressure from California Unions for Reliable Energy (CURE), a State Building and Construction Trades Council of California-sponsored group that threatens to sue non-PLA projects under environmental laws, delaying projects and adding millions in costs. NCPA’s own staff report acknowledged that the project may be delayed a year if the PLA wasn’t signed: “If this proposed agreement was abandoned today, it would result in a significant delay in the construction of the project…”
CURE representatives did not respond to an immediate request for comment, but Chair Bob Balgenorth said in a statement that the organization’s goal is to “construct the cleanest conventional and renewable power plants possible.”
Both sides will be watching Lodi Energy Center to determine if that is the outcome.
JT Long can be reached at firstname.lastname@example.org.