Existing law, the Uniform Public Construction Cost Accounting Act, authorizes a public agency to elect to become subject to uniform construction cost accounting procedures. Existing law provides for the development of cost accounting standards and an alternative method for the bidding of public works projects by public entities.

This bill would make a nonsubstantive change to that law.

SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION

Senator Bill Dodd

Chair

2023 - 2024 Regular

Bill No: SB Hearing Date: 4/11/2023

SUBJECT:

DIGEST: This bill prohibits a state agency from undertaking a major construction project, defined as a project that will exceed $35 million dollars, unless that project is governed by a project labor agreement (PLA) and if that PLA includes a community benefit goal, as defined.

ANALYSIS:

Existing law:

1. Establishes procedures for state agencies to enter into contracts for goods and services, including generally requiring that certain contracts by a state agency, including, but not limited to, contracts for the construction, alteration, improvement, repair, or maintenance of property, be approved by the Department of General Services (DGS).
2. Authorizes public entities to enter into, or require contractors to enter into, a PLA for a construction project only if the agreement includes all of the following taxpayer protection provisions:
   1. The agreement prohibits discrimination based on race, national origin, religion, sex, sexual orientation, political affiliation, or membership in a labor organization in hiring and dispatching workers for the project.
   2. The agreement permits all qualified contractors and subcontractors to bid for and be awarded work on the project without regard to whether they are otherwise parties to collective bargaining agreements.
   3. The agreement contains an agreed-upon protocol concerning drug testing for workers who will be employed on the project.
   4. The agreement contains guarantees against work stoppages, strikes, lockouts, and similar disruptions of the project.
   5. The agreement provides that disputes arising from the agreement shall be resolved by a neutral arbitrator.
3. Authorizes members of the governing board of a local public entity to choose by majority vote whether to use, or require contractors to enter into PLAs for specific projects or projects awarded by that entity and whether to allocate funding to a specific project covered by such an agreement.
4. Provides that if a charter provision, initiative, or ordinance of a charter city prohibits the governing board’s consideration of a PLA that includes all the taxpayer provisions for a project to be awarded by the city, or prohibits the governing board from considering whether to allocate funds to a city-funded project covered by such an agreement, then state funding or financial assistance shall not be used to support that project.
5. Requires anyone working on a public works projects to be paid prevailing wages as determined by the Department of Industrial relations.

This bill:

1. Prohibits a state agency from undertaking a major state construction project unless that project is governed by a PLA, and if that PLA includes community benefit goals, including, but not limited to, hiring locals, women, underrepresented groups, and disadvantaged groups.
2. Defines a “major construction project” to mean the erection, construction, alteration, repair, or improvement of any state structure, building, or other state improvement of any kind that will exceed a total cost of $35 million dollars.
3. Provides that the provisions of this bill shall apply to any project if that contract is advertised for bid or awarded on or after July 1, 2024.
4. Provides that the provisions of this bill shall not apply to a major state construction project undertaken by or for the University of California, the California State University, or the California Community Colleges, unless that project is funded by state bonds.
5. Provides that the Governor may waive the provisions of this bill for a specific project if that state agency has attempted to comply with the provisions of this bill and the Governor makes a written determination that the application of the provisions of this bill would be impracticable.
6. Provides that the provisions of this bill shall not apply to the extent that the application of this bill would result in the loss of federal funding.
7. Prohibits a state agency from dividing or phasing out a major state construction project to avoid the PLA requirement in this bill.
8. Clarifies that nothing in this bill preclude the use of PLA’s on any project not covered by the provisions of this bill.
9. Requires DGS, beginning on January 1, 2029, and every four years thereafter to issue a report on the use of PLAs, the advancement of community benefit goals, and apprenticeships. The bill sunsets this provision on January 1, 2033.
10. Makes various legislative findings.

Background

Purpose of the Bill. According to the author’s office, “California is a leader in the use of PLAs since Gov. Jerry brown signed SB 922 into law. Project labor agreements have proven to be a successful construction management tool for the efficient completion of public projects. Project labor agreements also can provide contractors on state projects with access to registered apprentices and protect employees on public construction projects without burdening the resources on the Division of Labor Standards Enforcements. SB 574 aims to ensure that agencies use effective tools like PLAs for especially complex large-scale construction projects while guaranteeing a baseline of protections and community benefit goals, such as hiring locals, women, formerly incarcerated people, and underrepresented and disadvantaged groups.”

Project Labor Agreements. Project labor agreements are pre-hire labor agreements negotiated between a project owner or developer and building trades unions that establish the terms and conditions of employment for a specific construction project. In California, state agencies are authorized to enter into PLAs but are not required to do so. If a state agency does enter into a PLA, the agreement is required to include all of the following taxpayer protection provisions:

• 1. The agreement prohibits discrimination based on race, national origin, religion, sex, sexual orientation, political affiliation, or membership in a labor organization in hiring and dispatching workers for the project.
  2. The agreement permits all qualified contractors and subcontractors to bid for and be awarded work on the project without regard to whether they are otherwise parties to collective bargaining agreements.
  3. The agreement contains an agreed-upon protocol concerning drug testing for workers who will be employed on the project.
  4. The agreement contains guarantees against work stoppages, strikes, lockouts, and similar disruptions of the project.
  5. The agreement provides that disputes arising from the agreement shall be resolved by a neutral arbitrator.

Supporters of PLAs argue that PLAs provide long-term project stability because PLAs address labor issues, establish cost standards and help projects stay on schedule by preventing costly shutdowns caused by labor disputes. Supporters also argue that PLAs often establish goals of requirements for inclusion of small businesses, minority contractors and businesses that meet disability requirements, and sometimes encourage the hiring of targeted segments of the community such as veterans and minorities. Finally, supporters of PLAs argue that PLAs increase training and advancements since some PLAs sometimes include provisions for training and apprenticeships that increase career opportunities.

Critics of PLAs argue that PLAs increase construction costs on public works by restricting the number of contractors willing to bid on these projects compared to comparable public projects without PLAs. Opponents argue that some nonunion contractors are unwilling to bid on projects requiring PLAs because these contractors do not wish to obtain a majority of their blue collar labor from the local union hall. Contractors might also be deterred from bidding if the PLA requires that they pay into collectively bargained health and retirement funds.

The debate on whether PLAs are good or bad has been an enduring debate. For example, the National University System Institute for Policy Research, in its study of the cost of PLAs on California construction between 1996 and 2008, found that PLAs added between 13-15 percent to constructions costs. The author’s office points to a study by Emma Waitzman and Peter Phillips, who in their study of the effects of using PLAs in the construction of community college construction projects in California, concluded that evidence does not support the argument that PLAs reduce the number of bidders or raise bid prices. However, it should be noted that his bill specifically exempts major construction projects undertaken by community college projects, unless those projects are funded by state bonds.

President Biden Executive Order. On February 4, 2022, President Biden signed an Executive Order (EO) on Use of Project Labor Agreements for Federal Construction Projects, which requires the federal government to require a PLA for a “large-construction contract,” defined in the EO as a contract for which the estimated cost is $35 million or more. It is estimated that the EO will affect an estimated $262 billion in federal construction contracting for nearly 200,000 workers.

The EO does not require construction companies to unionize, it only binds a federal construction contractor’s employees to the terms of a PLA. The EO requires every PLA to contain all of the following: (1) guarantees against strikes, lockouts, and similar job disruptions; (2) prompt, mutually binding procedures for resolving labor disputes; and (3) mechanisms for labor-management cooperation on “matters of mutual and concern, including productivity, quality of work, safety, and health.”

The EO included a number of exceptions to the PLA requirement. Specifically, the EO will not mandate a PLA if doing so would, among other things, substantially reduce potential bidders or result in inefficiency, such as projects of short duration and lacking complexity, only involving one craft or trade, or involving particularly specialized construction work. Furthermore, a PLA would not be required based on unusual and compelling needs, and other factors deemed acceptable by senior officials in federal agencies. Finally, the EO did not affect projects controlled by state and/or local governments, even if those projects receive federal funding.

Expansion and Inconsistences with Executive Order. While this bill takes influence from President Biden’s EO, this bill is both an expansion of that EO and at the same time fails to include a number of exceptions that are included in President Biden’s EO.

First, this bill does not include a number of exceptions to the PLA requirement that are present in the EO. Most importantly the EO includes a provision that would not mandate a PLA if doing so would substantially reduce potential bidders or result in efficiency, such as a projects of short duration and lacking complexity, only involving one craft or trade, or involving particularly specialized construction work. The only exception in this bill is a provision that provides that the Governor may waive the PLA requirement if the state agency has attempted to comply with the provisions of this bill. However, this provision appears to still require a state agency to require a PLA and only when they have attempted to comply can they petition to the Governor to waive the requirement. This undoubtedly would create project delays which would likely increase cost. Additionally, giving the Governor the sole authority to waive statue simply because a state agency has attempted to comply with the law seems like a dangerous precedent.

Additionally, the EO does not include any requirements that the PLA must include any community benefit goals. While some PLAs include some of the community benefit goals detailed in this bill, both the EO and current law do not require any community benefit goal to be included in any PLA. By requiring the inclusion community benefit goals in all PLAs without any exception it could create situations where certain projects might be delayed because of the difficulty of meeting a community benefit goal.

Also, the bill does not define or detail how contractors are supposed to meet a community benefit goal. For example, a community benefit goal could be met by the hiring of women. While it seems simple enough, does this mean that a majority of workers need to be women? Does the owner need to be a woman? On the other hand, does a single female worker meet the requirement of the bill? In addition, according to DGS, voluntary PLAs specifically do not have a local hire requirement because the projects are done on behalf of the state government, which is not limited to serving certain areas, counties, or cities in the state. In remote areas of the state, a local hire requirement may be challenging to meet due to lack of local workers or sufficient workers in general. Ultimately, the required categories of persons have to be characteristics that can be validated. This validation effort is not unsubstantial. Since being in one of these categories provides individuals priority of work over others, the specific categories need to be carefully analyzed.

Finally, the EO requires a PLA for those projects that are “estimated” to cost $35 million or more. This bill would require a PLA for any project that “will exceed” $35 million or more. While a small difference, this does raise questions as to what happens when a project is awarded without a PLA because it does not meet the $35 million threshold but then the cost grows past the $35 million threshold. In addition, this could become problematic for design-bid-build projects. For design-bid-build projects the actual cost of the project wont be known until the time of bidding, which is too late to be entering into PLA negotiations. DGS generally has about five through 20 projects, across multiple state agencies and throughout the state. The actual number varies year to year and its unclear how many of these projects will exceed $35 million or more. However given the high cost of construction, it’s likely that the $35 million threshold would mean that most project would fall under the provisions of this bill.

Reporting Requirements. The bill requires DGS, by January 1, 2029, to report to the Legislature about the use of PLAs, the advancement of community benefit goals, and apprenticeships. While such reporting might be worthwhile, the bill does not set forth any specific details that the report must include other than a report “about the use of project labor agreements, the advancement of community benefit goals, and apprenticeships.” Given the lack of detail of what the report must include, it is difficult to adequately discern whether the report might be useful in determining the impact of requiring PLAs in major construction projects.

Additionally, while it appears that a detailed report on the impact of PLAs on major construction projects could help inform the Legislature on whether it might make sense to require PLAs on major construction projects, making the PLA requirement permanent nearly six years before the report is to be submitted appears to make the report less impactful.

Letter of Concern. The California Conference of Carpenters have submitted a letter of concern stating the following:

A mandated PLA requirement may unfairly exclude certain types of construction workers and restrict contractors from utilizing the most qualified workers to the detriment of the project, the state agency, and the construction workforce. What’s most desperately needed in the construction industry is greater enforcement of existing labor law. We would request inclusion of direct enforcement through federally recognized Labor Management Committees be included in this measure.

Author’s Amendments. The author’s office has indicated that the author will be taking amendments to specifically exempt transportation, water, and housing projects from the bill.

Prior/Related Legislation

SB 922 (Steinberg, Chapter 431, Statutes of 2011) requires that all PLAs incorporate specified provisions, and prohibits state funding assistance, after January 1, 2015, on public works projects of charter cities having ordinances prohibiting the Use of PLAs.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

SUPPORT:

State Building and Construction Trades Council of California, AFL-CIO (Source)

California State Association of Electrical Workers

California State Pipe Council

Western Council of Sheet Metal Workers

OPPOSITION:

Construction Employer’s Association

Plumbing-Cooling Contractors Association of California

Western Electrical Contractors Association

ARGUMENTS IN SUPPORT: According to the State Building and Construction Trades Council of California, AFL-CIO, “PLAs have been around for nearly a hundred years and proven to control costs, ensure efficient completion of projects, and establish fair wages and benefits for all workers. As an added resource, PLAs provide contractors on state projects with access to registered apprentices, and these agreements can be written to engage local populations, provide jobs for underrepresented groups, and develop experience for apprentices. PLAs allow signatory agencies to prioritize apprenticeship opportunities for people in their own communities.”

ARGUMENTS IN OPPOSITION: According to the Construction Employer’s Association (CEA), “PLAs often conflict with subcontracting clauses due to jurisdictional disputes between various crafts, placing general contractors in the unenviable role of being in violation of their CBA’s. For example, a PLA may mandate the use of one craft, even though more than one craft is entitled to perform that work. By mandating PLAs, the state would have to choose winners and losers. It is one thing to facilitate the use of union signatory employers, which is something CEA would support, and something entirely different for the state to dictate what craft can perform what work on any given project.”

According to the Western Electrical Contractors Association (WECA) and the Plumbing-Heating-Cooling Contractors Association of California (CAPHCC), “SB 574 prohibits state agencies from undertaking a state construction project greater than thirty-five million dollars unless that project is governed by a PLA. WECA and CAPHCC believe this mandate is discriminatory and increases the cost of construction. In addition, a study published in August by the Rand Corporation found that a bond measure passed by LA area voters in 2016 failed to deliver its intended results, primarily because of a PLA.”

DUAL REFERRAL: Senate Governmental Organization Committee & Senate Labor, Public Employment and Retirement Committee