As enacted by the Biden Administration in February 2022, Executive Order (EO) 140631 and its implementing final rule2 require that all awardees of federal construction contracts for which the total estimated cost of the contract to the government is $35 million or more – "large-scale construction projects" – use project labor agreements (PLAs) for the contractors and subcontractors engaged in construction of the project. A PLA is a pre-hire collective bargaining agreement with one or more labor organizations that establishes the terms and conditions of employment for a specific construction project. PLAs are typically negotiated before construction begins.
In addition to placing a central focus on the Biden Administration's efforts to support union labor, the PLA requirement is aimed at mitigating labor roadblocks that are common among large-scale construction projects. PLAs can help eliminate risk of delay associated with labor unrest and ensure that parties agree to dispute resolution procedures before construction begins. PLAs also increase certainty of both the government and the project by ensuring that the necessary skilled workforce is available to complete the project. The Biden Administration is further focused on how PLAs can spur economic development in underserved communities by including provisions to prioritize workers from disadvantaged communities and small businesses. For businesses impacted by the PLA requirement, entering into PLAs may have unexpected benefits, such as providing a ready means for tracking Davis‑Bacon Act and prevailing wage requirements and, likewise, providing relief from any penalties that may be imposed for a failure to comply with the prevailing wage and apprenticeship requirements applicable to certain energy tax credits.3 Depending on contract language, the PLA may serve as "proof" to the U.S. Department of Energy (DOE) that the agreeing parties meet these requirements.
Though PLAs are not required for large‑scale construction projects until Jan. 22, 2024, DOE and other agencies have highly encouraged the widespread use of PLAs across federally funded projects. DOE has prioritized PLAs as a way to minimize risk and support workforce continuity. Prior to the EO, DOE encouraged applicants to explicitly describe any current PLAs or plans to establish one in their Community Benefits Plans, which is a required section of demonstration and deployment applications that broadly describes how applicants will engage communities, invest in the workforce, advance diversity and implement the Justice40 Initiative. DOE has awarded funding to many projects that include PLAs. In practice, DOE may view projects that involve PLAs as more derisked and thus more competitive than those that do not.
The timeline below outlines Biden Administration and Federal Acquisition Regulatory (FAR) Council action regarding the PLA requirement.
Analysis and Impact
The final rule implementing the EO obligates DOE and other agencies to require awardees of all projects that meet the "large-scale construction project" definition to use PLAs4 for contractors and subcontractors engaged in construction5 on the project. The rule gives DOE the discretion to also require use of PLAs in awards in which DOE's cost share will be less than $35 million. DOE would not be able to require an awardee to enter into a PLA with any particular labor organization, and any labor organization of which building and construction employees are members would meet the requirement.6
Projects Already Under Construction. As outlined above, the PLA requirement applies beginning on Jan. 22, 2024. Until that date, DOE is "strongly encouraged [] to the extent permitted by law" to require the use of PLAs.7 Impacted entities should carefully review specific Funding Opportunity Announcements and relevant contract documentation to determine whether a PLA is required or strongly encouraged.
Exceptions. DOE may grant an exception from requiring use of a PLA for any project that submits a written explanation that meets at least one of the following conditions:
"(i) requiring a project labor agreement on the project would not advance the Federal Government's interests in achieving economy and efficiency in Federal procurement;8 (ii) market research indicates that requiring a project labor agreement on the project would substantially reduce the number of potential offerors to such a degree that adequate competition at a fair and reasonable price could not be achieved;9 or (iii) requiring a project labor agreement on the project would otherwise be inconsistent with Federal statutes, regulations, Executive orders, or Presidential memoranda."
When determining whether to grant an exception, DOE is required to consider current market conditions and the extent to which price fluctuations may result from factors other than the PLA requirement (e.g., costs of labor or materials or the supply chain).10
Conclusion
The EO and implementing rule will impact a large portion of applicants applying for federal funding and financing across all federal agencies, including DOE. The PLA requirement gives regulatory legitimacy to DOE's past prioritization of the use of PLAs on various solicitations. DOE is expected to continue to emphasize measures that support union labor and workforce continuity in future funding opportunities. PLAs have the ability to ensure projects have a sufficient workforce and may provide relief from penalties imposed for failure to comply with prevailing wage and apprenticeship requirements; however, in areas where the workforce is constrained or in right-to-work states, businesses may perceive the PLA requirement as difficult to meet.
Notes
1 EO 14063: Use of Project Labor Agreements for Federal Construction Projects, 87 Fed. Reg. 7363 (Feb. 9, 2022).
2 PLA Final Rule – Federal Acquisition Regulation: Use of Project Labor Agreements for Federal Construction Projects, 88 Fed. Reg. 88708 (Dec. 22, 2023) (effective Jan. 22, 2024).
3 Prop. Treas. Reg. § 1.45-8(e)(2)(v); Prop. Treas. Reg. § 1.45-7(c)(6)(ii).
4 The relevant FAR clause defines PLAs as "a pre-hire collective bargaining agreement with one or more labor organizations that establishes the terms and conditions of employment for a specific construction project and is an agreement described in 29 U.S.C. 158(f)." FAR 22.502.
5 The final rule defines "construction" as "construction, reconstruction, rehabilitation, modernization, alteration, conversion, extension, repair, or improvement of buildings, structures, highways, or other real property." PLA Final Rule, 88 Fed. Reg. at 88727.
6 "Labor organization means a labor organization as defined in 29 U.S.C. 152(5) of which building and construction employees are members." See 29 U.S.C. 152(5) (defining "labor organization" as "any organization of any kind, or any agency or employee representation committee or plan, in which employees participate and which exists for the purpose, in whole or in part, of dealing with employers concerning grievances, labor disputes, wages, rates of pay, hours of employment, or conditions of work").
7 EO 14063, 87 Fed. Reg. at 7365.
8 "The exception shall be based on one or more of the following factors: (A) the project is of short duration and lacks operational complexity; (B) the project will involve only one craft or trade; (C) the project will involve specialized construction work that is available from only a limited number of contractors or subcontractors; (D) the agency's need for the project is of such an unusual and compelling urgency that a project labor agreement would be impracticable."
9 "A likely reduction in the number of potential offerors is not, by itself, sufficient to except a contract from coverage under this authority unless it is coupled with the finding that the reduction would not allow for adequate competition at a fair and reasonable price."
10 To meet this requirement, the final rule enables DOE to rely on price analysis conducted on recent competitive proposals for construction projects of a similar size and scope.
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