The Federal Acquisition Regulatory (“FAR”) Council has issued final rules (the “Rules”) implementing President Obama’s Executive Order 13502 (the “EO”) that authorized the use of project labor agreements in connection with large federal construction projects.  Under the Rules, federal agencies may, on a project-by-project basis, require that every contractor and subcontractor engaged in the project agree to negotiate or become a party to a project labor agreement with one or more labor organizations.  While generally applying to “large-scale construction projects,” defined as projects for which the total cost to the federal government is $25 million or more, the EO and the Rules are likely to have wider application given the broad discretion left to agencies to determine when project labor agreements will be required.  The Rules become effective on May 13, 2010, and will apply to solicitations for construction projects issued on or after that date.  

Project Labor Agreements

A  project labor agreement is defined by the Rules as “a pre-hire collective bargaining agreement with one or more labor organizations that establishes the terms and conditions of employment for a specific construction project.”  Such agreements represent a departure from the way most collective bargaining agreements are negotiated.  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.  However, because construction projects are temporary in nature and because construction firms often hire a new work force for each project, it is often difficult or impossible for unions to organize employees and bargain a contract before the project is completed.  To address this situation, federal labor law permits pre-hire contracts or “project labor agreements” 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.

The Specifics of the Rules

In implementing the EO, the Rules seek to encourage federal agencies to consider requiring the use of project labor agreements on construction projects.  Rather than giving federal agencies complete discretion to use such agreements, as the FAR Council originally proposed, the Rules state that project labor agreements may be used when they would “[a]dvance the Federal Government's interest in achieving economy and efficiency in Federal procurement, producing labor-management stability, and ensuring compliance with laws and regulations governing safety and health, equal employment opportunity, labor and employment standards, and other matters… .”  Additionally, the Rules identify a number of factors that agencies may consider to determine the appropriateness of a project labor agreement, specifically whether:

(1) The project will require multiple construction contractors and/or subcontractors employing workers in multiple crafts or trades;

(2) There is a shortage of skilled labor in the region in which the construction project will be located;

(3) Completion of the project will require an extended period of time;

(4) Project labor agreements have been used on comparable projects undertaken by federal, state, municipal, or private entities in the geographic area of the project;

(5) A project labor agreement will promote the agency's long-term program interests, such as facilitating the training of a skilled work force to meet the agency's future construction needs; or

(6) Any other factors that the agency decides are appropriate.

It should be noted that the Rules provide only that an agency “may” consider these factors.  Thus, they do not serve as actual constraints on an agency’s decision.

If a project labor agreement is deemed appropriate, an agency is permitted to specify the terms and conditions of the agreement in the solicitation for bids on the project and require the successful bidder to agree to these terms as a condition of receiving a contract award.  The FAR Council has clarified that an agency may seek the views of, confer with, and exchange information with prospective bidders and union representatives as part of the agency’s effort to identify appropriate terms and conditions of a project labor agreement and facilitate agreement on those terms and conditions.  At a minimum, the Rules require every project labor agreement to 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.  While a project labor agreement may not exclude nonunion firms from competing for contracts or subcontracts on the project, such firms would have to become parties to the project labor agreement if they are awarded a contract or subcontract.

The Rules also allow an agency to specify when the executed project labor agreement must be submitted to it.  Agencies may choose from among three options.  Submission may be required (1) when bids are due; (2) prior to award by the apparent successful bidder; or (3) after award.  If an agency decides that permitting execution of the project labor agreement after the award is the best approach, the contractor will be required to submit an executed copy of the agreement to the contracting officer.  This represents a change from the proposed rule, which would have required only that the contractor bargain in good faith.   

Practical Implications

While neither the EO nor the Rules require the use of project labor agreements for federal construction projects, the issuance of the Rules will almost certainly result in such agreements becoming far more common.  Agency discretion is minimally limited by a general policy statement, and there is no requirement that an agency formally document the process or justify any decision to require the use of a project labor agreement.     

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.