Picture this happening to your company: You submitted what should have been the lowest responsible bid on a project, only to find out you were underbid by a competitor that secretly received a wage subsidy from a third party.
What is wrong with this picture? Recent academic research points to the culprit.
A study published by George Mason University’s John M. Olin Institute for Employment Practice and Policy found construction industry unions have spent more than $1 billion since 2000 to engage in contract bidding schemes, also known as job targeting.
Using job targeting, unions collect worker fees to pay wage subsidies to selected contractors. The subsidies in turn give those contractors an unfair bidding advantage on projects.
Construction unions have quietly engaged in job targeting for more than two decades in an attempt to recover drastic losses in industry market share. According to the study, unions in nearly every state are unethically attempting to recover markets where they have been priced out as a result of competitive bidding.
In addition to uncovering a startling level of job targeting payouts, the Olin study documents a combination of unfair bidding processes, higher construction costs and lost tax revenue. The study raises three major concerns about the government’s policy of continuing to allow unions to engage in the practice.
Job Targeting Contributes to Higher Costs
The practice of job targeting has increased the prevailing wage employers are required to pay on virtually all publicly funded construction projects. This enables unions, after the fact, to claim their members received a wage rate higher than what the employer actually paid, excluding the union-paid subsidy. As a result, taxpayers pay inflated prices to build schools, roads, libraries, fire and police stations, sports arenas, water treatment plants and other publicly funded construction projects.
Taxpayers Could Unknowingly Fund These Programs
Workers’ union dues may be legally deducted from their federal, state and local tax returns. In contrast, the money union members contribute to fund job targeting programs may not legally be deducted on their tax returns, as it is not considered dues.
The Olin study reviewed thousands of union financial disclosure forms and found nearly one-third of construction unions engaged in job targeting "disguise, hide, or creatively misclassify" these payments—despite explicit instruction from the U.S. Department of Labor to disclose these expenditures.
These unfair wage subsidy programs appear to be adversely affecting tax revenues at the federal, state and local levels, although the exact amount has yet to be determined. The study found that unions spent more than $1 billion for job targeting during the past eight years, but notes that the number is a conservative estimate—meaning the tax implications could be more severe.
Job Targeting Is Uncompetitive and Unfair, Yet Legal
Under current federal and state law, unions are permitted to use money collected from members to engage in job targeting. It is also lawful for a company to accept job targeting payments from a union. However, if one construction company provides a wage subsidy to another in order to take business away from a competitor, both companies would risk being prosecuted for violating antitrust laws.
There is little difference between collusion and job targeting—both prevent the proper function of an open and free market, and neither should be legal.
When viewed against the backdrop of the deepening financial crisis, under-funded pensions and the billions of taxpayer dollars slated for public infrastructure projects across the country, job targeting is a top issue for contractors aiming to compete fairly in an open market. If allowed to continue unchecked, union officers engaging in this unfair practice could achieve their objective of driving honest contractors out of business. Ethical, responsible construction owners must denounce job targeting and urge elected officials to outlaw the practice immediately.
Source: "Job Targeting and Marketing Recovery Practices of Construction Unions: Their Apparent and Hidden Costs,"John M. Olin Institute for Employment Practice and Policy, George Mason University (Sept. 2008).
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Friday, September 3, 2010