The Costs of Project Labor Agreements

By September 25, 2009Economy, Labor Unions

One of the first actions that demonstrated — removed any doubt — that a newly elected President Obama was going to align himself with organized labor was the President’s issuance of an executive order on February 6 (Executive Order 13502) instructing federal agencies to favor “project labor agreements” (PLAs) in federal construction projects of $25 million or more. The order revoked President Bush’s 2001 executive order which required neutrality toward PLAs. Yes, elections have consequences.

PLAs are agreements that govern general contractors’ handling of projects, and in practical terms they force the use of union labor in all phases of a project with no consideration of costs — or the taxpayers who are paying the bill. The argument for the PLAs is that they promote harmonious management-labor relations with efficiency the result.

But a new study by the economists at the Beacon Hill Institute in Boston disproves the premise and reinforces the negatives effects of the agreements. The Institute reviewed comparable projects from the Bush era and found no examples of labor strife that added to costs. From the news release, “New Study Reveals That President Obama’s Executive Order for Project Labor Agreements Will Harm Federal Taxpayers,” quoting David G. Tuerck, one of the study’s authors and the Beacon Hill Institute’s executive director.

“If President Obama, who used the labor peace argument in justifying PLAs, is to be believed on this matter, it should be possible to find dozens of examples of slowdowns and significant cost overruns that occurred during the Bush Administration,” said Tuerck. “Yet, we found no such examples.”PLAs do add to construction costs.”

By their nature, PLAs are anti-competitive since they discourage open shop firms from bidding in the first place. Previous research from the Institute has shown that PLAs add 12-18% to construction costs. Over the course of the Bush Administration, the federal government spent $147.1 billion on federal construction projects. Of that $147.1 billion, approximately $60 billion would have been subjected to President Obama’s Executive Order encouraging the use of PLAs.

Moreover, had President Obama’s Executive Order 13502 been in effect in 2008, and all federal construction projects worth $25 million or more been subject to PLAs, the cost to federal taxpayers would have increased by $1.6 to $2.6 billion.

The final rule to force PLAs onto federal projects funded by Housing and Urban Development goes into effect September 28. More expensive HUD projects help whom, exactly? It sure isn’t the taxpayer.

UPDATE and clarification: The HUD rule had to do with the repeal of the Bush Administration executive order. More significant and of broader application is the proposed rule from the Federal Acquisition Regulation (FAR) agencies to implement the new executive order. [FAR Case 2009-005; Docket 2009-0024; Sequence 2] Comments closed on that on September 23, and a final rule will come out later this year.

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