FAR Council Issues Proposed Rule to Implement President Biden's PLA Executive Order
Today, the Federal Acquisition Regulatory (FAR) Council published in the Federal Register a proposed rule to revise FAR subpart 22.5 to implement President Biden’s February 4, 2022 Executive Order (EO) 14063, on the “Use of Project Labor Agreements For Federal Construction Projects.” This EO prescribes the use of project labor agreements (PLAs) on federal government “large-scale construction projects,” which are defined as federal construction projects within the U.S. for which the total estimated cost of the construction contract to the federal government is $35 million or more. The proposed rule is open for comment until October 18, 2022.
Background
Back in 2009, President Obama issued a PLA EO that merely encouraged the use of PLAs for federal construction projects with a total cost of $25 million or more. Between the years of 2009 and 2021, there were a total of approximately 2,000 contracts eligible for PLAs under the 2009 Obama EO, but PLAs were used for only12 of them. President Biden’s PLA EO replaces the Obama EO encouraging PLAs with a requirement that federal contracting officers shall default to requiring PLAs on federal “large-scale construction projects” unless one of three exception applies.
Proposed Rule
Covered Contracts
To operationalize President Biden’s PLA EO, today’s proposed rule establishes a PLA requirement for contracts that meet the definition of federal “large-scale construction projects,” defined as federal construction projects estimated to cost the U.S. government $35 million or more. The proposed rule makes this threshold subject to periodic adjustments for inflation. “Construction” under the proposed rule is defined to include “construction, reconstruction, rehabilitation, modernization, alteration, conversion, extension, repair, or improvement of buildings, structures, highways, or other real property.”
In describing the practical impact of the proposed rule, the FAR Council estimates that based on available data from FY 2019 through FY 2021, on average, each year there are 119 federal construction awards valued at $35 million or more and the FAR Council estimates that this proposed rule will result in PLAs actually applying to an estimated 60 to 107 of these federal “large-scale construction project” awards each year.
While the proposed rule requires PLAs for only federal “large scale construction projects” with a total cost of $35 million or more, in the proposed rule the FAR Council stresses that a contracting agency may require the use of a PLA on federal construction projects below this threshold, “if appropriate.” In considering whether the use of a PLA is “appropriate” for a construction project below the $35 million threshold, a contracting agency may consider whether: (1) the project will require multiple construction contractors and/or subcontractors employing workers in multiple crafts or trades; (2) there is a shortage of skilled labor in the region in which the construction project will be sited; (3) completion of the project will require an extended period of time; (4) PLAs have been used on comparable projects undertaken by Federal, State, municipal, or private entities in the geographic area of the project; (5) a PLA will promote the agency’s long-term program interests, such as facilitating the training of a skilled workforce to meet the agency’s future construction needs; and/or (6) any other factors that the agency decides are appropriate.
Exceptions to the PLA Requirement and IDIQ Contracting
Consistent with President Biden’s EO, the proposed rule provides three exceptions to the requirement to use PLAs for federal “large-scale construction projects” and establishes new procedures for a contracting officer to request an exception to the PLA requirement. These new procedures require the contracting officer to prepare a written explanation to justify an exception and submit the request for approval by the contracting agency’s senior procurement executive.
Exceptions would be required to meet one of the following three conditions:
(1) the requirement for a PLA would not advance the federal government’s interests in achieving economy and efficiency in federal procurement; or
(2) “market research” indicates that requiring a PLA on the project would substantially reduce the number of potential offerors to such a degree that adequate competition at a fair and reasonable price could not be achieved; or
(3) requiring a PLA would otherwise be inconsistent with statutes, regulations, EOs, or Presidential memoranda.
The first exception will only apply if one or more of the following four factors is established: (1) The project is of short duration and the project lacks operational complexity; (2) The project will only involve one craft or trade; (3) The project will involve specialized construction work that is available from only a limited number of contractors or subcontractors, and/or (4)The agency’s need for the project is of such an unusual and compelling urgency that a project labor agreement would be impracticable;
With respect to the “market research” exception, in the proposed rule the FAR Council explains that a likely reduction in the number of potential offerors would not, by itself, be sufficient to except a contract from having a PLA under this authority unless it is coupled with the finding that the reduction would not allow for adequate competition at a fair and reasonable price. In addition, when determining whether the market data justifies an exception, contracting officers are directed to consider current market conditions and the extent to which price fluctuations may be attributable to factors other than the requirement for a PLA (e.g., costs of labor or materials, supply chain costs). Agencies would be permitted to rely on price analysis conducted on recent competitive proposals for construction projects of a similar size and scope. Contracting officers conducting market research are broadly instructed to ensure that their procedures involve a current and proactive examination of the market conditions in the project area to determine national, regional, and local entity interest in participating on a project that requires a PLA, and to understand the availability of unions, and unionized and non-unionized contractors.
Although there is no historical data on the number of exceptions that may be granted under these exceptions since this PLA rule and associated exceptions are new, the FAR Council estimates that exceptions may be granted for 10% to 50% of the estimated 119 federal “large-scale construction contracts” awarded each year. This results in the FAR Council’s previously noted estimate that, on average, the PLA requirement will, on average, apply to 60 to 107 “large-scale construction contract” awards each year.
The FAR Council also observes that some agencies use indefinite-delivery indefinite-quantity (IDIQ) contracts to award orders for “large-scale construction projects”. IDIQ contracts may cover multiple projects of varying values. For an order pursuant to a IDIQ that is at or above $35 million, an agency would be required to use a PLA unless an exception applies. An exception would only apply to the entire IDIQ contract if the basis for the exception cited would apply to all orders under that IDIQ contract. For non-IDIQ contracts, an exception would be granted for a particular contract by the solicitation date. For IDIQ contracts, an exception would be granted prior to the solicitation date if the basis for the exception cited would apply to all orders under the IDIQ. Otherwise, exceptions would be granted for each order under the IDIQ by the time of the notice of the intent to place an order pursuant to the IDIQ.
Subcontractors and Labor Organizations
Under President Biden’s EO and today’s proposed rule, the requirement for a PLA flows down to subcontractors. An agency may not, however, require contractors or subcontractors to enter into a PLA with any particular labor organization when the PLA includes more than one signatory labor organization representing the same trade. Subcontractors that may be required to participate in a PLA will generally review and sign on to the PLA negotiated by the prime contractor. The subcontractor does not negotiate the PLA. The FAR Council estimates the requirement for PLAs would apply to between 240 and 430 subcontractors annually.
Solicitations and Contract Clauses
The proposed provisions for “Notice of Requirement for Project Labor Agreement” in a contract solicitation provide a basic provision and two alternative provisions for the contracting officer to select from. The provision selected identifies whether all offerors responding to a contract solicitation (under the basic provision), the apparent successful offeror (under “Alternate I”), or the awardee (under “Alternate II”) must provide a PLA. In addition, the clause at FAR 52.222-34 allows the contracting officer to choose when to require the executed PLA – with the order offer, after the offer but prior to order award, or after award of the order.
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