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The estimated cost of project labor agreements on federal construction

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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.

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Notes

  1. 1

    White House, Memorandum on the Use of Project Labor Agreements for Federal Construction Projects, June 5, 1997.

  2. 2

    Congressional Budget Office, Reducing the Deficit: Spending and Revenue Options, March 1994, pp. 194-95.

  3. 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.

  4. 4

    Linda Alario, “Project Agreements and Government Procurement,” Journal of Labor Research 18 (Winter 1997), p. 27.

  5. 5

    ibid.

  6. 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.

  7. 7

    Bureau of Labor Statistics, Major Work Stoppages, February 12, 1997, Table 1.

  8. 8

    General Accounting Office, Construction Agreement at DOE’s Idaho Laboratory Needs Reassessing, GGD-91-8OBR (Washington, D.C.: GAO, May 1991).

  9. 9

    Associated Builders and Contractors, Analysis of Bids and Costs to the Taxpayer for the Roswell Park Cancer Institute, New York State Dormitory Authority Construction Project, (Rosslyn, Va.: ABC, March 23, 1995).

  10. 10

    Based on conversations with officials at the Office of Management and Budget.

  11. 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.

  12. 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.

  13. 13

    U.S. General Services Administration, Federal Procurement Report, Fiscal Year 1996.

  14. 14

    My data are provided by Associated Builders and Contractors but were produced by the F.W. Dodge Market Analysis Group.

  15. 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.

  16. 16

    Office of Management and Budget, Budget of the United States Fiscal Year 1998, Analytical Tables, pp. 104-109.

  17. 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.

  18. 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.

  19. 19

    Based on a telephone conversation with a DOL official, June 1997.

  20. 20

    The weighted average of the union and nonunion rates is used as a proxy for the average rate.

  21. 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).

  22. 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.

  23. 23

    Bernard Anderson, Testimony before the Senate Labor and Human Resources Committee, February 15, 1995.

  24. 24

    Thieblot, “Prevailing Wage Laws and Market Recovery Strategy,” p. 33.

  25. 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).

  26. 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).

  27. 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).

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The author thanks Ken Deavers, Anita Hattiangadi, Edward Potter, and Gary Shiu for their suggestions and help in the preparation of this paper.

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Lyons, M. The estimated cost of project labor agreements on federal construction. J Labor Res 19, 73–87 (1998). https://doi.org/10.1007/s12122-998-1002-6

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Keywords

  • Construction Cost
  • Union Wage
  • Wage Cost
  • Nonunion Worker
  • Wage Determination