An executive order issued in 2003 by Illinois Gov. Rod R. Blagojevich (D) blocks most construction contractors from bidding on state construction projects, reducing competition and driving up costs, according to critics who are mounting a campaign against the governor’s order.
The order requires Personal Labor Agreements (PLAs) on all eligible state public works construction projects.
“PLAs cost the state and taxpayers of Illinois hundreds of millions of dollars every year because they eliminate competition in bidding for state-managed construction projects,” said Mike Uremovich, president of STARCON International, Inc., which employs more than 1,000 workers as the largest merit or non-union mechanical contractor in Illinois.
Non-Union Shops Banned
PLAs are pre-hire agreements pertaining to a specific construction project, negotiated between a public or private construction owner, such as an Illinois municipality or state agency, and a labor union or group of labor unions. PLAs establish rules to be followed by construction companies that choose to bid on construction projects.
The terms of a PLA recognize the participating unions as the sole bargaining representatives for the workers covered by the agreement on a specific project, regardless of the workers’ current union membership status.
The Northern Illinois Chapter of Associated Builders and Contractors, a merit shop construction trade association, has begun holding meetings with and sending letters to state legislators to explain the impact of the governor’s order, in hopes they will pressure the governor to lift it.
The association points out most construction workers and contractors in Illinois are non-union, which means the companies that hire the majority of Illinois workers are excluded from bidding on PLA projects.
PLAs Raise Costs
Although there are case studies and substantial anecdotal evidence indicating PLAs raise construction costs, until recently there had been little formal statistical evidence of such an effect.
To compare PLA and non-PLA costs it would be necessary to compare construction projects of a similar nature, have access to financial records, and have a large enough sample size to determine true correlation and causation.
A 2003 study by the Beacon Hill Institute (BHI) at Suffolk University in Boston found a “natural experiment” where ideal conditions for measuring the cost of PLAs were present: public school construction. BHI studied Massachusetts school construction projects and found bid prices on PLA projects were 14 percent higher than bid prices on non-PLA projects.
The actual cost of construction was 12 percent higher on PLA projects.
A year later BHI conducted a study of PLAs’ impact on school construction in Connecticut and uncovered results similar to those of the Boston school study. The Connecticut study found PLAs raise the cost of building schools by almost 18 percent.
“If you extrapolate those studies’ findings onto Illinois school construction, the state of Illinois is wasting millions of dollars by not having free and open competition on school construction,” said Uremovich.
$400 Million Wasted
The Illinois 2004/2005 fiscal year budget for school construction is $2 billion from the state and $2 billion at the local school district level. Applying the BHI study results to Illinois, the state would conceivably save $200 to $240 million, and local school districts would save a like amount, for a combined state and local savings of $400 to $480 million.
“That’s a lot of money that could be going to textbooks, social programs, or back into taxpayers’ wallets,” said Uremovich. “Imagine the savings if all state construction projects were competitively bid.”
Merit Shops Discouraged
Uremovich said merit shop contractors, who employ non-union workers, rarely bid on PLA construction projects because of the restrictive conditions PLAs impose on the management and workforce of merit shop companies.
“PLAs are typically included in the project bid specifications,” he said, “and, in order to be awarded the contract, qualified contractors must agree to follow the specified conditions outlined in the PLA.”
Uremovich’s company is qualified to do work across Illinois, “but we never bid on PLA projects because, among other things, they would disrupt my company’s business practices,” he said.
Workers Forced Into Unions
Under most PLAs, workers must sign on with a union and then be hired through the union hall referral system. Their wages, union dues, pension contributions, working hours, benefits, work rules, and dispute resolution processes are all controlled by the unions prescribed in the agreement.
If Uremovich were to be the lowest qualified bidder on a PLA project, he would have to draw the project’s workers from union hiring halls and follow union work rules, which drive up construction costs.
“We would either hire unfamiliar union workers off of the union hiring hall bench, which does not guarantee quality workers and may decrease productive and efficient work, or give my workers the option to become signatory to a union and hope that my people will make it from the bottom to the top of the union work list in time for the project,” said Uremovich.
“I have been employing the same group of skilled workers for years and I would hate to have to force my best personnel to make that decision to either join the union or not have a steady job.”
Additional Costs Imposed
In addition to the potential hardship on non-union workers, merit shop companies are often required to contribute into union benefit programs under a PLA, even if their workers are already covered by their own company’s benefit program.
Randy Truckenbrodt, president of Randall Industries, Inc., which employs more than 75 non-union Illinois workers, said he offers his employees a full benefits package including medical insurance and matching 401(k), yet he would still have to pay into a union benefit plan for all of his workers on PLA projects.
In addition, “Non-union workers on PLA projects may not be able to recoup portions of the money that my company or they have personally put toward benefit plans unless they remain in the union after completion of the project,” said Truckenbrodt.
“If the unions truly cared about the workers, they would let these benefit accounts be portable.”
Because Illinois is a prevailing-wage state, companies are required by law to pay workers a legally mandated wage. “So it is not like the union’s arguments for PLAs are about fair wages, either,” said Truckenbrodt.
Historically, unions market PLAs to construction owners as a means to maintain labor peace by prohibiting strikes, slowdowns, and lockouts. But Uremovich noted signing a PLA is no guarantee of labor peace, because union workers do strike and picket.
“Unfortunately, only Governor Blagojevich has the power to repeal his PLA executive order and restore fiscal order and fairness to the state of Illinois,” said Truckenbrodt.
Don Glays ([email protected]) is president of the Northern Illinois Chapter of Associated Builders and Contractors, a merit shop construction trade association in Elk Grove Village, Illinois.