The estimated cost of project labor agreements on federal construction
Symposium Government-Mandated Project Labour Agreements in the Construction Industry
Abstract
I estimate the cost of President Clinton’s June 1997 executive memorandum encouraging federal departments and agencies to use project labor agreements (PLAs) on “large and significant” construction projects. Based on the higher wage costs associated with PLAs, the cost of federally owned construction will rise by 1.7 to 7.0 percent annually. Over the three years for which the memorandum will apply, federally owned construction costs will increase by $844 million to $3.44 billion. If the memorandum is interpreted to apply to state and local construction projects funded with federal money, the cost could range between $3.2 and $13.0 billion.
Keywords
Construction Cost Union Wage Wage Cost Nonunion Worker Wage Determination
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Notes
- 1.White House, Memorandum on the Use of Project Labor Agreements for Federal Construction Projects, June 5, 1997.Google Scholar
- 2.Congressional Budget Office, Reducing the Deficit: Spending and Revenue Options, March 1994, pp. 194-95.Google Scholar
- 3.Herbert Northrup and Linda Alario, “‘Boston Harbor’-Type Project Labor Agreements in Construction: Nature, Rationales, and Legal Challenges,” Journal of Labor Research 19 (Winter 1998), p. 8.Google Scholar
- 4.Linda Alario, “Project Agreements and Government Procurement,” Journal of Labor Research 18 (Winter 1997), p. 27.CrossRefGoogle Scholar
- 5.
- 6.Charles Murphy and Robert Casey, A Detailed Policy and Legal Analysis of Public Owner Project Labor Agreements (Rosslyn, Va.: Associated General Contractors, November 1994), p. 4.Google Scholar
- 7.Bureau of Labor Statistics, Major Work Stoppages, February 12, 1997, Table 1.Google Scholar
- 8.General Accounting Office, Construction Agreement at DOE’s Idaho Laboratory Needs Reassessing, GGD-91-8OBR (Washington, D.C.: GAO, May 1991).Google Scholar
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- 10.Based on conversations with officials at the Office of Management and Budget.Google Scholar
- 11.Testimony of Tom Rolleri of Granite Construction Company before the Senate Committee of Labor and Human Resources on Project Labor Agreements, April 30, 1997.Google Scholar
- 12.This number is based on SIC classification of construction. The Federal Data Procurement System also provides a number based on product service code classification — $15.2 billion in FY 1996.Google Scholar
- 13.U.S. General Services Administration, Federal Procurement Report, Fiscal Year 1996.Google Scholar
- 14.My data are provided by Associated Builders and Contractors but were produced by the F.W. Dodge Market Analysis Group.Google Scholar
- 15.Data from the Federal Procurement Data System show that there were 439 projects valued at more than $5 million. Information provided by Senator Nickles office.Google Scholar
- 16.Office of Management and Budget, Budget of the United States Fiscal Year 1998, Analytical Tables, pp. 104-109.Google Scholar
- 17.The hourly wages reported herein have been converted from median weekly earnings figures reported by the Bureau Labor Statistics. The median weekly earnings figures for union, nonunion and all full-time construction industry workers were $464, $748, and $504, respectively.Google Scholar
- 18.For a discussion of the inclusion of fringe benefits in prevailing wage determinations, see Armand Thieblot, The Davis-Bacon Act, Labor Relations and Public Policy Series, Report No. 10 (Philadelphia: Wharton Industrial Research Unit, University of Pennsylvania, 1974), p. 16.Google Scholar
- 19.Based on a telephone conversation with a DOL official, June 1997.Google Scholar
- 20.The weighted average of the union and nonunion rates is used as a proxy for the average rate.Google Scholar
- 21.One potential extension of this analysis is to account for the fact that the proportion of wage determinations that equal the union wage varies depending on the type of construction. For example, while 35–40 percent of determinations for highway, heavy and building construction are union rates, only 8 percent of wage determinations for residential construction are at the union rate. See General Accounting Office, Davis-Bacon Act, HEHS-94-95R (Washington, DC: GAO, February 7, 1994).Google Scholar
- 22.A.J. Thieblot, “Prevailing Wage Laws and Market Recovery Strategy,” Journal of Labor Research 18 (Winter 1997), p. 32. See also footnote 8 for a discussion of the distribution of prevailing wage determinations.CrossRefGoogle Scholar
- 23.Bernard Anderson, Testimony before the Senate Labor and Human Resources Committee, February 15, 1995.Google Scholar
- 24.Thieblot, “Prevailing Wage Laws and Market Recovery Strategy,” p. 33.Google Scholar
- 25.On-site wages and salaries typically account for 25–35 percent of construction costs and another 5 percent is added by off-site hours “generated in the contractor’s offices and warehouses — hours required to support the onsite construction work.” Although the series was discontinued 20 years ago, there was no indication that the labor share of construction cost had changed since the 1950s. See Robert Ball, “Employment Created by Construction Expenditures,” Monthly Labor Review 70 (December 1981).Google Scholar
- 26.Although the memorandum was effective as of June 5, 1997, agencies have 120 days to establish the written procedures for evaluating whether a PLA should be used on a project. The memorandum expires at the end of President Clinton's term in January 2001, thereby having an effective life of 3.25 years (October 1997-January 2001).Google Scholar
- 27.For a discussion of how DOL determines where to conduct prevailing wage surveys see: General Accounting Office, Process Changes Could Raise Confidence That Wage Rates Are Based on Accurate Data, HEHS-96-130 (Washington, D.C.: GAO, May 1996).Google Scholar
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