On February 6, 2009, President Obama signed Executive Order 13502 allowing federal executive agencies to require contractors on large-scale government construction projects to enter into a project labor agreement as a condition of being awarded a contract. (See MLA Government Contracts Advisory, “President Obama Signs Executive Order Allowing Agencies to Require Project Labor Agreements (PLA’s) on Large Construction Projects,” Feb. 10, 2009.)  On April 13, 2010, the Federal Acquisition Regulation council (FAR) published final rules interpreting and implementing the Executive Order. The rules will become effective 30 days after their publication and will only apply to solicitations for projects issued on or after the effective date of the rules.

A “project labor agreement” (PLA) is a pre-hire collective-bargaining agreement – often involving multiple employers and multiple unions – designed to systemize labor relations at a construction site. The rules make clear that, in accordance with Section 8(f) of the National Labor Relations Act, the PLA requirement will only apply to contracts involving construction work.  Construction is defined to include “construction, rehabilitation, alteration, conversion, extension, repair, or improvement of buildings, highways, or other real property.”  Moreover, the Order and rules apply primarily to “large scale” construction projects — which they define as projects with a total cost exceeding $25 million.

It is important to clarify that the new rules do not require contractors and subcontractors to enter into a PLA on every large-scale government-funded construction project awarded. Instead, they give each agency responsible for awarding construction contracts very broad discretion in determining, on a project-by-project basis, which large-scale contracts will require PLA’s and which ones will not. Beyond the few express criteria listed in the Executive Order, the final rules provide awarding agencies with six additional factors they may consider in determining whether a PLA requirement is appropriate.  These additional non-mandatory factors are:


(1) whether the project will require multiple construction contractors and/or subcontractors employing workers in multiple crafts or trades;

(2) whether there is a shortage of skilled labor in the region in which the construction project will be sited;

(3) whether completion of the project will require an extended period of time;

(4) whether project labor agreements have been used on comparable projects undertaken by Federal, State, municipal, or private entities in the geographic area of the project;

(5) whether project labor agreement will promote the agency’s long term program interests, such as facilitating the training of a skilled workforce to meet the agency’s future construction needs, and

(6) the “catch-all”: “any other factors that the agency decides are appropriate.”

 

In addition to giving awarding agencies this extremely broad discretion in determining whether a PLA will be required, the rules give the agencies similar discretion to determine when a PLA must be negotiated and what it must contain. As to the timing of PLA negotiations, the rules recognize three different potential times when an awarding agency may require contractors to negotiate PLAs. An awarding agency may require: (1) a contractor to submit a negotiated PLA with its bid; (2) the apparent awardee to submit a negotiated PLA prior to the final decision on the contract; or (3) the final awardee to negotiate the PLA after the award but prior to commencing construction. The rules provide no guidance as to what factors an awarding agency should rely on to determine which of the three time frames is appropriate for each proposed contract.

The rules also provide limited instruction on what terms a PLA must contain. At a minimum, the PLA must contain a provision prohibiting strikes and lockouts as well as a provision providing for procedures and mechanisms by which the parties can resolve disputes. The PLA must also apply to all contractors and subcontractors engaged in construction on the project.   Beyond these explicit requirements, the awarding agency is permitted to require a PLA to contain any other terms it deems necessary and there is no further guidance in the rules regarding what types of provisions an awarding agency may consider to be necessary. While the rules expressly require that the PLA cannot permit discrimination against contractors and subcontractors because they are or are not otherwise parties to collective bargaining agreements, the terms often included in PLA’s may tend to make it more difficult for non-union contractors to compete.

Although the new rules apply only to large-scale construction projects, the Federal Register entry reiterates the Order’s explanation that awarding agencies are not prohibited from requiring PLA’s on projects that do not fall within the coverage of the Executive Order and are otherwise legal. This statement was included in response to comments by interested parties seeking to have the new rules extended to contracts whose total costs were less than $25 million dollars. The new rules also do not prevent agencies from requiring PLA’s on leasehold arrangements and projects receiving Federal financial assistance.

Due to the broad discretion granted to awarding agencies and the lack of direction given to parties who may be interested in bidding on federal construction contracts, contractors and subcontractors must be diligent in reviewing each contract solicitation, no matter its size, to determine if and when a PLA will be required.  By identifying the PLA requirements from the beginning, contractors and subcontractors will be able to understand the extent to which it will influence the cost of their work as well as the restraints it will place on their existing workforce management policies and practices. They will also be able to identify and consider potential obligations that may carry serious legal consequences – for example, participation in and contribution to multi-employer pension funds, many of which are significantly underfunded. Contractors and subcontractors that do not have experience with PLA’s would be well served to educate themselves about the demands and costs of working under such an agreement before committing to do so.