Legal and Regulatory

One Year Later: The Infrastructure Bill and Its Potential Effect on the Construction Industry

The IIJA includes proposed legislation that could significantly affect the construction industry.
By Frederick E. Hedberg
October 31, 2022
Legal and Regulatory

Since President Joe Biden signed the historic Infrastructure Investment and Jobs Act (IIJA), a $1.2 trillion infrastructure and jobs bill, into law on Nov. 15, 2021, there have been executive orders and proposed legislation that could have significant, adverse effects on the construction industry. The IIJA, which passed Congress with bipartisan support, includes $550 billion in funding to modernize the country’s aging and overburdened roads, bridges, rail, public transit, water and energy infrastructure. The Biden administration has used this legislation to fulfill campaign promises to the building and construction trade unions by prioritizing project labor agreements (PLA), Davis-Bacon wage requirements and Buy America coverage on federal and federally-funded construction projects, despite a historic shortage of skilled workers, major supply chain disruptions and unprecedented materials cost inflation. Implementing the administration’s policies in light of these problems will likely needlessly increase the cost of numerous construction projects to be funded under the IIJA.

While state and local governments have adopted PLAs for construction projects in their jurisdictions, the use of PLAs on federal projects typically depends on the political party in the White House. In 2009, President Barack Obama issued Executive Order 13502, encouraging executive agencies to require PLAs on large-scale construction projects having costs of $25 million or more to the federal government. While President Donald Trump did not rescind that executive order, his administration did not invest in or encourage PLAs.

Instead of merely encouraging PLAs, President Biden went further, making the use of PLAs a key part of the IIJA, referring to it as a blue-collar blueprint to rebuild America and his domestic policy agenda. In February of this year, President Biden issued Executive Order 14063, strongly encouraging federal agencies to use PLAs on construction projects costing $35 million or more to the federal government, stating that PLAs:

  1. Bring structure and stability to large construction projects;
  2. Secure commitments from all stakeholders;
  3. Establish dispute-resolution processes for resolving grievances between contractors and workers and jurisdictional disputes between workers of different trades; and
  4. Prohibit strikes, lockouts and other work stoppages and slowdowns that may adversely affect project delivery.

The Biden administration’s rationale for PLAs seemingly fails to account for a projected shortage of approximately 650,000 skilled workers this year, continued supply chain disruptions and material cost escalation in excess of 40% since prior to the COVID-19 pandemic. Requiring PLAs to replace nonunion labor with labor from union hiring halls and to hire apprentices exclusively from union-affiliated apprenticeship programs, as specified in the PLA or the applicable union’s collective bargaining agreement identified in the PLA, are problematic for the construction industry’s skilled workforce since only 13.6% of more than 8.1 million construction workers were represented by unions in 2021, according to the Bureau of Labor Statistics. By strongly encouraging labor unions on IIJA projects, the Biden administration is essentially discriminating against the vast majority of nonunion contractors and, in so doing, exacerbating the current historic shortage of skilled construction workers while driving up project costs.

In response to Executive Order 14063, Rep. Ted Budd, R-N.C., along with Sen. Todd Young, R-Ind., and Rep. John Moolenaar, R-Mich., and other House members, introduced the Fair and Open Competition Act in February to ensure that the federal government and recipients of federal assistance cannot mandate PLAs on federal construction projects. The goal of that legislation is to increase competition and government neutrality toward labor relations by:

  1. Prohibiting federal agencies from requiring or prohibiting a contract bidder to enter into an agreement with one or more labor organizations in order to be awarded a federal contract; and
  2. Ensuring bid specifications issued by federal agencies awarding grants, entering into contracts or providing financial assistance for construction projects do not contain any requirements or prohibitions regarding one or more PLAs.

In August, the Biden administration took another step closer to requiring PLAs on federal projects, releasing a proposed rule implementing Executive Order 14063 and requiring every prime contractor and subcontractor to use PLAs and union labor on direct federal construction projects valued at $35 million or more, including work for the U.S. Army Corps of Engineers, Department of Defense and other agencies, but not federally-assisted contracts, including work for state departments of transportation. The proposed rule, which is open for comment through Oct. 18, allows federal agencies to request an exemption from requiring a PLA when such a mandate would substantially reduce the number of bidders on a project such that adequate competition cannot be achieved at a fair and reasonable price. Once the FAR Council issues a final regulation, which is expected to take several months, it will repeal and replace the Obama administration’s 2009 PLA executive order.

Another policy of the Biden administration that will likely result in significantly increased costs of federal construction projects under the IIJA is applying Davis-Bacon Act prevailing wage requirements to specific classes of employees. Requiring that all laborers and mechanics employed by contractors on projects be paid prevailing wages on similar federal projects in the area will undoubtedly raise the costs of federally funded construction projects because wages for specific occupations will be set to the union rate in the locale rather than the average wage. In addition to burdening employers with additional documentation, prevailing wage requirements decreases competition and discriminates against the 87% of skilled construction workers who do not belong to a union.

An additional policy of the Biden administration that will likely increase costs on federal projects under the IIJA is expanded coverage of Buy America to certain construction materials used in federal-aid highway and transit projects. The IIJA expands Buy America beyond iron and steel and certain metals, requiring additional coverage of non-ferrous metals, plastic and polymer-based products, glass, lumber and drywall. Originally scheduled to take effect this May, the deadline has been extended until Nov. 10, 2022. Over the past few months, the Biden administration and U.S. Department of Transportation officials have been investigating the availability of domestically produced materials that would comply with Buy America. Once it goes into effect, expanded Buy America coverage will increase the costs of federal projects under the IIJA, provided the American-made products and materials are reasonably available.

The stakes have never been higher. It is estimated that the IIJA will provide approximately $300 billion in federal funding for highway and highway safety construction projects alone. Should the Federal Highway Administration (FHA) require that all large-scale construction projects use PLAs, the FHA alone could theoretically fund more than 10,000 projects mandating PLAs. In contrast, in the 10 years following 2009, the FHA approved just over 400 projects mandating PLAs under Executive Order 13502. While the actual number of PLA projects under the IIJA remains to be determined, the potential for a dramatic increase in the number of PLA projects is real and likely. Hopefully, the Biden administration will account for the historic shortage of skilled workers, major supply chain disruptions and unprecedented materials cost inflation facing the construction industry in implementing policies regarding PLAs, prevailing wage requirements and Buy America coverage for projects under the IIJA.

by Frederick E. Hedberg
Frederick E. Hedberg has more than 20 years of experience as an attorney handling complex construction and commercial matters, both as a transactional attorney and as an experienced litigator. He also has more than 10 years of experience as a licensed civil and structural engineer which gives him an in-depth understanding of all phases of a construction project. He is in Robinson + Cole’s Hartford, Conn. Office.

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