Building Trades News

PLAs Don’t Increase Costs or Reduce Number of Bidders, Say Economists.

By Roy San Filippo
Staff Writer

A new study by three prominent economists confirms that there are substantial benefits for the use of Project Labor Agreements (PLAs) on construction projects. The study, which is believed to be the most detailed and comprehensive to date, also concludes that the use of PLAs does not reduce the number of bidders on projects or affect the cost of construction projects.

The study was authored by economists Dale Belman,Mathew Bodah, and Peter Philips and commissioned by the ELECTRI Council. PLAs are pre-hire collective bargaining agreements that establish the terms and conditions of employment on one or more construction projects. That means basic terms and conditions for labor are established in advance for everyone involved in the project—the public sector employer, contractors and subcontractors, and the labor force.

PLAs are usually the product of a negotiation between labor unions—often represented by a Building Trades Council, and the representative of a construction user or developer, often represented by a construction management company. Contrary to what opponents of Project Labor Agreements say, public works PLAs do not require the use of union contractors, but they do require all contractors and subcontractors—union or nonunion— to adhere the same collectively bargained terms and conditions of employment.

This levels the playing field by weeding out unscrupulous contractors who underbid projects because they pay workers substandard wages and benefits. One criticism of Project Labor Agreements that is often raised is that PLAs reduce the number of contractors who will bid on a job and as a result increase the costs on a construction project. This study, however, found no evidence to support this conclusion. According to the report, "Although our finding run contrary to prior research, we believe that most previous studies failed to account for important influences in construction cost.

Therefore effects were falsely attributed to PLAs that actually belonged to unobserved variables. The study based its conclusion on studying bidding on two adjacent school districts in San Jose, CA which began extensive construction projects in 2002. In 2004, one school district signed a PLA while the other did not. However, both school districts—not just the district with a Project Labor Agreement—saw a decrease in the number of bidders. This was due to the fact the construction market was exceptionally busy and not the result of the PLA. To study the cost effects of PLA, 108 school projects in New England were studied and found no evidence that PLAs increased the cost of the project.

Instead, the researchers noted that previous studies concluding that costs on construction projects were higher on PLAs were comparing apples to oranges: "[O]ur conclusion is that additional costs observed on PLA projects by previous researchers likely have little to do with the PLA itself, but result from the additional amenities or requirements that are inherent in large, complex jobs which are more likely to be covered by PLAs." In addition to concluding that PLAs are cost neutral and do not adversely affect the number of bidders on projects, based on extensive interviews, the study also noted many benefits of PLA for construction users which include: PLA’s reduce the uncertainty of construction projects by ensuring a steady flow of highly qualified craftsmen and women.

PLAs harmonize hours and holidays across trades so that large construction projects can be completed on a tight schedule. Projects with PLAs have better mechanisms to ensure safe working conditions. PLAs can be crafted to achieve wider social ends such as promoting local job growth and participation of small contractors.