Friday, June 3, 2011

Beacon Hill Institute testifies before U.S. Congress

Full testimony is available at BHI's website

David G. Tuerck
Department of Economics and Beacon Hill Institute
Suffolk University, Boston
June 3, 2011

Testimony Relating to the Government Neutrality in Contracting Act (H.R. 735) Before the Subcommittee on Technology, Information Policy, Intergovernmental Relations and Procurement Reform, Committee on Oversight and Government Reform, U.S. House of Representatives

Chairman Lankford, Members of the Subcommittee, I am Professor and Chairman of Economics and Executive Director of the Beacon Hill Institute at Suffolk University in Boston. I appreciate the opportunity to submit this testimony.

I will direct my comments at “H.R.735, and Project Labor Agreements: Restoring Neutrality to Government Construction Projects.” H.R. 735 effectively nullifies a February 2009 executive order from the Obama Administration “encouraging” federal agencies to consider using PLAs on construction projects costing $25 million or more.

My comments are my own and do not represent the sentiments my employer, Suffolk University. Nor do they represent my support for any organization or private interest that might stand to benefit from the passage of H.R. 735.

I would like to offer my strong support of this measure, subject to just one caveat. The caveat is that “neutrality” falls short of what is called for. What would be better is an outright ban on PLAs of the kind that was in force during the Administration of President George W. Bush, who forbade the use of PLAs on federal construction projects.

This subcommittee already knows how PLAs work. The adoption of a PLA amounts, in effect, to the conferral of monopoly power over the supply of construction labor on a select group of construction unions. The putative reason for adopting a PLA is to assure labor “stability.” But the real reason is to confer monopoly power on a select group of unions and to discourage bids from contractors who use other unions or nonunion labor.

The construction unions use the word “stability” as a euphemism for promising not to cause trouble. But the threat of trouble is mostly an empty one. A genuine worry arises only when an owner uses nonunion labor, in retaliation for which it has to put with antics of the kind for which Boston’s International Brotherhood of Electrical Workers is famous. But Boston building owners are on to the IBEW and are showing increasing willingness to say no to intimidation.

In my written testimony I provide the core argument against PLAs: PLAs are supposed to correct for a problem for which the best correction is simply not to adopt a PLA. The problem is that certain contractors – the PLA-union contractors – are so burdened with collective bargaining agreements that they would have a hard time performing a job on time and on budget, but for the PLA. The adoption of a PLA, however, amounts to a needless rescue operation for the PLA unions and their contractors. The best way to avoid cost overruns and delays is to encourage, not discourage, bids from contractors, whether unionized or not, who are able simply to bypass the collective bargaining agreements that hobble the competitiveness of the PLA-union workers and their contractors.

That’s the crux of it. A ban on PLAs is not an anti-labor measure. I am personally involved in a New York case in which the plaintiff contractor is suing because its union has been excluded from PLAs that are being foisted on the City of New York by a different union organization and a complicit mayor. And, anyway, there is nothing pro-labor about a practice that is aimed at protecting the jobs and wages of 13% of the construction workforce at the expense of the other 87%.

The research entity I direct at Suffolk found that PLAs increase school construction costs in two states by 12% to 18%. Reliable hard estimates of this kind are rare because the disparity between construction projects makes it difficult to get statistically significant results from sample data. Fortunately for policy makers grappling with this question, however, it is possible to dispel the case for PLAs merely by pointing out the fatuous reasoning on which that case is predicated.

Adopting a PLA serves no purpose other than to put the PLA-union fox in charge of the project chicken coop. Fortunately, and as I observe in my written testimony, there is growing recognition even on the part of union-friendly observers that the argument for PLAs, and to mix my metaphors, never held water in the first place.

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