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New FAR Rule Mandates the Use of PLAs on Large Construction Projects

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The Federal Acquisition Regulatory Council recently published a proposed ruled that, once implemented, will require the use of project labor agreements (PLAs) on federal construction projects with a contract value of $35 million or greater.  The proposed rule revokes President Obama’s Executive Order 13502 and implements an Executive Order 14063 (E.O. 14063) issued on February 9, 2022.  E.O. 14063 addresses the use of PLAs in the government contracts. Under the current Federal Acquisition Regulation (FAR), the use of PLAs on “large-scale construction projects” is discretionary.  The new rule proposed by the Department of Defense (DOD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA) revises the FAR contract clauses making the use of PLAs mandatory.

Under the proposed rule, contractors performing “large-scale construction projects” will be required to “negotiate or become a party to a [PLA] with one or more appropriate labor organizations.” FAR 52.222-33. A PLA is in essence a collective bargaining agreement between a local trade union and contractor that governs employment terms, including wages and benefits, for union and non-union workers.  Although the PLA mandate only applies to large-scale construction projects with the contract value of $35 million and more, under the proposed rule, agencies have the option to include the PLA requirement for construction projects that are under the $35 million threshold.  The proposed rule also sets out a flow-down requirement, which means that subcontractors working on a large-scale project must likewise be familiar with and comply with terms of the PLA negotiated by a prime contractor.

There are certain exceptions to the PLA requirements. First, an agency’s senior official may grant an exception when the PLA mandate would not accomplish efficiency and economy in government procurement.  Second, the senior official may also waive the PLA requirement when using a PLA would limit the number of potential bidders and interfere with fair and adequate competition among contractors. Finally, the agency may grant an exception when using a PLA would contradict other federal laws, regulations, or executive orders.

As explained by the FAR Council, the PLA mandate is intended to provide “structure and stability needed to reduce uncertainties” associated with a large-scale construction project. Through the PLA requirement, the proposed rule further attempts to achieve a steady supply of labor, provide an agreed-upon dispute resolution mechanism, and promote efficiency and economy.  While the FAR Council’s intentions may be noble, the Council offers no evidence that requiring PLAs would promote efficiency and economy.  For example, there is no evidence that a lack of project wide labor agreements has been the source of construction delays in recent memory.  While there have been skilled labor shortages throughout the construction industry, it is hard to recall a time when a labor strike actually delayed the performance of a government contract.  Part of that is likely because all federal construction contractors, union and non-union, are required to pay Davis-Bacon wage rates so wages are not an issue.     

The proposed rule would also likely have a negative impact on non-unionized contractors and subcontractors, and their ability to compete on federal contracts. The main concern is that using the PLAs would increase costs for contractors, and consequently, for the federal government.  The vast majority of large national general contractors are non-union.  When the proposed rule takes effect, to participate in the large-scale government contracts, these contractors will have to pay not only into their own retirement systems but also make contributions into the union’s retirement plans.

The proposed rule is open for submission of formal comments until October 18, 2022.

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