Turning Point

Labor and Contractors Plan to Break Ground on Fundamental Change

by Tom Stabile

Last winter, a Brooklyn developer and New York City union leaders quietly cut a deal on a residential construction project in Lower Manhattan.

The developer, Leviev Boymelgreen, agreed to use unions on its conversion of 20 Pine Street into luxury housing, and labor leaders agreed to relax standard work rules to save the owner time and money.

The deal merged the interests of a busy, mostly nonunion developer with labor chiefs eager to sign on a big project. But it quickly caused ripples of discontent.

"They got work rule concessions that developers and contractors had been trying to get for years," said Lou Coletti, president and CEO of the Building Trades Employers' Association, an umbrella group of contractor organizations. "Loyal union developers said, 'What about me?' And our union contractors went berserk.

Now, those ripples have grown into a wave in the form of three sweeping project labor agreements poised to reshape the commercial building sector in New York. In negotiation since the spring between the BTEA and its labor counterpart, the Building and Construction Trades Council of Greater New York, the deals would apply work rule changes similar to Boymelgreen's across swaths of the industry.

While unions remain strong in New York, the Boymelgreen deal exposed a deep concern: nonunion construction taking on large-scale projects, said Robert Ledwith, business manager and financial secretary of Local 46 Metallic Lathers and Reinforcing Ironworkers in Queens.

"It's a boom and bust business," he added. "Now, we have to survive this nonunion situation."

Other factors, such as stronger labor-contractor partnerships and PLAs negotiated elsewhere, also paved the way to the deals. But the nonunion threat is pure economics, said Richard Wood, president of New York-based Plaza Construction.

"When there's a piece of land people are vying for and they assume different labor costs, it leaves the nonunion developer with a pot of money for a land bid," he said. "It's over before you begin. To be competitive, we have to do something."

Coletti said the three deals - covering "megaprojects" topping $250 million, market-rate residential housing, and affordable housing - would streamline shift times, holidays, overtime pay, and other rules that vary over 40 industry collective bargaining agreements. They would also lock in prompt payment of benefits and a broad promise of jobs staying union.

"This could have been adversarial," Coletti said. "Now, we have the opportunity for serious change."

Cracks Finally Appear in the Wall

Project labor agreements are rare within the five boroughs because of unionized construction's deep roots in the building sector. Most developers and contractors of big projects in New York were content to keep it that way, Wood said.

"There is a lot more certainty and the level of quality is much more consistent working with a union," he said.

The vertical landscape is another factor, said Robert Peckar, partner at New York-based Peckar & Abramson, a law firm that represents owners and contractors.

"High rises have always been union jobs," he added. "It's not because there was mob influence or because it's a closed city - it's because this is a special type of construction. The people who run and build these jobs need to be skilled."

PLAs have spread in use elsewhere in the region, typically as project-specific or owner-specific deals between owners and unions. The PLA supersedes collective bargaining agreements and requires any bidding contractor to agree it will employ project labor under set terms, which generally consist of streamlined work rules, a no-strike clause, and tailored grievance provisions, along with labor rate discounts in many cases. And generally, they lock in union labor on projects that otherwise would go to nonunion contractors.

Connecticut unions have worked on dozens of public and institutional projects with PLAs, including schools in Hartford, New Haven, and North Haven, said Benedict Cozzi, president of the state's BCTC.

"They've come into vogue in the last 15 years," he added.

They are also common in New Jersey, where a 2002 executive order by then-Gov. Jim McGreevey authorized use of PLAs on any project using state funds, said Richard Dressel, business manager of the International Brotherhood of Electrical Workers Local 164 in Paramus, N.J.

"They're more the norm than the exception," he added. "We have them on public projects as well as large private projects like Xanadu," a $1.3 billion retail complex in East Rutherford, N.J.

School construction programs in Buffalo and Albany also use PLAs, said Jeffrey Zogg, executive director of the General Building Contractors of New York State.

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While New York City's unions generally avoided PLAs, they also did not prevent nonunion developers from spreading their reach [see sidebar]. Many had started out as smaller outer-borough developers in places where union leaders saw few prospects for their members, Wood said.

But the explosion in real estate values over the last five years gave those firms bigger development opportunities, while also attracting nonunion developers from elsewhere. Suddenly, there was real competition, even in Manhattan, Coletti said.

He cited BTEA data showing nonunion labor costs are 25 percent lower, in part due to inefficiencies and conflicts across the 40 collective bargaining deals.

While most came about as isolated changes in the course of normal bargaining, such conflicts add up, Peckar said.

"Some of these clauses have boomeranged and made unions less competitive," he said. "We have rules requiring 30-year-old technology, trades starting at 7 and some at 8, different holidays."

The nonunion threat is also about a short-term business model, Ledwith said.

"They are looking at the immediate bottom line and not the 10-year bottom line," he added. "They never think about whether the finished work is going to leak or settle or get mold on the drywall."

While the nonunion threat is the primary influence for change, other factors have also played a role, such as pressure from federal authorities to stamp out corrupt practices and organized crime influences in the construction industry, said Robert Fee, chairman of New York-based Hunter Roberts Construction Group.

"People get arrested, and the pressure slowly chips away at it," he said. "That increased over the years."

Between sweeping federal investigations and more owners adopting "integrity monitoring" programs, corrupt practices are fading, said Thomas Thacher, president and CEO of Thacher Associates, a New York anti-fraud consultant.

"Is it 100 percent gone?" he said. "No. But it is far better than the cowboy and Indian days. It's far cleaner than ever."

The New York office of the Federal Bureau of Investigation did not respond to a request for comment.

Another factor edging the building sector to change was precedent on the heavy infrastructure side, where unions and contractors had removed inefficient practices years ago, said Frank McArdle, past executive director of the General Contractors Association of Greater New York.

"A lot of the provisions that people think are valuable on the building side are things we already had on the heavy side," he said. "They are using it as a model, because they recognize that the marketplace on the heavy side has remained union."

The building sector addressed some "nonproductive" issues in 2004 collective bargaining agreements with the International Brotherhood of Electrical Workers Local 3 and the Plumbers and Gasfitters Local Union No. 1, both of which are based in Queens. Local 3 agreed to remove "temporary light," a blanket requirement to have a union electrician present if a project kept its lights on past normal working hours, regardless of whether the work was electrical. Local 1 agreed to similarly not require a standby plumber for after-hours water use.

Another major influence was a PLA negotiated in 2004 by the New York City School Construction Authority, which was eager to lure established union contractors to its low-bid work, Coletti said.

William Goldstein, the SCA chief at the time, and Edward Malloy, head of New York's BCTC, worked for months to iron out a PLA for a multiyear $4 billion rehabilitation and renovation program. It calls for a discounted 5 percent premium rate for off-peak work, streamlined work rules and holidays, and more apprenticeships.

The deal created a windfall for union subcontractors, said Fred Levinson, president of the Subcontractors Trade Association of New York and head of Levinson & Santoro Electric of College Point, N.Y.

"It gives us a level playing field," he said. "About $3 billion worth of work that had been going to nonunion contractors will have come to our members."

The PLA also opened eyes, Coletti said.

"Labor leadership began to see these changes didn't affect the pocketbook and was winning them more work," he said.

New Partnership Greases the Skids

The table was set for change by last winter, and the owners were already seated.

"Contractors are too fragmentized," Hunter Roberts's Fee said. "Change is driven by the owners. They say, 'If you want to work for me, these are the rules.'"

Peckar said the Real Estate Board of New York and several longtime city developers who he declined to name began to be more vocal about their predicament.

"Nonunion guys are building some fairly large projects, and the developers who have been using unions were getting beat in their own backyard," he added.

Evidence of competition was stark, Coletti said. A BTEA analysis of outer-borough residential projects showed a slippage from 75 percent of the market down to 50 to 60 percent in the last five years.

Then, two events finally pushed unions and contractors to the brink - together.

One was the 20 Pine Street deal, which was effectively a PLA. The building was already creating a buzz with plans to craft 409 high-end condominium units - selling from $600,000 to $5 million - out of a 568,000-sq.-ft. office tower built in 1928.

While Boymelgreen has a union contractor on a nearby residential tower at 88 Leonard Street, it had both union and nonunion workers on its $300 million residential conversion of 15 Broad Street, also downtown. The BCTC saw a chance to sign up an active developer, Fee said. Neither Malloy nor Boymelgreen responded to calls for comment.

Union developers heard about the no-strike clause, "B-rate" labor costs, and other elements, and were angry, Fee said.

"The walls began crumbling very rapidly," he added.

The second event fed off of the first. It was the Construction Industry Partnership annual retreat held each year in Florida, with hundreds of union, contractor, and developer representatives meeting under a decade-old BTEA-BCTC partnership aimed at finding common ground.

The partnership has focused on legislative goals, having successfully lobbied for a state law to allow municipalities to require contractors on jobs of more than $1 million to have apprenticeship training programs. But productivity rules and PLAs historically had been taboo topics.

This February, however, the dam had broken. Coletti said the group had open and frank discussions about 20 Pine and larger issues. It culminated with a panel discussion led by Peckar that resulted in a consensus to head home with plans to start working on an industry-wide PLA.

The negotiating began in earnest in March, and soon the two sides focused on crafting PLAs by market segment. Coletti said they chose three distinct areas: megaprojects, to shore up a strong union sector; market-rate residential housing, to stop losing ground in a sector rapidly going nonunion; and affordable housing, to gain where unions have little presence.

"We said, 'Let's handle these three first, and make progress,'" he added. "We intend for discussions to continue on interiors and commercial work."

The two sides haggled terms through early summer, then settled on a conceptual plan. Attorneys created drafts in July and industry representatives have been reading them over the summer in hopes of scheduling ratification votes in the BTEA and BCTC this fall, Coletti said.

Coletti declined to provide specifics, but said the deals cover topics such as common holidays, standard schedules, alcohol and drug testing, strike and lockout bans, safety standards, prompt fringe benefit payments, and overtime rates.

An Experiment Across an Industry

While not all unions are on board with the PLAs, such as the operating engineers and elevator constructors, Coletti said Malloy has kept most of his side at the table.

"I don't think most people know what Ed Malloy has done to save union jobs in this town," he said.

It's also unclear how the PLAs will go over. The GBC will be skeptical, Zogg said.

"In certain places, with certain programs and certain size projects, PLAs can work if they are well-negotiated and involve meaningful savings," he said. "But while most of our members are union contractors, they know PLAs are designed to benefit one class and tend to shrink the pool of people that do the work."

Some nonunion developers may well take another look at union labor, however.

Ken Haron, president of New York-based Artimus Construction, lauded the reinforcing ironworkers union's two-day concrete pour cycle, which helps him save time on affordable housing condominium projects in Harlem. But going fully union is hard because his 12-to-14 story, 130,000-sq.-ft. projects have thin profit margins.

"A PLA would be a benefit down the line," he said. "We just don't want it forced on us. You lose the competition."

It also remains to be seen whether the new PLA offers a viable model, because most PLAs are project-specific and between owners and unions, whereas the BTEA-BCTC deal is sector-wide and between labor and contractors. Ledwith said the idea makes him uncomfortable.

"It overturns the provisions of the collectively bargained agreement, which is voted on by members," he said. "But the membership sees the writing on the wall. We have to blend in different strategies."

It may be a necessary bargain, said Richard Weiss, a spokesman for the Mason Tenders District Council of New York.

"There are a lot of interests that have to be protected and a lot of politics to sort out," he said. "But to recapture that market would be a positive move for us."