Published date: 02/22/2023

Project. Labor. Agreements. Three simple words that might elicit a different reaction depending on the kind of a stakeholder you are in the public works construction industry.

It’s understandable; Project Labor Agreements (PLAs) can be a divisive topic. For some of us, the additional rules and regulations may feel as if you’re trekking through a mine field. And yet, others see potential for helping local communities.

In this blog, we’ll be examining a case study of a survey conducted by the University of California, Berkeley that tested two common notions surrounding PLAs. The first part of the study specifically looked at a series of construction projects at a particular local community college. Berkeley took into account a variety of factors like: cost breakdowns and estimates, hiring goals, and contractor bidding behavior.

They then supplemented their findings by taking a broader look at more than 250 additional community college projects throughout California. After a thorough examination, Berkeley made some noteworthy observations. And depending on your preconceived notions and prior experience working on PLA projects, the results might surprise you.

Let’s jump in.

The College of Marin Compares PLA and non-PLA Projects

Marin County, California passed Bond Measure C in June of 2004. This provided $249.5 million in funding to modernize some of the buildings of the College of Marin. This involved the construction of seven new buildings, three of which were ultimately completed using a PLA and four that were not. The construction of the buildings, which occurred over a seven-year period that concluded in 2015, provided a great opportunity for comparing PLA and non-PLA bidding and construction between otherwise very similar projects.

The agreement included common PLA stipulations, such as sections outlining work rules, grievance procedures, and management rights. Furthermore, the College of Marin’s PLA incorporated a community hire program encouraging the hiring of local workers, veterans, and disadvantaged workers (such as those living in impoverished areas or with criminal records, etc.). It even required contractors to hire some students enrolled at the college to work on the project.

The College Collaboration Component of the PLA

One of the directives of the PLA was to have college students work as apprentices on the projects. This created opportunities for five College of Marin students. Each student was trained by a different journeyperson. They were chosen to work as laborers, plumbers, electricians, carpenters, and sheet metal operators.

Stipulations like these can be a big component of some PLAs since they aim to drive new recruits and increase the labor supply – not only for the projects at hand, but for future work in the surrounding area as well. These also provide alternative careers and opportunities to those who may need them most. One student in this study was quoted saying, “My whole life I’ve wanted to be a carpenter…The PLA project gave me the opportunity I needed to get my life together and going in the right direction.”

Breaking Down The Numbers

It should first be mentioned that UC Berkeley initially hypothesized that the PLA projects would cost more than their non-PLA counterparts relative to their estimates. Likewise, they hypothesized that there would be less bids submitted on PLA projects overall.

The average amount of bidders for the four non-PLA projects turned out to be about 9.5 compared to the 7.3 average on the three PLA projects. One observation noted in the case study that might warrant further research was that the contractors that bid on both PLA and non-PLA projects (rather than one or the other) were located significantly closer to the college’s campus on average.

When we take a look at bid amounts and estimates, things get a bit more interesting. To preface, for every project in this study (PLA or otherwise), the lowest bid came in under what was originally estimated by the engineer. But the real question turned out to be: by how much?

For the four non-PLA projects, the sum of the lowest bids came in at about 79% of the sum of the estimates. Stated another way: the non-PLA projects ended up costing roughly 21% less overall than what they were estimated to be.

And for the PLA projects? The lowest bids ended up being about 75% of the estimates (or 25% less costly than they were estimated to be). In this instance, it appears the PLA projects were less costly compared to their estimates than the non-PLA projects were to theirs. You can find numbers in the table below to see how this broke down – or you can reference the case study itself on UC Berkeley’s Labor Center site.

Beyond the numbers above, it should also be noted that a California-based law firm performed an independent review of the construction of these buildings – all seven of which were noted to have been completed on time. They concluded that the first two PLA projects (whose success influenced the decision to assign the third project under the same PLA) “had fewer problems than some of the non-PLA projects.”

Supplemental Statistical Analysis

Given that the study above was a smaller sample size, UC Berkeley decided to supplement their case study with a broader statistical analysis of projects with similar available metrics. Focusing on ten community college districts across California from 2007 to 2016, they analyzed over 250 projects, controlling for the size, location, and time period of when construction occurred.

They examined 88 PLA and 175 non-PLA community college projects totaling $501 million and $206 million in work, respectively. Interestingly, they concluded that the PLA projects actually had marginally more bidders compared to non-PLA projects – although they deemed the difference too minor to warrant any statistical significance. Regardless, their findings led the team to reject their hypothesis that PLAs affected bidding behavior in any significant way when compared to non-PLA projects.

Berkeley then looked at a statistical analysis pertaining to a PLA’s ability to affect cost relative to the project estimates. Out of 105 projects in which cost estimates were available, it was found that PLA low bids were actually slightly lower in comparison to non-PLA projects. But, again, the difference was too negligible to be considered statistically significant. Ultimately, however, these findings in conjunction with the College of Marin case study led to the rejection of their initial hypothesis on this front as well.

Key Takeaways

The results of UC Berkeley’s study are intriguing… Especially when you consider that the prevailing consensus in the public works space is generally that PLAs have at least some sort of effect on costs and bid competition. Not only were both hypotheses for the two notions rejected in the end, but perhaps even more surprisingly, the data – if anything at all – tilted in the other direction (even if it was ultimately deemed statistically insignificant).

Now, is this indicative of PLAs as a whole? Could these findings be replicated throughout the country outside of just community colleges? That’s difficult to say with just this study alone… But while it doesn’t definitively prove or disprove the notions, perhaps it lends some credence to the assertion that some parties in the public works sphere – at the very least – drastically overestimate a PLA’s effects on both cost inflation and bid competition. 

If you are interested about solutions that can help manage Davis-Bacon/labor compliance as well as track and report on workforce programs on your prevailing wage projects, check out our labor compliance software.

Source: https://laborcenter.berkeley.edu/project-labor-agreements-and-bidding-outcomes/

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These materials are being issued with the understanding that LCPtracker is not engaged in rendering legal or other professional services and is providing these for informational purposes only. If legal, accounting, or tax expert assistance is required, the services of a competent legal, accounting or tax professional should be sought.

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