In January 2024, the federal government implemented a requirement that contractors on any large-scale federal construction contract – one valued at $35 million or more – enter into a project labor agreement (“PLA”). A PLA is a pre-hiring collective bargaining agreement between the prime contractor and one or more labor organizations, meant to establish the terms and conditions of employment for a specific construction project. The first federal projects incorporating the PLA mandate are now coming onto the market, and the early reactions indicate that the use of PLAs will be every bit as challenging as industry predicted. Unless and until the courts provide contractors relief from the PLA mandate, contractors working on large-scale federal construction contracts should prepare themselves for this new regime.
On February 4, 2022, President Biden issued Executive Order (“EO”) 14063 on the Use of Project Labor Agreements For Federal Construction Projects. EO 14063 requires the use of PLAs on federal construction contracts in excess of $35 million. In December 2023, the Federal Acquisition Regulatory Council implemented EO 14063 when it published Federal Acquisition Regulation Subpart 22.5 Use of Project Labor Agreements for Federal Construction Projects. The requirement took effect in January 2024.
PLAs introduce a number of risks and much uncertainty into the bidding process. An offeror on a federal construction project must enter into a PLA with a labor organization either before submitting its proposal, after submitting its proposal, or before beginning performance of an awarded contract, at the government’s discretion. While the government requires the contractor to enter into a PLA, the government will neither be a party to the PLA nor will it enforce the terms of the PLA. Every PLA must include the following minimum terms:
- Bind all contractors and subcontractors on the construction project through the inclusion of appropriate specifications in all relevant solicitation provisions and contract documents.
- Allow all contractors and subcontractors on the construction project to compete for contracts and subcontracts without regard to whether they are otherwise parties to collective bargaining agreements.
- Include guarantees against strikes, lockouts, and similar job disruptions.
- Set forth effective, prompt, and mutually binding procedures for resolving labor disputes arising during the PLA’s term.
- Provide other mechanisms for labor-management cooperation on matters of mutual interest and concern, including productivity, quality of work, safety, and health.
- Fully conform to all statutes, regulations, Executive Orders, and Presidential Memoranda.
Not only does the prime contractor have to negotiate a PLA, every subcontractor at every tier on the project must also become signatory to the PLA. Not surprisingly, anecdotal reports indicate that subcontractors, and especially small business subcontractors, are reluctant to sign on to PLAs. The increased costs associated with hiring laborers through a PLA, as well as the added administrative burdens, provide little incentive for subcontractors to enter into PLAs.
A procuring agency may issue an exception to the requirement if the PLA would not promote economy and efficiency, if its use would frustrate full and open competition, or if use of a PLA would be inconsistent with federal law. In practice, it appears that federal agencies have yet to find a project for which a PLA would be inappropriate; the government website that tracks PLA use, including exceptions, shows no exceptions have been granted to date.
The PLA mandate applies only to direct federal construction contracts – those in which the federal government is a party to the contract. PLAs are not required for federally funded construction projects, such as state transportation infrastructure projects using federal funds. However, shortly after issuing EO 14063, the White House issued an Executive Order on Investing in America and Investing in American Workers, known as the “Good Jobs EO.” The Good Jobs EO encourages agencies that provide funds for federally assisted construction projects to prioritize projects where PLAs can be implemented. While PLAs might not always be required for federally assisted projects, contractors should be alert to the possibility that a PLA requirement may appear even when the federal government is not a party to the contract.
The PLA mandate faces a number of legal challenges. In the U.S. District Court for the Middle District of Florida, an industry group has challenged the legality of the requirement and asked for it to be stricken down entirely. That case remains undecided, but if the challengers are successful the government will have to go back to the drawing board if it wants to implement PLAs on federal construction projects.
The use of the PLA requirement has also been challenged in at least nine bid protests at the U.S. Court of Federal Claims. All of these protests are by AGC members on project located through the county. In those suits, the protesters have challenged the application of the PLA mandate to specific projects. If any of those protesters succeed, the government will have to reconsider its use of the PLA mandate on the challenged procurements. The legal arguments in these bid protests include arguments that challenge the legal authority of the PLA mandate as an unauthorized socio-economic set-aside that requires congressional action because it violates the Competition in Contracting Act (CICA) of 1984. Those cases remain undecided as well.
Negotiating and implementing PLAs present new and complex challenges for federal construction contractors. How the mandate ultimately affects contractors remains to be fully understood, but early indicators suggest that bid prices will increase and subcontractor participation will decrease. With that in mind, contractors should plan ahead for the likelihood that their next federal construction project will require a PLA.
Smith Currie Oles provides comprehensive legal services to all parts of the construction industry across the nation. Smith Currie lawyers have decades of demonstrated success representing construction and federal government contracting clients “From the Ground Up,” including procurement matters, contract formation and negotiation, project administration, claims prosecution and, when necessary, in litigation and other forms of dispute resolution.
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