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CONSIDER IMPLEMENTION OF A COMMUNITY WORKFORCE TRAINING AGREEMENT FOR THE CITY OF STOCKTON
recommended action
RECOMMENDATION
Recommendation of the Legislation/Environmental Committee
The Council Legislation/Environmental Committee recommends that Council direct the City Manager to work with the coalition of stakeholders to discuss the administration of a Community Workforce Training Agreement and to provide the Council with a recommendation for the final agreement.
Recommendation of the City Manager
The Committee recommendation is to direct the City Manager to negotiate with Union representatives and return with a mutually agreeable product. While the City Manager, based on a cursory review of the Committee proposal, has taken no position on the viability, impacts, or appropriateness of such an agreement, the proposed process presents some logistical challenges worth considering. Advice and analysis from the City Manager generally comes in the form of a recommendation based on the totality of circumstances from the view point of what is best for the organization. Negotiations, on the other hand, are the product of what is tolerable among parties rather than what is in the best interest of a single party. The proposed process would represent a departure from the traditional perspective because it would require the City Manager to propose something that may or may not be in the best interest of City. Additional concerns would be the length of time and negotiating parameters within which the process would take place. Similar to labor negotiations with Unions, it is difficult to predict the timeline or outcome of such a negotiating process.
As a result, the staff recommendation is to refer the item back to the Committee for further consideration along with the appropriate legal analysis to determine what, if any, impact will occur.
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SUMMARY
The Council Legislation/Environmental Committee discussed proposed language (Attachment A) to implement a Community Workforce Training Agreement for the City (Agreement). The proposed Agreement would specify conditions to be followed by contractors and employers that are awarded public works or improvement contracts valued at $1 million or more by the City. The Agreement would also specify conditions that the City must follow.
Any complex construction project requires the services of a variety of workers with diverse skill sets. A labor management system of some sort is always needed to coordinate the labor force of employers and employees working side-by-side to construct a project. A Community Workforce Training Agreement (CWTA) is one workforce management tool used on large and complex projects. A CWTA is commonly referred to as a pre-hire collective bargaining agreement and is commonly known as a Project Labor Agreement (PLA), but may be known by other names such as Project Stabilization Agreements or Local Hiring Agreements. These agreements establish working conditions and management rights, and typically prohibit work disruptions that could lead to costly project delays.
The two most common elements of PLAs include union agreement not to strike or engage in disruptive activities, and contractor agreement to no lockouts for the duration of the project. Other elements commonly found in PLAs include: recognition of an exclusive collective bargaining agent, hiring through a local and centralized union job referral system or “hiring hall,” standardized wage and working conditions, management rights, expedited dispute resolution and payment of union dues.
The proposed Agreement addresses a number of issues related to working conditions for public works and improvement contracts, including:
• limitations on work delays and stoppages,
• arbitration procedures and arbitrators,
• preconstruction conferences for coordination,
• prohibitions on discrimination,
• recognition of union(s) as the sole bargaining representative,
• requirements for contractors and employers to utilize union referral systems,
• agreement to pay wages and benefits as specified by the union,
• grievance processes,
• apprentice programs to develop adequate numbers of competent workers,
• programs to transition from the military to the trades,
• drug and alcohol testing requirements, and
• a local hire program.
The costs and benefits of PLAs are very difficult to quantify and it is often unclear whether any gains are the result of the PLA or other contractor, labor and owner actions. Ultimately, the decision to implement a PLA is policy without a clear benefit or detriment and it is exceedingly important to carefully evaluate the terms and conditions of any agreement should one be implemented. Based upon a preliminary review of the proposed Agreement by the Attorney’s Office and staff, there are clarifications that would be recommended if Council desired implementation of a Community Workforce Training Agreement. If Council would like to proceed with implementation of an agreement, returning the proposed agreement to the Committee for further discussion and legal analysis would be advised.
DISCUSSION
Project Labor Agreements
There has been much debate and controversy surrounding PLAs throughout the last century. PLAs have been used in the private sector since the 1920’s, and in the public sector since the 1930’s. Project labor agreements originated at a time when labor actions to disrupt construction projects were common. Shasta Dam was built with a PLA and without any union strike, which was remarkable given that large construction project in the area had numerous strikes and labor disturbances. The United States Department of Energy utilized PLAs for significant efforts during World War II, such as the Manhattan project, due to their strategic value, critical need for timely delivery, and ability to assure a continuous supply of qualified labor in remote locations.
In 1959, the National Labor Relations Act was amended to include the construction industry proviso to allow the use of PLAs in the construction industry. PLAs are specific to the construction industry because of its unique conditions, including the short-term nature of employment that makes post-hire collective bargaining difficult. A frequent reason cited for using PLAs by all parties involved in the agreement has been the reduction of risk, primarily due to labor cost savings and predictability of work flow. Other anticipated benefits include:
• economic savings through improved productivity, safety, efficiency and timeliness;
• enhanced employment opportunities for minority, women and disabled persons; and
• the application of consistent rules and standards for all bidders, merit-shops and open shops contractors.
PLAs have been used widely in California for many years to complete very large and complex projects. Common elements of these projects are the immense scope and regional significance. For example, a PLA was utilized during the renovation of the San Francisco International airport. The project was anticipated to last ten years, involve 77 separate construction contracts, and the cost of delay was unacceptable. Every month delay in the project would result in revenue loss of $13 million and increased costs of $1.5 million, and untold economic impact due to reduced tourism. Other notable examples include the Bay Area Rapid Transit System (1965 - 1971), which was constructed at a total cost of $1.44 billion for the basic system, and the more than $2 billion 1985 Yerba Buena Gardens Project in San Francisco. A final example was the Prudhoe Bay Oil Pool Module Construction (1979-1985) Project. The Prudhoe Bay Agreement covered the building of large industrial modules in Alameda and Stockton that were installed at the Prudhoe Bay Field on Alaska’s North Slope.
However, PLAs are not universally regarded as positive and there have been numerous legal challenges to their use. Opponents argue that PLAs reduce competition, increase costs and favor union contractors over non-union contractors. In the 1990’s, there were numerous legal challenges to PLAs. Two cases in particular, the Boston Harbor case and the New York State Thruway Authority case upheld the use of PLAs in the public sector and provided a basis for the future use of PLAs. The courts evaluated whether the availability of a consistent workforce and the reduced risk of work disruption would prevent costly construction delays. In the end, both the United States Supreme Court and the California Supreme Court have upheld the ability of public agencies to require PLAs.
While permissible, significant debate continued as the benefits of PLAs are not easily measured and many opponents question the assumed efficiencies. This debate played out at the national level with a series of Presidential orders dating back to George H.W. Bush who issued an order prohibiting the use of PLAs. Throughout the ensuing Presidencies the issue has gone back and forth culminating in President Obama’s order encouraging the use of PLAs to deliver federal projects valued at $25 million or more. There has also been substantial debate in California, and seven localities had banned the use of PLAs over concerns that PLAs reduced competition and increased costs. Subsequent state legislation prohibits such bans in General Law cities and limits state funding for all cities that implement such a ban, including Charter cities.
Prevailing Wage
Requirements to pay the prevailing wage as set by the Department of Industrial Relations already apply to public works projects. Prevailing Wage Law was first enacted in California in 1931. This is the same year that the United States Congress passed the Davis-Bacon Act, which established the federal prevailing wage requirements for federally funded projects. The state and federal laws have been amended many times in the years since 1931, but the essential requirements have been consistent. Currently Sections 1720 - 1780 of the California Labor Code are the relevant sections for general law cities. These sections require that workers on every state, local, and special district government public works project with a contract cost of more than $1,000 be paid Prevailing Wage. Prevailing Wage is defined as the prevailing rate of per diem wages for work of similar character in the locality of the public works project. The law contains a lengthy definition of “Public Works”, but in essence it can be summarized as any work to build or repair public infrastructure that is done by contract. However, Public Works contracts are not restricted to construction and include most types of maintenance other than basic janitorial maintenance.
Prior to 2013 it was generally accepted that Charter Law cities, such as the City of Stockton, were not subject to California prevailing wage law on projects that did not involve state or federal funding (ie: local funding only). This was confirmed in 2012 by the California Supreme Court. This ruling was followed by a series of Senate bills that have changed the requirements and applications of prevailing wage regulations. Today, the prevailing wage requirements for general law and Charter Law cities are essentially the same.
The prevailing rate is determined by the State Department of Industrial Relations (DIR). DIR regulations state that the “prevailing rate shall be the single rate paid the greatest number of workers in a particular craft in a locality”. It is typically a collectively bargained / union rate. The DIR maintains extensive lists of rates for various crafts for various locations in the state. All information is available on their website. An example spreadsheet of rates for San Joaquin County is included as Attachment B. The City already utilizes these wage rates in the bid documents for contracts that require prevailing wage.
Recent Legislation
On October 2, 2011, Governor Jerry Brown signed SB 922 into law (Chapter 431, Statutes of 2011), to ensure the boards of local public entities have the ability to consider PLAs on a project-by-project basis. The statute neither requires nor prohibits PLAs. SB 922 includes specific authority for local boards to consider a PLA, and precludes prohibitions that prevent local boards from evaluating PLAs on a project-by-project basis. While the specific authorities and prohibitions may not apply in charter cities, state funding for any city, general law and charter alike, can be withheld if a prohibition that prevents consideration of a PLA is in place. Stockton has no such prohibition against considering PLAs. SB 922 was the first law of its kind in the United States, and it is unclear if it will withstand legal challenge in the future.
Senate Bill 7, passed in October of 2013, requires Charter cities to pay prevailing wages on all maintenance contracts over $15,000 and on all construction contracts over $25,000 in order to continue receiving any kind of state funding (including Gas Tax and Grant funds). This effectively negates the Supreme Court ruling of 2012 for any locally funded contracts over these amounts.
Another Senate Bill passed in July of 2014, implemented a number of additional changes that affect the award of public works contracts. Senate Bill 854 established new rules for contractors to register with the DIR, requirements to enter information for all contracts into a database through the DIR website, and specific monitoring requirements related to contractor payroll. These requirements implement in phases over two years, and at this time, it is unknown whether the requirements will have an impact on smaller local providers.
Present Situation
The Legislation/Environmental Committee discussed the proposed Agreement on August 5, 2015 and September 21, 2015. On September 21, 2015 the Committee voted 2 to 0 to refer the proposed Agreement to Council and ask Council to direct the City Manager to work with stakeholders and return to Council with a recommendation on a final agreement. There was significant stakeholder presence at the Committee meetings.
The proposed Agreement includes many provisions common to PLAs. If the Council is inclined to support implementation, and directs the City Manager to develop a recommendation on a final agreement a thorough review would be completed. Much of the review will be required from the Attorney’s Office to understand the implications of referenced agreements and to approve the proposed Agreement as to form and content.
The proposed Agreement includes sections that address the following topics:
• limitations on work delays and stoppages,
• arbitration procedures and arbitrators,
• preconstruction conferences for coordination,
• prohibitions on discrimination,
• recognition of union(s) as the sole bargaining representative,
• requirements for contractors and employers to utilize union referral systems,
• agreement to pay wages and benefits as specified by the union,
• grievance processes,
• apprentice programs to develop adequate numbers of competent workers,
• programs to transition from the military to the trades,
• drug and alcohol testing requirements, and
• a local hire program.
A preliminary review of the proposed Agreement suggests that further clarification is needed to provide a recommendation to Council. By way of example, the language defining which projects would be subject to and conditioned by the Agreement could be clarified. Additionally, many other agreements are included by reference and each would have to be reviewed to understand the implications of those terms.
The preliminary review also called out policies that Council would need to agree to upon enacting the Agreement. For instance, while PLAs commonly govern a single large project the proposed Agreement would govern all projects valued over $1 million solicited for seven years. Even though the proposed Agreement would govern multiple projects, it defines permanent arbitrators for the entire term of the agreement and provides no allowance for mutual agreement or City involvement in the selection. The proposed Agreement would also be effective immediately, and determination would need to be made regarding what administrative procedures would need to change to implement the agreement. Immediate implementation could delay solicitation for bids until the new policies and procedures were defined.
The City does not currently monitor which bidders use union workers and which use non-union workers. Therefore, it is not possible to estimate how many of the current contractors and employers would no longer be eligible to bid on public works and improvement contracts. Although a significant change in costs is not predicted given existing prevailing wage requirements, it is possible that the proposed Agreement could prevent local non-union businesses from bidding on City contracts.
FINANCIAL SUMMARY
As noted above, because of existing prevailing wage requirements a significant change in costs is not predicted. However, there is a lack of clear information to predict the economic and financial impact of implementing a PLA. Many anecdotes and case studies regarding the cost implications of PLAs have limited value because they do not control for other variables or are selected specifically by advocates to justify a particular position. True comparative studies that control for variables such as site conditions, the complexity of construction projects and geography are few. It is fundamentally difficult to isolate and quantify the impact of the PLA as compared to other factors such as geography, environment, scope or regulations.
Several large comparative studies of the relationship between PLAs and construction costs were ultimately found to be inconclusive. As an example, one such study of public school construction costs in California found that construction costs increased 13 percent to 15 percent when controlling for other factors. However, the researchers ultimately concluded that the explanatory power of the research model was not significant. Despite a thorough methodology that relied upon source documents from the California State Architect and records obtained from school district through Public Records Act requests, the influence of a heavily unionized region affected the results. A peculiarity in the data set was the large number of PLA school projects that were built by the Los Angeles Unified School District, which had been using PLAs for many years. When LAUSD was removed from the analysis, the statistical significance of the relationship between PLAs and increased construction costs was not meaningful. The inconclusive relationship between PLAs and increased costs is consistent with many other studies. The authors ultimately concluded that while there was no support for the proposition that PLAs increase costs, they found no evidence that PLAs reduce costs and this was also consistent with other studies.
CONCLUSION
Important considerations when awarding municipal contracts include delivering the product, service or construction of a public project on time with the best quality and at the lowest possible cost. It is often argued that PLAs are a tool to manage and monitor performance in these areas, but there is little evidence to demonstrate the economic value of the use of PLAs. Furthermore, the value of broader community goals such as local hiring or workforce development are often pursued through PLAs, but it is unclear whether the PLA or the commitment of the project sponsor and working relationship with contractors, labor and the community contributed to success.
The benefits of PLAs are very difficult to quantify and it is often unclear whether any gains are the result of the PLA or other contractor, labor and owner actions. As an example, the development and availability of a consistent local workforce through the local hiring hall is a common goal of PLAs that is not always achieved. An inherent tension exists between developing new workers when the local workforce has already been absorbed and meeting project timelines. An analysis of a PLA used by the Port of Oakland revealed that local residents currently not working in the trades often faced multiple barriers to employment, and providing the supportive services necessary for them to secure long-term construction careers was not conducive to meeting the required timeframes. A statewide analysis conducted by the California Research Bureau, also found that only 37 percent of the PLAs reviewed required using the local union referral system exclusively. In fact, most PLAs allowed the employer to look to other sources and outside the region if the necessary construction workers could not be acquired within a specified period of time. In this respect, an agreement that covers multiple projects for a longer period of time may afford more opportunity to develop residents seeking to overcome multiple barriers such as literacy, substance abuse or a lack of the fundamental skills to be a consistent and regular employee.
The Research Bureau also found that the mere presence of a no strike clause did not guarantee that work will not be stopped or delayed. The practical effect of a particular no strike provision depends upon many factors, including its specific language, the collective bargaining environment in which the PLA originated, and applicable case law. The Bureau advised that each of these factors must be evaluated before reaching a conclusion about whether a work stoppage is contractually permissible or likely.
Despite these uncertainties, contractors in the private sector indicated that they found value when using PLAs due to the standardization of work conditions. In regions where the labor force is predominantly unionized, a PLA can be an improvement over multiple local collective bargaining agreements because holidays, shifts, overtime premiums and collective bargaining agreements dates are standardized over the life of the project. Although there may be perceived efficiencies for large scale project in heavily unionized areas, there is little empirical evidence either way to determine the economic value of PLAs.
Ultimately, the decision to implement a PLA is policy without a clear benefit or detriment but it is exceedingly important to carefully evaluate the terms and conditions of any such agreement should one be implemented.
Attachment A - Sample Community Workforce Training Agreement
Attachment B - Example Spreadsheet of Rates for San Joaquin County