In a move hailed by organized labor, President Obama recently signed an executive order authorizing the use of project labor agreements, a type of collective bargaining agreement unique to the construction industry, on federal construction projects valued at $25 million or more. This executive order will have major implications for the labor costs and labor relations of construction contractors and subcontractors working on federal projects. It may also lead to the increased use of project labor agreements on nonfederal construction projects financed in whole or in part with federal funds – a significant concern for the construction industry in light of the imminent influx of massive amounts of federal money into state and local construction projects as a result of the recently enacted federal stimulus package.

Project Labor Agreements

Ordinarily, an employer may enter into a collective bargaining agreement only with a union that represents a majority of the employer’s employees in an appropriate bargaining unit. Because construction projects are temporary in nature and because construction firms often hire a new work force for each project, thus making it difficult or impossible for unions to organize employees and bargain a contract before the project is completed, federal labor law permits a unique type of collective bargaining agreement called a pre-hire contract or a project labor agreement in the construction industry. With a project labor agreement, the owner or general contractor of a construction project signs an agreement with the union or unions representing crafts that will work on the project before the actual work force for the project is hired. The agreement governs the terms and conditions of employment of the craft employees who will work on the project and typically provides for union wage rates and benefits, grievance and arbitration procedures for resolving disputes under the agreement, and the right of the signatory unions to be the exclusive bargaining representatives of the covered employees. Not surprisingly, project labor agreements are highly favored by unions and are typically criticized and resisted by nonunionized construction contractors.

It should also come as no surprise that project labor agreements on federal construction projects have become something of a political football passing back and forth on the national playing field with each shift in political power. In 1997, President Clinton issued a memorandum to federal agencies authorizing the use of project labor agreements on federal construction projects valued at $5 million or more. Although the memorandum was not binding, it prompted the Republican-controlled Congress to introduce legislation banning federally mandated project labor agreements. That legislative move became moot when President Bush took office in 2001 and promptly issued an executive order prohibiting federal agencies from requiring bidders on federal construction contracts to adhere to contracts with one or more unions relating to the construction project and from discriminating against bidders that refused to sign union contracts. President Bush subsequently amended this executive order to exclude federal construction projects that were already under way when he signed the executive order.

President Obama’s Executive Order on Project Labor Agreements

With the balance of power shifted back to the Democrats, President Obama on February 6, 2009 signed Executive Order 13502 rescinding President Bush’s executive order on project labor agreements and adopting a new federal policy on these agreements. Noting that construction projects often involve multiple employers at one location, thus posing the danger that a labor dispute with one employer might delay the entire project, Executive Order 13502 encourages federal executive agencies to consider the use of project labor agreements on federal construction projects where the total cost to the federal government is $25 million or more. The executive order broadly defines “construction” to include the construction, rehabilitation, alteration, conversion, extension, repair, or improvement of buildings, highways, or other real property.

Although Executive Order 13502 does not require the use of project labor agreements on federal construction projects of $25 million or more, it allows federal contracting agencies to include in contracts for such projects a requirement for a project labor agreement when such an agreement would advance federal interests in economy and efficiency, labor stability, and compliance with employment laws. If a project labor agreement is deemed appropriate, the contracting agency will include in the bid proposal a requirement that contractors and subcontractors become parties to such an agreement. The executive order specifies that, at a minimum, a project labor agreement on a covered federal construction project must be binding on all contractors and subcontractors on the project, prohibit strikes and lockouts, contain binding dispute-resolution procedures, and provide other mechanisms for labor-management cooperation on such subjects as productivity, safety and health matters, and quality of work. A project labor agreement may not exclude nonunion firms from competing for contracts or subcontracts on the project, but such firms would have to become parties to the project labor agreement if they are awarded a contract or subcontract.

Although Executive Order 13502 applies to federal construction projects valued at $25 million or more, it does not prohibit federal agencies from requiring project labor agreements on smaller construction projects, and it directs the Office of Management and Budget to make recommendations to the President about the desirability of broader uses of project labor agreements, including recommendations regarding the use of project labor agreements on nonfederal construction projects receiving federal financial assistance. Thus, it is possible that additional executive orders may be issued in the near future governing project labor agreements on smaller federal construction projects and on nonfederal construction projects receiving funds disbursed under the recently enacted federal stimulus package.

Executive Order 13502 directs the Federal Acquisition Regulatory Council to issue regulations implementing the executive order. The executive order will apply to solicitations for federal construction contracts of $25 million or more issued on or after the effective date of those regulations.

Practical Implications

Although the new executive order does not require federal agencies to include project labor agreement provisions in all bid proposals for covered federal construction projects, it will likely result in the proliferation of project labor agreements on such projects. Although the majority of construction firms in the United States are nonunion, they will have no choice but to participate in a project labor agreement with one or more unions if they wish to work on a federal construction project for which the contracting agency has mandated such an agreement. Participation in the project labor agreement means that one or more unions will be representing the construction firm’s employees on the project, and the terms and conditions of employment for those employees will be dictated by the agreement. Thus, the construction firm will generally lose the right to make unilateral changes to the terms and conditions of employment of the employees working on the project, and discharge decisions relating to those employees will ordinarily be subject to challenge under a grievance and arbitration procedure. Construction firms may also face restrictions on the hiring of employees for the project, as project labor agreements may require the use of union hiring halls or require union-certified craft credentials for certain positions. Although project labor agreements provide some predictability about labor costs, those costs are likely to be significantly higher than they would be in the absence of a collective bargaining agreement.

In addition to their direct impact on working conditions for the project to which they apply, project labor agreements give unions enhanced opportunities to sell their message to employees, thus giving unions a foothold in a construction firm’s organization that may lead to union-organizing activities at other projects on which the firm is engaged. Employers should therefore carefully consider the broader ramifications of a project labor agreement before committing to it. As the market for construction services tightens in the present economy, many construction firms will be faced with the difficult choice between bidding on a federal construction project that comes with a project labor agreement or foregoing that opportunity at a time when other options may be limited.