What Every Certified Business Enterprise Must Know About Project Labor Agreements (PLAs)
4 Key Reasons CBEs Should Avoid PLAs!
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Warning: Pension Withdrawal Liability is a MAJOR threat to CBE Contractors!
Most PLAs require contractors to contribute to union-run pension plans, called a multi-employer pension plan (MEPP). From the moment the contractor makes a contribution to the MEPP they become a “participant” in the plan and begin accruing financial liability for their pro-rata share of the plans underfunding.
Many, if the not the vast majority, of MEPPs are significantly underfunded, all but guaranteeing significant liability. Even after the project ends, employers are still liable for their “share” of unfunded pension liabilities, which must be paid in order to withdraw from the plan.
Withdrawal liability can be substantial, especially in distressed pension plans, posing huge financial risks to CBE contractors. These risks are likely to grow over time the longer the contractor stays in the plan. This creates a no-win situation for contractors.
Here’s an example of what happened to one unsuspecting business when they signed PLA: American Dream Turns Into American Nightmare
What’s worse, employers may not be protected from pension withdrawal liability by the limited liability status of their company. This liability can run to you personally. Click here to learn more.
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The District’s First Source Law requires contractors on covered projects to hire District residents and to ensure that a certain percentage of hours worked are completed by District residents..
But PLAs typically require participating employers to utilize workers assigned to them by union hiring halls, i.e., workers that the contractor has no role in hiring. Often contractors will get to use up to 5 of their own employees, but only subject to a complicated formula. For example, under the PLA for the D.C. Soccer Stadium, contractors were forced to staff up according to the following: Their first employee came from the union, the second employee could be an existing employee, the third employee came from the union and so on until the contractor reached 5 of their employees, at which point all other employees came from the union.
But union hiring halls are not accountable for meeting the District’s First Source requirements. Contractors are. Further, even the District admits that union hiring halls, which are generally located outside the District, even as far away as Philadelphia, cannot supply District workers. Therefore, CBE contractors that sign PLAs run a major risk of being fined for failing to meet the District’s First Source requirements.
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PLAs require CBE contractors to adhere to the work rules outlined in union collective bargaining agreements (CBAs) for which the contractor had no role in negotiating. If you sign a PLA, these agreements will be handed to you and you must comply with whatever they require.
Non-union firms are more innovative and efficient than union firms, which are often saddled with antiquated and inefficient work rules, such as prohibiting multi-skilling. These rules, which are often not shared with contractors until after they sign a PLA, add time, raise costs, and increase the risk of default by the firm. By signing a PLA, you are no longer in control of many aspects of project delivery.
A recent study of affordable housing in California found that units built subject to a PLA took 27% longer to build. These delays can lead to subcontracting penalties for CBE firms.
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Most PLAs require contractors to pay the benefits outlined in union collective bargaining agreements (CBAs) even for the few employees of their firm who are allowed to work on the project and not members of the union.
Typically, these employees do not wish to switch to union healthcare plans during the time they work on the PLA project. Doing so can often result in a break-in-service from their existing employer-sponsored healthcare plan and the inability to re-enroll until the next open enrollment period.
In order to avoid this situation, contractors will double-pay healthcare costs - effectively continuing to pay into their employer-sponsored plan while also paying into the union fund for benefits the worker does not even sign up to receive.
IMPORTANT
CBE Owners Can Be Personally Liable For Withdrawal Liability From Union Pensions Despite the CBE’s Limited Liability Status
PLAs Make It Practically Impossible to Hire D.C. Residents
But don’t just take our word for it!
“The Project Labor Agreement (PLA) is a new requirement for DDOT construction projects that created DC hiring challenges. The PLA holds contingencies within its sections that can restrict who is hired on the project. For example, within Section 2: Union Referral, the PLA states that the Design-Build Contractor and Contractors agree to hire craft employees via job referral systems and hiring halls established in the Local Unions Area collective bargaining agreement.”
PLAs Are Sold on Misinformation.
CBEs Can Help Fight It.
5 Misleading PLA Claims
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PLAs do not create “certainty” on D.C. construction jobs. In fact, they often do the opposite. While proponents claim PLAs streamline labor relations, in practice they add layers of complexity, increase administrative burdens, and drive up costs. These agreements are rare in private-sector construction precisely because they are unnecessary and inefficient. Most successful projects in D.C. are completed without PLAs, relying instead on competitive bidding and established contractor practices that deliver quality, timeliness, and flexibility without the added constraints of a PLA.
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PLAs don’t increase worker wages or benefits on D.C. construction projects. Period. Wages and benefits are already set and enforced under the federal Davis-Bacon Act. This law requires all contractors on public projects to pay prevailing wages and provide standard benefits, regardless of whether a PLA is in place. In other words, workers are guaranteed fair compensation with or without a PLA. The only thing PLAs add is unnecessary bureaucracy—not better pay.
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PLAs stifle bid competition up and down the contracting chain. The lack of genuine bid competition dramatically increases project costs, and claims to the contrary are not based on sound science. The independent, peer-reviewed research on this issue all supports the conclusion that PLAs significantly increase project costs. Period.
For example, two recent studies by the RAND Center on Housing & Homelessness found that the PLA mandated by the L.A. City Council on Proposition HHH – the city’s plan to spend $1 billion to build 10,000 units of affordable housing – increased costs by 21% and added 27% to the time it took to build an affordable unit. In the end, with the funding exhausted, only around 7,300 units were built through the initiative.[1] The PLA was a major reason for the shortfall.
The author of these seminal studies – Jason Ward – put it bluntly when he said: “A simple rule of thumb is that the use of a PLA incurs a cost equal to 1 of every 5 affordable housing units that could be produced through funding programs without a PLA.” In other words, with a PLA, you get 20% fewer housing units for the same price. And to be clear, these extra costs have nothing to do with worker pay and benefits, which under the federal Davis-Bacon law, are the same with or without a PLA.
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[1] Ward, Jason M., “The Effects of Project Labor Agreements on Affordable Housing: Evidence from Proposition HHH,” RAND Corporation, 2021 and “Project Labor Agreements and Affordable Housing Production Costs in Los Angeles,” RAND Corporation, 2024.
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Nearly all local businesses, including Certified Business Enterprises (“CBEs”), simply will not bid on a project if it requires signing a PLA. History is proof of this. Ask yourself, why have recent PLAs contained a limited exemption for CBE firms? The answer is obvious. Without these limited exemptions, there would have been no CBE participation due to the PLA requirements. These exemptions, however, only apply to the project’s smallest dollar contracts. As such, the District’s public policy, when the Council mandates PLAs, is to effectively consign local businesses to the smallest contracts – the scraps – on District projects. CBEs deserve better.
It is hard to think of a more self-defeating public policy for the residents and businesses the Council is supposed to represent.
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PLAs don’t help D.C. construction workers. In fact, they actively exclude the vast majority of them. According to the Bureau of Labor Statistics, over 80% of D.C. construction workers have chosen not to join a union, yet under a PLA, these skilled, local, non-union workers would be shut out of projects funded by their own tax dollars.
PLAs require contractors to hire through union halls and follow union rules, effectively sidelining the workforce that already builds most of the District. Instead of supporting local jobs, PLAs limit opportunities and force workers to choose between union membership or being barred from public projects they helped fund.
What We Know About CBE Participation on the Cedar Hill Medical Center Project
Recent public statements about CBE participation on PLA projects like Cedar Hill Regional Medical Center do not hold up to closer scrutiny. For example, the statement that CBE goals were met on the project rely on a sleight-of-hand maneuver within DSLBD that violates the actual CBE law.[1]
Specifically, the portion of the project’s contract that should have been subject to CBE requirements was $409 million. But that amount was lowered to $285 million with no public explanation. This maneuver reduced the CBE spending requirement by over $43 million. According to documents submitted to the Council during the recent oversight process, approved CBE spending was $75 million just a few weeks before doors opened. This is barely half of the $143 million (i.e., 35% of $409 million) that should have been subcontracted to CBEs under the law. Further, it is likely that virtually all CBE participation was on subcontracts below the $6 million exemption limit – meaning that the extent there was any CBE participation was due to the PLA exemption for small dollar subcontracts.
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[1] D.C. Official Code § 2-218.46(a) requires 35% of the “dollar volume of the contract” to be subcontracted to CBEs.