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Jane Brunner
Due Diligence Report to the Mayor on Project Labor Agreement and the Baseball Stadium
Draft
June 20, 2005

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To: Mayor of the District of Columbia

From: Jane Brunner

Date: June 20, 2005

RE: Project Labor Agreement and The Baseball Stadium

I. Introduction

The District of Columbia Government, through the Mayor’s Office and the D.C. Sports and Entertainment Commission, recently participated in negotiating a Project Labor Agreement (PLA) for the District‘s Baseball Stadium. The purpose of these negotiations was to determine the “type” of PLA that the D.C. . Sports and Entertainment Commission could enter into with the D.C. Building and Construction Trades Council (Council) for the Stadium Project. In this regard, the PLA reveals all applicable labor terms and conditions for all craft labor employees for the project and also shows what concessions and/or special arrangements the Council is willing to offer for this project.

Thus, by knowing exactly what the Council will agree to, the City is now in the position to evaluate whether application of this specific PLA to the Stadium Project is in its best interests. The City itself does not , plan to execute this agreement directly; rather, if it proceeds with this matter, it will include the PLA as a requirement in the bidding documents it uses for the construction of this project. Specially, there will be a “PLA specification” included in the Request For Proposals document and other solicitation documents to hire the construction contractors and subcontractors for this project. These bidding documents will be prepared and issued by the D.C. Sports and Entertainment Commission.

II. Objective of this Report

The objective of the instant report is to review the PLA in the context of applicable legal, economic and technical criteria, and determine, to the extent practicable at this point, whether this PLA is in the best interests of the City and the Stadium Project, particularly from a proprietary and economic perspective. It is necessary that this review be conducted for the City in general, not just from the viewpoint of the D.C. Sports & Entertainment Commission. The fact is that the massive financial obligations for this project -- including the tax incremental financing and bond financing and repayment, as well as potential financial penalties for late project delivery -- are primarily the responsibility of the whole City Government, not just the D.C. Sports and Entertainment Commission.

Given the extensive financial liabilities the City faces and corresponding burden it carries for ensuring that the Stadium is constructed in a timely manner under a very ambitious and difficult project schedule, the City decided to explore the use of a PLA for this project. To assist the City’s efforts in this regard, this report evaluates whether this particular PLA, could assist the City in promoting the successful planning, execution and delivery of this project.

As further discussed below, a review of all of the facts, evidence and circumstances relevant to this project indicate that the PLA is in the best economic and proprietary interests of the City and the Stadium Project and that the PLA will benefit stadium construction by providing a reliable, stable supply of trained and skilled construction craft labor that will promote timely, cost-effective project delivery that help the project come in close to budget. Further, the PLA benefits the project by providing that at least 50% of all construction jobs go to D.C. residents, to the extent qualified resident are available. This provides an additional stabilizing effect for the project by securing a local craft labor supply that is less susceptible to disruptions and will be more reliable in terms of facilitating adequate project staffing and timely project delivery

III. Applicable Review Criteria

PLAs are single-site collective bargaining agreements between building trades unions and site contractors that govern terms and conditions of employment for all craft labor on a designated construction project. PLAs provide project owners with: 1) access to local labor supply sources for construction craft labor; 2) predicable labor cost forecasts; 3) a no-strike clause/alternative dispute resolution procedures designed to prevent labor disputes and related project delays; 4) timely and efficient completion of the project; and 5) safeguards that the project will be completed within budget.

This PLA is included in project specifications at the direction of the project owner for the purpose of promoting core project goals of the stadium: schedule, quality, safety and cost-efficiency. The economic impact reviews (EIRs) for the construction of the Baseball Stadium will review whether the proposed PLA will serve the above core project goals.

The District evaluated the following factors it believed were relevant to assessing whether the proposed PLA promotes core project goals, especially cost-efficiency and timely project delivery, including:

The size, scope and complexity of project
The applicability of prevailing wage law to project
The PLA’s impact on direct project labor costs
The level of construction activity/volume in local area
The availability of skilled craft labor supply
The ability of the PLA to promote project cost, schedule, quality and safety
The ability of the PLA to promote labor peace and stability
The schedule and time constraints of the project and the consequences, including financial consequences, of untimely project delivery

Insofar as an administrative decision to use a PLA for the Stadium Project would involve an interpretation by the District of its general bidding and procurement laws, the above-referenced standard would apply. The District is afforded wide discretion to apply its administrative expertise in the fields of procurement and public works construction to determine if the proposed PLA will benefit the project and the City.

IV. Economic Impact Review of the Proposed PLA

When considered in the context of the above-referenced economic criteria, the specific facts and circumstances surrounding the Stadium Project demonstrate that the proposed PLA will strongly promote core goals and interests of the Stadium Project. Points and authorities in support of such a finding are as follows:

Factor No. 1: Size, Scope and Complexity of Project

The Baseball Stadium is a major capital project, with costs over $$534.8 million.
Major capital projects support the use of a PLA due to the inherent challenges involved in planning, manning and executing such projects, particularly meeting labor supply needs and logistics.
Because the Stadium Project is a large project in size, scope and complexity, and is a modern, hi-tech, massive sports arena, valued at a minimum of $244 million (hard stadium construction costs; see project documents) this strongly supports the use of the proposed PLA.

Factor No. 2: Applicability of Prevailing Wage Law to Project

The Stadium Project is subject to prevailing wage law, 40 U.S.C. §§ 276a-276a-5, and the wage/benefit rates of the Washington, D.C. Building Trades generally receive the current prevailing rates mandated under this law.
Thus, regardless of whether or not there is a PLA, contractors and subcontractors on the project will, in most cases, be paying union rates. This factor weighs heavily in favor the proposed PLA, especially since the PLA provides numerous, substantial benefits to the project, as identified below.

Factor No. 3: The PLA’s Impact on Direct Craft “Labor Costs”

One major benefit of PLAs is the significantly higher productivity rates of union-trained workers. Such productivity advantages, up to 17%, according to one recent industry report, easily offset any minimal wage differentials.
The city negotiated and secured, prior to the bidding to contractors, meaningful labor concessions that translate into significant direct labor cost-savings, including those which provide: (a) 4 ten-hour days and 5 ten-hour days; (b) uniform starting times; (c) uniform holidays; (d) multiple shifts with uniform premium pay.
Bids for the stadium under the PLA are open to both union and non-union contractors. The union halls will hire both union and non-union employees. The flexibility provided from these provisions also helps to promote competition and limit labor cost.
With this PLA, contractors’ needs for predictable costs and a steady supply of skilled labor will be met.

Factor No. 4: Level of Construction Activity/Volume in Local Area

Downtown, D.C., where the Stadium Project is to be located has been recognized as the “top real estate market in the country."'¹ As a leading national market, billions of construction dollars are invested -here each year.²
In the immediate vicinity of the proposed site for the new stadium, the City is launching its new Anacostia Initiative, a mega $8 billion+ public works and economic development program.
In addition, the federal FY 06’ budget for non-military construction alone is over $500 million and local Pentagon spending is likely 100s of millions dollars more.³ Other local jurisdictions in the region include some of the fastest growing in the country, e.g., Loudoun County, VA, Fairfax, County, VA, Montgomery County, MD.
The level of construction impacts everything from the availability of equipment and supplies to traffic and congestion to the availability of craft labor resources. All of these can negatively impact project schedule, especially labor supply.
The higher the construction ;volume, the greater the competition there is for an increasingly limited pool of qualified craft personnel. For this reason, the huge volume of construction in the Washington, DC metro regions also strongly supports use of the PLA.

Factor No. 5: Availability/Reliability of Skilled Craft Labor Supply

According to the Construction Users Roundtable (CURT), the nation’s premiere project owner trade association, craft labor skill shortages is one of the most critical issues facing the construction industry today.
So serious is this problem that CURT warned in a 2004 report that owners “are experiencing significant problems in staffing construction projects, resulting in escalating costs and schedule delays.”⁴ Given the D.C.’s mega construction market, availability of trained, skilled local construction workers is severely limited.
With respect to labor that is available in D.C., there is no question that an excellent source of trained, qualified craft personnel is the union sector. One major indication of this is apprentice training.
D.C. apprenticeship records show, for example, that the union trades represent more than 10 times the number of registered apprentices than all non-union programs combined.
Nationally, data from the U.S. Department of Labor shows that union Building Trade apprenticeship programs train and graduate approximately 75% of apprentices in the nation and enroll and graduate substantially higher numbers of women and minorities.
The Building Trades will provide summer youth programs. The Council will sponsor and finance a six (6) week summer youth program during the summers of 2006 and 2007 for fifteen (15) bona fide City residents who are between the ages of 16 and 18. This program will introduce D.C. residents to a career in the Building Trades.

Factor No. 6: Ability of the PLA to Promote Cost/Schedule/Quality/Safety

Insofar as craft labor is a major, critical component of any construction project, the quality, productivity and reliability of the craft labor workforce used on a project has a direct and substantial impact on the success of any project. Skilled, trained workers are better able to build a project in accordance with plans and specifications, generally produce quality workmanship, work more safely and productively and are more cost-effective and cost-efficient than workers who do not have formal training.
The demanding schedule for the Stadium Project will require timely, efficient deployment of literally hundreds of skilled craft workers in numerous trades and specialty fields in the midst of a tight labor market in a booming industry. The DC Building Trades represents over 20,000 local skilled trade persons and offer the best means for ensuring the Stadium will receive the workforce it needs to deliver this project in a timely manner.⁵
The proposed PLA also has several key provisions designed to promote recruitment of local D.C. residents into the union skill training programs and referral systems, including apprentice participation requirements and local community outreach and local hiring initiatives. These provisions, combined with the existing training and referral systems operated by the Building Trades provide a carefully organized craft worker recruitment and deployment infrastructure needed to meet the critical labor demand for this project.
By imposing the PLA specification/requirement, the project owner essentially creates a type of craft labor insurance policy for the project that allows it to substantially limit risks of schedule delays, deficient quality workmanship, safety incidents and other problems caused by insufficient craft labor supply and/or the use of unskilled or improperly trained construction craft personnel.
The PLA proposed for the instant project effectively provides the City with an effective quality-control check over the entire construction workforce and ensures that the craft labor utilized for the project will come from known sources connected with the best, formal skill training systems in the region. The key advantages the PLA offers in terms of promoting quality, safety, schedule and cost-efficiency thus strongly justify use of the PLA for the Stadium Project.
A number of industry reports and studies on PLAs have found that, by securing access to a highly skilled local workforce, these agreements promote safe, timely, cost-effective execution of -capital projects, resulting in innumerable economic benefits to project owners and other public or private parties responsible for or dependent upon such projects. See:
1. Project Labor Agreements in Iowa: An Important Tool for Managing Complex Public Construction Projects, Ralph Scharnau & Michael F. Sheehan, The Iowa Policy Project (2004);
2. Project Labor Report (May 2002-November 2003, Contra Costa County General Services Department, Washington, D.C. (2004);
3. Project Labor Agreements: Reliable Staffing Plans for Capital Construction Projects, Gerard M. Waites, O’Donoghue & O’Donoghue LLP (2003)
4. Comments on The Effects of Project Labor Agreements in Massachusetts, Dale Belman, Associate Professor, Michigan State University, Matthew Bodah, Associate Professor, University of Rhode Island (2003);
5. Project Labor Agreements, John T. Dunlop, Harvard University Joint Center for Housing Studies (2002);
6. Project Labor Agreements: An Exploratory Study, Daniel Rounds, UCLA Institute for Labor and Employment (2001);
7. Constructing California: A Review of Project Labor Agreements, Kimberly Johnston-Dodds, California Research Bureau Report No. 01-010 (2001).⁶
Moreover, the PLA for this particular project has additional cost-efficiency benefits and special provisions to address other public policy interests of the City. For example, the PLA includes provisions to provide for competition in order to make sure the project is completed within budget. There is a cost saving clause that permits the Sports Commission to re-bid a contract if there are not at least three subcontractors bidding on a contract. ;This will guarantee the lowest bid possible. If the Sports Commission needs to re-bid the contract, the contractor will be exempted from having to recognize the union.
In addition, thirty five percent of the contractors must go to certified Local Small and Disadvantage Businesses Enterprises (LSDBE’s). All LSDBE’s that are awarded contracts of $10 million or under will not be required to work under the PLA or recognize the union.

Factor No 7: Ability of PLA to Promote Labor Peace and Stability

In addition to the benefits discussed above, the Stadium PLA has a number of important provisions designed to promote timely project delivery by ensuring labor peace and stability throughout the duration of the project.
These provisions impose safeguards against project delays and disruptions that can occur from labor disputes during construction by:
1. strictly prohibiting work stoppages;
2. requiring any disputes regarding employment terms and conditions for all craft employees on site to be resolved through uniform grievance and arbitration procedures. There will be a panel of arbitrators ready to hear any grievances in an expedited procedure.
Since employees have established legal rights under federal labor law to strike, initiate work stoppages or engage in other concerted activities to address grievances, the provisions in this PLA will promote timely delivery and avoid costly delays.
The no strike clause means the workers will continue to work on the stadium even if their regional or national contracts expire or are in dispute.

Factor No. 8: Schedule and Time Constraints of Project

This project, massive in size and scope and complex in design, must be completed in 24 months. Timely delivery under this schedule will be extremely difficult – even with the local craft labor resources secured by the PLA.
The schedule challenges presented here are heightened by current labor market conditions and the intense level of construction activity in D.C. Another factor adversely affecting this already daunting schedule is the project’s location, which presents an additional, significant burden on the proposed schedule.
Compliance with the established project schedule is critical. If the City fails to construct the Stadium in accordance with this schedule, it faces staggering cost increases and financial penalties up to $19 million per year, including payment for the cost of additional rental fees for the RFK Stadium; plus, loss of critical tax and fee revenues from Stadium operations needed to repay interest and ultimately principal on hundreds of millions of dollars of municipal bonds.

V. Conclusion

The facts and circumstances surrounding the Stadium Project demonstrate that the proposed PLA would substantially benefit the District and its interest in securing timely, cost-effective delivery of this important project. Accordingly, the District is well within its discretion applying a PLA specification requirement to the Stadium Project.

1. Investors Flock to Washington, DC, Commercial Real Estate Markets, Pienta, G., Washington Building Congress, February 2004 Report (Reprinted with permission from Commercial Investment Real Estate, Vol. XXII, 6, p.42–43).

2. See www.fedbizopps.com, listing current federal project solicitations; see also, Commerce Business Daily reports, 2004-05 project solicitations.

3. Bush Finds Space in Budget for Washington-Area Projects, Washington Business Journal, March 25, 2005 at: www.bizjournals.com/washington/stories/2005/03/28.

4. Confronting the Skilled Construction Workforce Shortage, The Construction Users Roundtable, The Owners Voice to the Construction Industry, WP-401, 2004, p. 14 (Attachment 3 hereto) (emphasis added). See also, The Perfect Storm: Factors Come Together Creating a Storm in the Construction Workforce, The Construction Executive, Associated Builders and Contractors, Inc., June 2004 pp. 21-25.

5. The proposed PLA covers 15 independent local unions, which are organized along traditional craft lines, such as electricians, plumbers, pipe fitters, cement masons, laborers, etc.