PROJECTLABOR AGREEMENTS An Owner’s Tool for Controlling Construction Costs

www.zdlaw.com UNDERSTANDING PROJECT LABOR AGREEMENTS

WHAT IS A PROJECT LABOR AGREEMENT (PLA)?

A PLA is an agreement between working hours and the number fringe benefit payments, an owner (or, as discussed below, of holidays observed. Perhaps apprentice ratios, and uniform an owner’s constructor) and more importantly, the respective work schedules. A PLA should the various trades involved in a CBAs will likely expire or come include an alternative dispute single construction project or up for renegotiation at different resolution procedure for across multiple projects. Instead points during construction of the any disagreements that may of contending with separate project. All of these agreements arise during the course of the agreements with the different with their differing work rules project, including issues arising trades that will provide labor and expiration dates can and under workers’ compensation. and services on a project, the often do lead to uncertainty, Additionally and perhaps most owner has the benefit of a single confusion and even work importantly, a PLA typically agreement governing all of the stoppages, making it difficult includes a commitment by all workplace rules for all of the for construction to proceed of the trades to uninterrupted trades on the entire project (or efficiently and on schedule. In production through “a no-strike program of projects). In other short, productivity suffers. / no lockout, no slowdown or words, as Professor Fred Kotler disruption clause.”3 In so doing, of has noted, a A properly prepared PLA PLA is a sort of “job can avoid these disruptions site constitution."1 by standardizing contract terms among various On a typical construction project, crafts for the duration of a an owner and its constructor project.2 Specifically, through will work with a multitude of comprehensive negotiations with trades (carpenters, iron workers, the representatives of all of the masons, etc.). Each of these trades on a project, an owner is trades is governed by its own able to establish working rules agreements for a project to suit its particular (CBAs), with its own set of needs, maximizing efficiencies work rules such as rates for and savings. For example, a overtime, shift time premiums, PLA may set wage rate and

2 HOW HAVE PLAS BEEN USED IN THE CITY AREA?

a PLA provides an owner with a cost of unionized construction level of consistency and comfort across its projects by 16 to that, as discussed below, often 20%.5 Subsequent market translates into cost savings and conditions gave rise to an outer increased productivity on borough PLA and a Manhattan a project. residential recovery PLA tailored for private sector development. The Building Trades Employers’ The area has a Association of New York City significant history with PLAs includes some 40 projects within that encompasses public and its roster of PLAs entered into private as well as large and small between January 2013 and projects, crafted to meet the April 2017.6 needs of changing times. One of the most well-known of these On the public side, the New New York City area PLAs is the York State Thruway Authority 2009 Economic Recovery Project has entered into a PLA for Labor Agreement (“ERPLA”). the Tappan Zee Hudson River The ERPLA was a template Crossing Project to replace the PLA that could be applied to original Tappan Zee Bridge.7 multiple projects throughout The Thruway Authority, which New York City “designed to entered into the PLA with 14 save construction jobs and unions including 26 locals, ‘financially distressed’ private estimated that the PLA would sector projects from the severe yield $452 million in savings impact of the 2008-2009 over the life of the $5 billion economic downturn to New York project.8 These savings would be City’s construction and real achieved through a combination estate markets.”4 It is estimated of uniform work rules, alternative that the ERPLA reduced the dispute resolution mechanisms and a “no-strike” provision.9

PROJECT LABOR AGREEMENTS 3 BROAD MARKET APPLICATIONS, REGARDLESS OF PROJECT SIZE

PLAs continue to play an of the relatively modest Build- for Mount Sinai Hospital valued important role on projects It-Back program to assist single- at approximately $262 million throughout the metropolitan New family homeowners recovering and for Hospital for Special York area. Through the ERPLA, from the ravages of Hurricane Surgery valued at approximately PLAs were applied to projects Sandy.11 Unquestionably, PLAs $35 million, as well as Memorial with values exceeding $1 billion have consistently broad appeal in Sloan Kettering valued at as well as to projects with a the New York City area. approximately $6.6 million.12 As value of less than $10 million.10 these examples help illustrate, Such diversity has continued The health care industry has long owners on projects throughout over the years. PLAs have been been an advocate of PLAs, which the New York City region have a hallmark of the multi-billion have been adopted and applied turned to PLAs as a tool to help dollar One Vanderbilt project (the by many hospitals throughout reduce costs on their project largest single-building private the metropolitan area on a without sacrificing quality or PLA as of mid-2017) and the variety of projects, both large control over the work. ambitious Hudson Yards multi- and small. For example, PLAs project development, as well as were incorporated into projects

DO PLAS REALLY SAVE MONEY?

Although PLAs are not suited for PLA, the New York City School benefits is the “no-strike / every project, under the right Construction Authority (“SCA”) no lockout, no slowdown or circumstances with the right avidly pursued a successor disruption clause.” As a leading preparation, PLAs help owners PLA governing its $11.7 billion commentator has noted, “PLAs achieve greater cost savings than capital plan for 2009 – 2014; provide job stability and promote would likely otherwise have been given the necessity of second productivity by banning strikes obtained through traditional and third shift work on its and by including a common methods of contracting projects to avoid disruption contract expiration date that individually with each trade. of school activities and the replaces the expiration dates of typically high rates of premium the various craft agreements.”16 Research has confirmed that pay for such work, the PLA’s 5% In fact, “this is arguably the “PLAs achieve substantial, direct limitation on shift differential most significant advantage of a costs savings by standardizing premiums has been a particularly uniform agreement – the critical contract terms among various significant source of cost savings factor for reducing the risk of 13 area craft agreements.” For to the SCA.15 Thus, under the costly delays.”17 By avoiding example, PLAs entered into by right circumstances, it is well these delays, an owner can likely the City of New York in 2015 established that PLAs can be an reap savings through increased covering approximately $8 effective tool in reducing costs. productivity while at the same billion in both new and renovated time averting significant and construction were estimated In addition to offering both potentially costly risks such 14 to save over $347 million. direct and indirect savings on as litigation. Similarly, having reduced the labor costs, PLAs have other labor costs on some $5.4 billion benefits that are more difficult in renovation and repair work by to quantify but may prove approximately $221 million over more important to owners and the course of its 2004 – 2009 contractors. Chief among these

4 FINDING THE PROMISED SAVINGS

While direct savings by means • Temporary services provided • Artisan provisions – these of reduced wage / fringe benefit only upon contractor’s request enable owners to employ non- rates and work rule changes – this enables the contractor to union personnel for installation can be obtained with certain minimize the cost of temporary of highly specialized technical key trades such as ironworkers services otherwise mandated or aesthetic components and electricians, many benefits by CBAs. of a project. of a PLA are more indirect yet still tangible. In addition to the • Higher ratios of apprentices to Constant vigilance – including reduced shift differentials noted journeypersons than typically monitoring of the trade above, these include: allowed under CBAs – this subcontractors employing advantage, as well as creativity the relevant labor force – is • 40-hour straight time work in categorization of laborers, necessary if owners are to weeks for all trades – this promotes reduction of receive the full benefit of yields savings of 5 hours per labor cost. their PLA bargain. In the end, week on premium time pay for whether a PLA will likely result • Standardized holiday schedule in direct cost savings or other trades whose CBAs mandate – this eliminates overtime by 35-hour weeks. indirect benefits for the owner service trades required to be is something that needs to be • Work week of four 10-hour present to support the work evaluated on a project by project days – besides reducing start/ of other trades whose holiday basis. What is clear, however, stop inefficiency, this provides schedules differ from theirs. is that where the project conditions are right and the PLA a savings because the ninth • Saturday straight time make- properly drafted, a PLA has the and tenth hours are worked up-day – this allows work that potential to yield significant at straight time rather could not be performed on a cost advantages while providing than overtime. weekday, for weather or other invaluable labor stability. • Flexible start times – this reasons, to be made up on a allows efficient scheduling Saturday without the necessity of work during daylight to pay overtime rates. hours without incurring overtime rates. PROJECT LABOR AGREEMENTS 5 PLAS MAY SERVE TO CONTROL INSURANCE COSTS

Given the burgeoning costs of insuring construction projects and the ever-present specter of high jury verdicts for injured workers, owners constantly seek ways to limit claims and attendant litigation. One such approach, which has been endorsed by the insurance industry, is through the implementation of alternative dispute resolution (“ADR”) programs to address and resolve workers’ compensation claims earlier and more efficiently through mediation. Some owners have succeeded in including in their PLAs a provision permitting such a program to be established for the project; however, participation in such a program will likely be optional by trade.

HOW INVOLVED SHOULD AN OWNER BE IN A PLA NEGOTIATION?

While owners will want to be involved in the negotiation of the terms and conditions of a PLA, it is advisable that the agreement itself be entered into formally between the owner’s construction manager/general contractor and the union parties. There is no need for the owner actually to be a signatory; rather, the owner will be a third-party beneficiary of the PLA.

Correspondingly, the construction management or general contracting agreement should provide for that entity to execute the PLA, to remain responsible for implementation of the PLA, and to require adherence to the PLA on the part of its subcontractors. These contractual obligations remove the owner from day-to-day concern with – and responsibility for – the operation of the PLA throughout the duration of the project.

6 CONCLUSION Notes PLAs are a creative tool for owners to consider as they examine the labor requirements of a project. 1 Kotler, F. (2011). Project Labor Agreements in New York State II: In Given their long history of successful use on public the Public Interest and Of Proven Value. Ithaca, NY: Cornell University, and private projects of varying sizes in the New York School of Industrial and Labor Relations, p. 2 [hereinafter, “Kotler City area, on the right project, PLAs can provide (2011)”]. owners with significant savings in labor costs, as 2 Id. well as indirect schedule savings. Additionally, and 3 Kotler, F. (2009). Project Labor Agreements in New York State: In the not insignificantly, through the use of no-strike Public Interest. Ithaca, NY: Cornell University, School of Industrial and provisions, PLAs can provide owners with a measure Labor Relations — Extension Division, Construction Industry Program, p. of labor stability resulting in greater efficiency and 4 Kotler (2011), pp. 49-50. productivity on their projects. 5 Id. 6 Building Trades Employers’ Association of New York City, Project So, as you get ready to build, consider the potential Labor Agreements, http://www.bteany.com/pages/labor-relations/ of a PLA for your project. It is a tool with formidable project-labor-agreements.html (visited 4/10/17). power to reduce and control costs when its provisions 7 Campbell, Jon, Formally, Thruway Authority Approves Tappan Zee are appropriately structured and applied. Labor Agreement, Politics on the Hudson, July 17, 2012, http:// polhudson.lohudblogs.com/2012/07/17/formally-thruway-authority- approves-tappan-zee-labor-agreement/#Scene_1. 8 Id. 9 The “New” New York Bridge, Project Support Materials for TIFIA Financing Projects, http://www.newnybridge.com/documents/study- documents/tifia-presentation-sep5.pdf 10 Kotler (2011), Appendix B. 11 ALIGN, Sandy Build It Back: Workers Rebuilding Their Own Communities (2016), p. 4. 12 Kotler (2011), Appendix B. 13 Id., p. 2. 14 New York City Mayor’s Office of Contract Services, Project Labor Agreements, http://www1.nyc.gov/site/mocs/contract/project-labor- agreements.page (visited 4/10/17). 15 Kotler (2011), p. 49. 16 Id., p. 2. 17 Id.

PROJECT LABOR AGREEMENTS 7 ABOUT ZETLIN & DE CHIARA LLP

Zetlin & De Chiara LLP provides infrastructure, transportation, has been involved have concerned sophisticated, innovative legal cultural, environmental and projects outside of the representation and business counsel energy sectors. . to real estate owners, commercial and residential developers, Zetlin & De Chiara LLP provides Zetlin & De Chiara LLP also assists architects and engineers on all counsel throughout the construction clients with business formation, aspects of complex construction planning, design and building licensing and corporate projects and disputes. The firm’s process, from drafting and issues. Clients also seek the attorneys bring a rare blend of negotiating contracts to developing firm’s guidance on the benefits and expertise to their work including risk management strategies. Well- challenges of new technologies, in- house construction counsel known for its courtroom prowess, innovative methodologies, experience, LEED accreditation, the firm also represents clients in alternative construction delivery and education in architecture mediation and alternative dispute methods and industry trends. and engineering. Zetlin & De resolution.Zetlin & De Chiara LLP Zetlin & De Chiara LLP serves as Chiara LLP has been involved represents domestic and general counsel to numerous design, with many iconic projects in the international clients in high-stakes, construction and real estate education, healthcare, hospitality, bet-the-company matters. Many professional associations. of the lawsuits in which the firm

ABOUT OUR PROJECT LABOR AGREEMENT PRACTICE

Project Labor Agreements have a an owner’s labor costs on a project including streamlining the long history of successful use across and to minimize or even eliminate construction contract process for the country and particularly in and labor disruptions, enabling projects owners through comprehensive around New York City on public to proceed more efficiently PLAs. By keeping the owner’s and private projects of varying without interruption. interests at the forefront of its PLA size. Based upon this history, it is strategies, Zetlin & De Chiara LLP clear that on the right projects, and Zetlin & De Chiara LLP has built has played a fundamental role in where properly drafted, PLAs can be a reputation as a leader in all many of New York’s largest, most an effective tool in helping to reduce construction-related matters, successful construction projects.

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Disclaimer: The material presented in this publication is for informational purposes only. Always consult your attorney for guidance and direction in connection with a specific set of facts and circumstances. AUTHOR James J. Terry, Esq. Partner Attorney Advertising Zetlin & De Chiara LLP ©2017 Zetlin & De Chiara LLP