New FAR Rule Mandates Use of PLAs on Large Construction Projects | Fox Rothschild LLP

The Federal Acquisition Regulatory Council recently released a proposed rule that, when implemented, will require the use of project labor agreements (PLAs) on federal construction projects with a contract value of $35 million or more. The proposed rule revokes President Obama’s Executive Order 13502 and implements Executive Order 14063 (EO 14063) issued on February 9, 2022. EO 14063 addresses the use of PLAs in government contracts. Under current Federal Acquisition Regulations (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 FAR contract clauses mandating the use of PLAs.

Under the proposed rule, contractors carrying out “large-scale construction projects” will be required to “negotiate or become party to a [PLA] with one or more appropriate trade unions. FAR 52.222-33. A PLA is essentially a collective agreement between a local union and a contractor that governs terms and conditions of employment, including wages and benefits, for union and non-union workers. Although the PLA mandate only applies to large-scale construction projects with a contract value of $35 million and above, under the proposed rule, agencies have the option of including the PLA requirement. for construction projects below the $35 million threshold. The proposed rule also establishes a top-down requirement, which means that subcontractors working on a large-scale project must also know and adhere to the terms of the PLA negotiated by a prime contractor.

There are some exceptions to the PLA requirements. First, the senior official of an agency can grant an exception where the LPA’s mandate would not achieve efficiency and economy in government procurement. Second, the senior official may also waive the requirement for a PLA where the use of 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 where the use of a PLA would contradict other federal laws, regulations, or executive orders.

As explained by the FAR Council, the PLA mandate aims to provide “the structure and stability necessary to reduce the uncertainties” associated with a large-scale construction project. Through the PLA requirement, the proposed rule further attempts to ensure a stable supply of labor, provide an agreed dispute resolution mechanism, and promote efficiency and economy. While the intentions of the FAR Board may be noble, the Board offers no evidence that requiring PLAs would promote efficiency and economy. For example, there is no evidence that the absence of project-wide working agreements has been the source of construction delays in recent memory. Although there were shortages of skilled labor throughout the construction industry, it is hard to remember a time when a workers’ strike actually delayed the completion of a government contract. This is likely due in part to the fact that 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 negatively impact non-unionized contractors and subcontractors, and their ability to compete in federal contracts. The main concern is that the use of PLAs would increase costs for contractors and, therefore, for the federal government. The vast majority of large national general contractors are non-unionized. When the proposed rule takes effect, to participate in large-scale government contracts, these contractors will not only have to contribute to their own pension systems, but also contribute to union pension plans.

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

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