Friday, December 22, 2023: Federal Acquisition Regulatory Council Issued Final Rule Requiring Unionized Workforces on Large Federal Construction Projects
On December 22, 2023, the Federal Acquisition Regulatory Council (“FAR Council”) published in the Federal Register its long awaited Final Rule mandating construction contractors, absent an exception, to use Project Labor Agreements (“PLAs”) for large-scale federal construction projects. The Final Rule, scheduled to go into effect on January 22, 2024, is yet another effort undertaken by the Biden Administration to strengthen labor unions in the face of years of declining membership.
Substantial legal issues loom, however, including as to whether this Rule would force non-unionized construction employers to violate Section 7 (Section 157) of the National Labor Relations Act which guarantees employees free choice to form or reject unions in their workplaces:
§157. Right of employees as to organization, collective bargaining, etc.
Employees shall have the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection, and shall also have the right to refrain from any or all of such activities (emphasis added) except to the extent that such right may be affected by an agreement requiring membership in a labor organization as a condition of employment as authorized in section 158(a)(3) of this title.”
The Final Rule stems from President Biden’s issuance of Executive Order 14063 in February 2022. As we noted in reporting on the Executive Order, the opportunity to mandate the use of PLAs with one or more appropriate labor organizations provided the Administration the opportunity to “reward” its main arm of political support through an expansive reading of the President’s powers under the Federal Procurement Act (“FPA”). The Proposed Rule issued on August 19, 2022 clarified that federal procurement agencies would no longer have discretion in determining when to require a unionized construction workforce on large construction projects. Instead, as we reported at the time, the Proposed Rule made four substantial changes:
- required federal Government construction contractors to negotiate a PLA with one or more appropriate labor organizations (i.e., unions) or become party to an existing PLA for any “large-scale” federal construction project;
- raised the threshold for a project to count as a “large-scale” federal construction project from $25 million to $35 million;
- expanded the definition of “construction” to mean “construction, reconstruction, rehabilitation, modernization, alteration, conversion, extension, repair, or improvement of buildings, structures, highways, or other real property;” and
- created three exceptions to the PLA requirement: (1) where a PLA would not achieve economy and efficiency in Federal procurement; (2) where a PLA would substantially reduce the number of potential bidders so as to frustrate full and open competition; or (3) where requiring a PLA would be inconsistent with other statutes, regulations, Executive Orders, or Presidential Memoranda.
In response to 8,334 comments to the Proposed Rule, the Final Rule underwent only the following two changes:
- the Final Rule removed language specifying processes when a PLA has multiple signatory labor organizations representing the same trade since there are not multiple PLAs on a federal construction project; and
- the Final Rule removed language preventing federal Government construction contractors from requiring subcontractors to enter a PLA with any particular labor organization, as subcontractors are required to become a party to the PLA negotiated by the prime construction contractor.
Despite numerous comments critical of the potential negative impact on an agency’s ability to use competition to achieve best value with the requirement of unionized workforces, the FAR Council rested on the exceptions to the PLA requirement to address such concerns. Furthermore, the FAR Council did not take as persuasive arguments about the potential increase in the costs of construction projects since the Final Rule secures structure and stability in construction projects, permits PLAs to contain terms that guarantee against job disruptions, and allows non-union contractors the ability to negotiate provisions in PLAs to accommodate potential increases in payroll costs for compensation and fringe benefits. Finally, the FAR Council disputed the characterization of some commenters that the Final Rule violated the Administrative Procedure Act (“APA”) or exceeded the authority of the Executive Branch in implementing the PLA.
In furtherance of the Final Rule, the Office of Management and Budget (“OMB”) issued guidance to agencies on implementing the provisions of the Executive Order and Final Rule. The guidance requires agencies to: (1) conduct and document inclusive market research for all large-scale construction projects and require PLAs unless an exception applies, (2) ensure that any exception is approved by the Senior Procurement Executive (SPE), and (3) report PLA activity and exceptions with supporting explanation of exceptions to OMB. Important for construction contractors is the documentation OMB directs agencies to provide in support of the use of exceptions to the requirement for PLAs on large-scale federal construction projects. Specifically, in relation to exercising an exception, OMB guidance directs the agency to provide specific facts and details that construction contractors should use as guidance in attempting to obtain an exception to any PLA requirement in their own bids for large-scale construction contracts.
Thus, beginning January 22, 2024, federal construction contractors looking to bid on large-scale federal construction projects should work towards providing the evidence and arguments described in the guidance as to why an exception to the Final Rule applies to hopefully convince the SPE to create an exception to the PLA requirement. Otherwise, bidders on large-scale federal construction projects must face the potential of incorporating into its costs the required agreement to a PLA unionizing the construction workforce on the project.
