Forced Unionization of Federal Contractors

On February 4, 2022, President Biden issued Executive Order 14063 (“EO 14063”). EO 14063 requires U.S. government departments and agencies (“contracting agencies”) to use project labor agreements (“PLAs”) on all federal construction projects with a total estimated cost of $35 million or more (“covered federal construction projects”) unless the contracting agency determines that a PLA should not be used on a specific covered federal construction project because one of three exceptions applies.

What Are PLAs?

PLAs are pre-hire collective bargaining agreements with one or more labor organizations that establish the terms and conditions of employment for a construction project. A PLA will apply to work performed on the jobsite at issue regardless of whether the contractor is typically a unionized or non-unionized employer and will largely govern the employment relationship for the purposes of that project. Under EO 14063, the terms of the PLA will be part of the bid specifications for covered federal construction projects unless the contracting agency determines that an exception applies.

Specific Requirements for PLAs Required Under EO 14063

Significantly, all PLAs required by EO 14063 must contain guarantees against strikes, lockouts, and similar job disruptions; 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; and set forth effective, prompt, and mutually binding procedures for resolving labor disputes arising during the term of the PLA.

Do PLAs Cover All Contractors on Covered Projects?

While PLAs are expansive in scope, they do not cover contractors or their workers who only supply, deliver, or manufacture materials for construction projects. For example, PLAs do not apply to work that is primarily performed off-site, such as delivering materials or supplies to the construction site, even if the delivery driver performs one final act in the delivery process at the construction site, such as unloading materials or mixing concrete. Additionally, PLAs do not apply to employers or their workers who manufacture and assemble products that they do not themselves install at the construction site.

What Are the Three Exceptions that May Apply to Projects Covered by EO 14063?

PLAs must be used on covered federal construction projects unless a senior official within the contracting agency provides a written explanation no later than the project’s solicitation date that explains why using a PLA for that project:

  1. Would not make the project more economical and efficient based upon the following five factors:
    1. The project will be accomplished in a short time period and is not operationally complex;
    2. The project will only involve one craft or trade;
    3. The project will involve specialized construction work that is available from only a limited number of contractors or subcontractors;
    4. The contracting agency’s need for the project is of such an unusual and compelling urgency that a PLA would be impracticable; or
    5. The project implicates other similar factors deemed appropriate in regulations issued by the FAR Council pursuant to EO 14063 or guidance issued by the Director of the Office of Management and Budget (“OMB”) pursuant to EO 14063;
  2. Would substantially reduce the number of potential bidders, frustrating full and open competition, based upon an inclusive market analysis; or
  3. Would otherwise be inconsistent with statutes, regulations, Executive Orders, or Presidential Memoranda.

Importantly, EO 14063 still allows contracting agencies to require the use of PLAs on covered federal construction projects if one or more of the exceptions above applies.

Can Agencies Require PLAs to Be Used on Projects that Are Not Covered by EO 14063?

EO 14063 also allows contracting agencies to require the use of PLAs on federal construction projects with a total estimated cost of less than $35 million and projects receiving any form of federal financial assistance, including loan guarantees, revolving funds, tax credits, tax credit bonds, and cooperative agreements. As such, employers may see increased use of PLAs on federal construction projects that are not covered by EO 14063, as well as projects that receive any form of federal financial assistance.

Regulations and Guidance to Follow

By May 5, 2022, the Secretary of Defense, the Secretary of Labor, and the Director of OMB will coordinate how to train contracting officers at contracting agencies to implement EO 14063. By June 4, 2022, the FAR Council will propose regulations implementing EO 14063. Thereafter, the FAR Council must give the public at least 30 days to submit comments on the regulations.  Once the comment period has closed, the FAR Council must take the public comments it received into account and issue final regulations. The final regulations will likely go into effect 30 days after they are issued. This whole process is expected to take several months.

Estimated Impact

The White House has estimated that EO 14063 will apply to $262 billion in federal construction contracts and impact nearly 200,000 workers. However, once projects under the $1.2 trillion Infrastructure Investment and Jobs Act begin, it is likely that EO 14063’s impact will be far greater.

The Hidden Costs of PLAs

Employers who work on covered federal construction projects that require them to enter into PLAs may be required to contribute to union health care and union pension plans for their employees covered by the PLA, in addition to any contributions the employers already make for the same employees under the employer’s health care and retirement plans. Additionally, union pension plans often have union membership and vesting requirements that may prevent nonunion employees who work under PLAs from ever receiving any benefit from their contributions to the plans. These types of concerns make it critical that a construction contractor contemplating bidding on a project subject to a PLA carefully review and understand the terms of that PLA prior to submitting a bid.  These types of provisions can substantially increase the cost of labor on a project and impact the company’s financial outcomes if those costs are not properly accounted for during the estimating and bidding process.

Potential Liability for Employers Withdrawing from Union Pension Plans

As noted above, employers should determine whether a PLA may require them to contribute to union pension plans prior to bidding on a covered federal construction project. This is an especially important inquiry because—beyond the cost of the contributions themselves—union pension plans may assess “withdrawal liability” against an employer that is deemed to have withdrawn from the pension plan at the end of the PLA-governed project. Over the years, many union pension plans have been underfunded and/or not performed on investments as expected. This situation leads to problems when the plans are unable to make the promised payments to workers. To address this concern, complex processes have been developed that require certain employers who withdraw from the pension plan to pay withdrawal penalties. These withdrawal penalties are designed to ensure withdrawing employers pay their share of unfunded, vested benefits and can be very expensive. To the extent that the actual employer is unable to pay the withdrawal liability, the organization that establishes and maintains the union pension plan is expected to look for other employers under “common control” or, where possible, assess individual liability against the owners of the contracting company at issue.

At this time, we don’t know how the PLAs at issue under this Executive Order will treat employers that contribute to a union pension fund solely during the performance of the federal project at issue. This issue may be answered in the regulations and guidance to be issued in the future, or in the PLAs governing a project. In any event, this is a topic that needs to be addressed prior to the submittal of a bid, or the contractor risks being made liable for costs that were not included in their cost estimate.

If you have any questions on this topic, or need assistance navigating PLAs, please contact our Labor & Employment Law Practice Group. We encourage you to subscribe to our Labor & Employment E-Briefs to keep up with the latest HR news, tips, and updates.