Project Labor Agreements (PLAs) are pre-hire collective bargaining agreements for federal and private projects. In simple terms, a PLA is an agreement that ensures that federal projects are only given to unionized construction firms. These agreements are made between contractors and union labor organizations. Wage rates, employee benefits, and various other variables are discussed and agreed upon in these agreements before hiring any labor.
PLAs were initially introduced in the 1930s and were first challenged in the 1980s. They can be used for both public and private sector projects and can be broadly classified into the following two types.
- Government-Mandated PLAs: Government entities make it mandatory for construction firms to sign PLAs in publicly funded projects.
- Voluntary PLAs: Contractors voluntarily use PLAs for both public and private projects.
The most recent Executive Order (EO) on PLAs was passed on October 4th, 2022 by President Joe Biden, and it is now made mandatory for all contractors to use PLAs on federal projects worth $35 million or more.
Government’s Rationale Behind PLAs
The major rationale behind imposing PLAs is to increase efficiency in construction projects and minimize possible labor-contractor disputes. When both parties are legally bound by agreements, the chances of potential disputes are minimized. Also, many construction companies do not have a permanent workforce. This makes it extremely difficult to predict labor costs when bidding for federal projects. The lack of a permanent workforce also makes it challenging to maintain a steady flow of labor supply.
Normally, large construction projects involve multiple employers at the same location. This poses a risk of delay in the entire project from a labor dispute involving only one employer. Without the presence of a formalized resolution, the chances of disputes due to lack of coordination are significantly increased.
All these factors can negatively impact the efficiency of projects and cause delays. PLAs provide structure and stability to avoid these inefficiencies. Dispute-resolution mechanisms are included in these PLAs to avoid potential labor disputes, work stoppages, and strikes.
The Overall Impact of PLAs on the Construction Sector
Studies reveal a mixed impact of PLAs in the construction sector. Government institutes and organizations describe the use of PLAs as a success. However, the majority of construction firms and workers have pointed out its negative and devastating impacts.
The most devastating impact of government-mandated PLAs is the exacerbation of the skilled labor crisis in the construction sector. PLAs make it mandatory to hire unionized labor workers. The vast majority of the construction workforce (87%) have opted against unionization, so this means that 87% of the total workforce is prohibited from working on large-scale federal projects. As a result, there is an increased unemployment rate. The negative impact of PLAs is not limited only to the construction workers, and many other stakeholders of the construction sector, such as heavy equipment traders, have also shown their distress with these new developments.
These labor agreements can also create unfair competition and drastically increase labor costs. They often create higher cost overruns which result in increased construction costs for taxpayers. Many people argue that these PLAs are deliberately introduced by a few biased politicians and government officials to achieve unfair political gains. They claim that projects are only rewarded to those union officials who support and fund the campaigns of these politicians and keep them in power.
Conclusion
The core purpose of introducing PLAs was to benefit the construction industry. A formal and legal framework was introduced to minimize labor disputes and increase efficiency. A large number of factors, however, were not taken into consideration when designing these PLAs, mainly the massive majority of ununionized labor. Therefore, the overall impact of the PLA rule has been negative. Major names in the construction sector openly shared their discontent with these new regulations.