In late December 2023, the Federal Acquisition Rules were amended to require project labor agreements (PLA) in all federal projects with an estimated total construction cost of $35 million or more.  Will this new rule enhance or impede competition on large scale construction projects, and will it moderate or escalate labor costs?  The battle lines have been drawn, but the questions remain unanswered.

Under FAR 22.503, federal agencies must require use of PLAs for contractors and subcontractors engaged in construction on the large scale projects unless an exception applies. The exceptions, which must be supported by a written specific written explanation from the senior procurement executive and must be granted by the solicitation date, consist of the following:

Exception 1: Requiring a PLA would not achieve the Federal Government’s interests in economical and efficient procurement of construction services based on one of more of 4 delineated factors—the project is short and lacks operation complexity, the project will involve one craft or trade, the project will involve specialized construction that is available from only a limited number of contractors or subcontractors, or the agency’s need is unusual and of compelling urgency that would make a PLA impracticable;

Exception 2: Market research indicates that requiring a PLA would substantially reduce the number of bidders (offerors, in FAR parlance) to such a degree that adequate competition at a fair and reasonable price cannot be achieved; or

Exception 3: Requiring a PLA on a project would be inconsistent with other Federal laws, rules, regulation or Executive Orders.

Under existing federal regulations, PLAs must:

– Bind contractors and subcontractors to comply with the PLA;
– Allow all contractors and subcontractors to compete for contracts and subcontracts without regard to whether they are otherwise parties to collective bargaining agreements;
– Contain guarantees against strikes, lockouts, and similar job disruptions;
– Provide “effective, prompt, and mutually binding procedures” for resolving labor disputes arising during the term of the PLA;
– Provide other mechanisms for labor-management cooperation on matters of mutual interest and concern, including productivity, quality of work, safety, and health; and
– fully conform to all federal statutes, regulations, and Executive Orders.

FAR 22.503 is premised on an earlier issued Executive Order and replaces a 2010 regulation that encouraged, but did not require, use of PLAs on projects with estimated total construction costs of $25 million or more.  Both the Rule and Executive Order are rest on the notion that PLAs will reduce labor disruptions and conflicts (friction, in Federal parlance) about terms and conditions of employment, and allow agencies to cope more effectively with a skilled labor shortage by providing access to union hiring halls.  The countervailing argument, which many of the national trade organizations have made, is that competition for projects subject to PLAs will drop, further increasing the cost to the federal government.  Those organizations have also voiced concerns that smaller trade subcontractors will be hit hardest by the new Rule.

Whether the uniformity the Federal government seeks through mandated use of PLAs on large scale construction projects provides the results the government seeks remains an unanswered question.  The Rule is premised on the predictions of the availability and cost of trade labor, something that is indirectly tied to immigration legislation, a topic of endless debate in Congress. In tandem with the recently amended manner of calculating prevailing wage rates under the Davis-Bacon Act (click here for our blog on this issue), the Federal government is taking significant actions to change how construction laborers are paid and treated on construction projects.

The attorneys in our Austin and Dallas offices have significant experience in negotiating, interpreting and litigating construction contracts for federal work.  If you should have any questions about this blog, please contact us at info@gstexlaw.com.

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