Project Labor Agreements – What Was Optional Is Now Mandatory
Background
In February 2022, President Biden signed Executive Order 14063, Use of Project Labor Agreements for Federal Construction Projects, which mandated the use of Project Labor Agreements (“PLA”) for federal construction contracts valued at $35 million or more. Please click here for Smith Anderson’s earlier Client Alert on the topic.
To implement the Executive Order, the Federal Acquisition Regulatory Council (“FAR Council”) issued a proposed rule during August 2022 that would revise FAR Subpart 22.5 and the FAR clauses at 52.222-33 and -34. The proposed rule became final during December 2023 with minor amendments. The PLA mandate applies to new solicitations issued on or after January 22, 2024.
Collective Bargaining Agreements Are Now Mandatory for “Large-Scale Construction Projects”
A PLA is a project-specific collective bargaining agreement between a federal contractor and one or more “labor organizations” under 29 U.S.C. §158(f). FAR 22.504(b) requires that a PLA include: guarantees against strikes, lockouts, and similar job disruptions; mutually binding procedures for resolving labor disputes; and other mechanisms for labor-management cooperation on matters of mutual interest and concern, including productivity, quality of work safety and health. Although the Final Rule does not require a contractor or subcontractor to enter into a PLA with any particular labor organization, the Final Rule “requires all subcontractors to become a party to the PLA negotiated by the prime contractor.”[1]
Under the prior rule, only twelve PLAs were used out of approximately 2,000 total eligible contracts. The Final Rule says that approximately 119 federal construction projects annually were valued at $35 million or more for fiscal years 2019 through 2021. While the Final Rule amends the prior definition of “large-scale construction projects” to increase the threshold cost from $25 million to $35 million, the Final Rule should still increase the use of PLAs because it makes mandatory what the prior FAR rules had only encouraged. Moreover, agencies may require the use of PLAs on projects that cost less than $35 million. FAR 22.503(c).
The FAR Includes Only Limited Exceptions to the PLA Mandate
While the Final Rule includes exceptions to the PLA requirement, those exceptions are limited, they must be exercised by a senior agency official, and exceptions must be invoked in writing and with specificity. FAR 22.504(d) allows the senior procurement executive grant an exception to the PLA requirements by providing a “specific written explanation” of why at least one of several listed conditions exists with respect to a particular contract.[2] Acceptable grounds for an exception include: the project is of short duration and lacks operational complexity; the project will involve only one craft or trade; the agency’s need for the project is of such unusual or compelling urgency that use of a PLA would be impracticable; requiring a PLA would be inconsistent with other federal laws; or market research indicates that requiring a PLA would substantially reduce the number of potential offerors, such that adequate competition at a fair and reasonable price could not be achieved.[3]
This last exception includes its own limitations. FAR 22.504(d)(1)(ii) requires an agency invoking this exception to couple a reduction in the number of potential offerors “with the finding that the reduction would not allow for adequate competition at a fair and reasonable price.” FAR 22.504(d)(2) requires contracting officers considering this exception to “consider current market conditions and the extent to which price fluctuations may be attributable to factors other than the requirement for a project labor agreement (e.g., costs of labor or materials, supply chain costs).”
The term “substantial reduction” in the number of potential bidders is limited. The Office of Management and Budget (“OMB”) evaluated the PLA’s potential impact on agency competition and concluded in 2023 that receiving two or more qualified bids was generally “sufficient to provide adequate price competition for negotiated contracts . . . and three or more qualified bids is sufficient to provide adequate price competition for sealed bids. . . . If adequate price competition can be achieved, use of this exception [in FAR 22.504(d)(l)(ii)] would not be appropriate, even if the number of offerors who indicate they will not compete because of the PLA is significantly higher than the number of resources who have expressed an intent to compete.”[4] The OMB declined to endorse a specific number or percentage which would constitute a substantial increase in construction costs, stating that market research should “determine whether a PLA would reduce competition to such a degree that it would not allow for a fair and reasonable price.”[5] On this point, the OMB notes that an agency can avoid the PLA requirement if market research reveals that a large-scale construction project can be set aside for two or more small businesses but for the PLA requirement.[6]
The Potential Impact of Mandatory PLAs in North Carolina
For construction companies in North Carolina and elsewhere in the Southeast, the mandatory PLA rule presents a challenge because of the general weakness of unions in the area. According to a January 2024 analysis of labor statistics by Associated Builders and Contractors (“ABC”), only 10.7% of construction workers nationally belong to a union.[7] North Carolina and South Carolina consistently show the lowest rates of union membership across all sectors.[8] Also, North Carolina is a “Right-To-Work” state, meaning that agreements between employers and unions that deny work to non-union members are forbidden.[9] Employment also cannot be conditioned on membership in a union.[10]
The U.S. Department of Labor has said that PLAs are legal in Right-To-Work states and that these laws “do not make PLAs illegal or impossible. There are many examples of PLAs in Right-To-Work states.”[11] The application of federal law to “federal enclaves”, areas within a State where the federal government has exclusive jurisdiction, should support the federal government’s use of the PLA mandate in North Carolina and other Right-to-Work states.[12] However, the relative lack of union construction labor in North Carolina may frustrate one of the stated goals of this new PLA rule, which is to achieve “efficient and timely procurement by the Federal Government” of large construction contracts.[13]
Court Challenges to the Mandatory PLA Rule Remain Pending
Construction groups have sued to stop enforcement of the PLA rule. To date, these cases have not prevented the Final Rule from going into effect. A complaint filed in Louisiana by the Associated General Contractors of America and construction companies was dismissed after the court concluded that the plaintiffs faced no imminent injury and had never been signatories to a construction contract large enough to trigger the PLA requirement.[14] A second case filed by the ABC in Florida is actively challenging the PLA rule, claiming the rule exceeds the executive branch’s authority delegated to it by Congress and conflicts with administrative statutes.[15] This suit remains undecided, and its result may depend upon how the Supreme Court decides pending cases involving Chevron deference.[16]
Conclusion
Smith Anderson represents construction prime and subcontractors on federal and state government contracts and can assist in navigating the new PLA rule and in negotiating PLAs with labor organizations. If you have any questions related to this Client Alert, please contact Jackson Moore, Patrick Wilson, or the Smith Anderson lawyer with whom you normally work.
Special thanks to contributing writer Sidney Wiswell, current JD Candidate at the University of Texas at Austin.
[1] Use of Project Labor Agreements for Federal Construction Projects, 88 Fed. Reg. 88708, 88709 (Dec. 22, 2023).
[2] 88 Fed. Reg. at 88727, 88719; FAR 22.504(d).
[3] 88 Fed. Reg. at 88727-28.
[4] Off. of Mgmt. & Budget, Exec. Off. of the President, M-24-06 Use of Project Labor Agreements on Federal Construction Projects 7 (2023).
[5] Use of Project Labor Agreements for Federal Construction Projects, 88 Fed. Reg. 88708, 88719 (Dec. 22, 2023).
[6] Off. of Mgmt. & Budget, Exec. Off. of the President, M-24-06 Use of Project Labor Agreements on Federal Construction Projects 7-8 (2023).
[7] A Record 89.3% of the U.S. Construction Industry Is Not Part of a Union, ABC (Jan. 23, 2024), https://www.abc.org/News-Media/News-Releases/abc-a-record-893-of-the-us-construction-industry-is-not-part-of-a-union.
[8] Union membership rates highest in Hawaii, lowest in South Carolina, in 2020, U.S. Bureau of Labor Stat.: The Economics Daily (Feb. 05, 2021), https://www.bls.gov/opub/ted/2021/union-membership-rates-highest-in-hawaii-lowest-in-south-carolina-in-2020.htm.
[9] N.C. Gen. Stat. Ann. § 95-79.
[10] N.C. Gen. Stat. Ann. § 95-80.
[11] U.S. Dep’t. of Labor, Project Labor Agreement Resource Guide, https://www.dol.gov/general/good-jobs/project-labor-agreement-resource-guide.
[12] U.S. Const. art. I, § 8, cl. 17; Lord v. Local Union No. 2088, Electrical Workers, 646 F.2d 1057, 1058-62 (5th Cir. 1981) (holding that a state retains no power to regulate a federal enclave even if the enclave is physically located within that state’s territory).
[13] Exec. Order No. 14063, Use of Project Labor Agreements for Federal Construction Projects, 87 Fed. Reg. 7363 (2022).
[14] Associated Gen. Contractors of Am., Inc. v. Fed. Acquisition Regul. Council, No. 6:24-CV-00037, 2024 WL 1078260, at *5 (W.D. La. Mar. 12, 2024).
[15] Associated Builders and Contractors Florida First Coast Chapter et al. v. G.S.A. et al., (No. 24-cv-318, M.D. Fla. Mar. 28, 2024).
[16] See Loper Bright Enterprises v. Raimondo, No. 22-451 (D.C. Cir. Filed Nov. 10, 2022); Relentless, Inc. v. Department of Commerce (1st Cir. Filed June 14, 2023).
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