Capital Thinking Magazine

CONTRACTORS: THE LABOR FACTOR

Federal Contracting: The Labor Factor

For contractors involved in large government-funded projects, project labor agreements are an increasingly familiar part of life. Essentially, a PLA is a blanket agreement with labor unions that spells out employment terms and conditions that will be used across a specific construction project. Any contractor, union or non-union, can then bid on the project—but needs to abide by the PLA as it employs people.

Some observers say PLAs limit competitive bidding and drive up labor costs, while others believe that they benefit workers and taxpayers. In any case, they will be a part of the federal contracting landscape for some time to come, due to a 2009 presidential order encouraging agencies to use PLAs on large federal projects.

To make the most of PLAs, contractors should look beyond labor costs, says Dennis Martire, vice president and mid-Atlantic regional manager of the Laborers' International Union of North America and a proponent of PLAs. Martire explains that PLAs can save money in the performance of a construction project, if not on the initial bid. "On massive construction projects, imperfect coordination between the various subcontractors is a major source of delays. By providing a single set of work rules for the numerous contractors on the project, PLAs help to drastically reduce scheduling delays, and that's a big plus." Martire notes that PLAs bring in a skilled, safety-oriented union workforce, and, importantly, they include no-strike clauses, which eliminate the possibility of a job being delayed by protests or pickets.

The New Austerity's Silver Lining

The changing funding picture at federal agencies certainly brings its share of challenges to business, but for some contractors it could also bring opportunity. Over the past several years, says Robert Tompkins, a partner at Patton Boggs, "a lot of commercial-market businesses have migrated to the government market because they viewed it as being a safer place in the recession."

But now, the prospect of government budget cuts is forcing some companies to rethink that strategy. "I think that the rhetoric about cuts and contracting budgets will drive some folks away from the government-contracting market," Tompkins says. "Much of the attrition is likely to come from those relatively recent entrants into the business." For those that remain—and those willing to work more closely with agencies and adapt to their increased scrutiny—this winnowing out of the supplier base may open up opportunities that help offset some of challenges of reduced funding.

That churn in the contractor base is bringing opportunity in another form as well: "We're seeing an increase in mergers and acquisitions among contractors, in part because of the number of companies that are looking to cash out of the market by putting themselves up for sale. This will probably drive some consolidation in the government-contracting space," Tompkins says. "This trend can benefit potential acquirers. They can use the prospect of a smaller market to drive purchase prices lower, and acquisitions can be a cost-effective way to grow."

Contractors at War

In an era of constrained government budgets, contractors are fighting harder for every dollar—and they're increasingly lashing out at each other.

"We're quite clearly seeing an uptick in the protests that are filed around contract awards, with companies that lose out on a contract being much more willing to pull the trigger on a protest," says Patton Boggs partner Robert Tompkins. With less funding to go around, Tompkins adds, many companies are deeming it worthwhile to fight for a project because the next one could be a long way off.

Getting the most out of the contracting process requires taking both offensive and defensive measures, Tompkins suggests. "First of all, you need to pay careful attention to the procedural requirements of the RFP process, making sure that you run a tight ship and that your proposal meets all of that RFP's requirements," he explains. "And secondly, you need to keep a close eye out for problems that your competitors might have in that process. Do some extra diligence on your competitors, and really understand whether they truly have the experience and the capabilities that are necessary to satisfy the requirements of the RFP. If not, you may find that you have grounds to protest."