Money and Infrastructure – A Primer

The pending enactment of large-scale construction incentive and funding legislation at the federal level will catalyze new projects for each mode of the transportation industry. The core transactional competencies will invoke areas that, while important to the interest groups involved, are not as well known.  For example, many of the projects likely to be funded will invoke wage and benefit mandates under federal contracting laws, such as the Davis-Bacon Act, the Service Contract Act, and the National Labor Relations Act. Furthermore, the legislative effort on infrastructure itself is closely linked to independent spending authorizations that must be enacted. This means that access to funds for new projects will likely be linked to tax and other provisions that, in specific situations, will provide the union(s)and other interest groups a market share advantage.

These issues are an extremely active area of the law at the state and local level of the law as well. For this reason, this article provides two illustrative case updates, decisions of the California Supreme Court which address the expansion of public works requirements to labor performed to maintain support services and equipment, including, in a first for the mode, railroad rolling stock.

I. Understanding the Davis-Bacon and Service Contracting Acts

The Davis-Bacon Act is a federal stature that sets mandatory wage, benefit rates for workers employed on certain public works projects. These include those directly financed by federal monies and authorized for listing for bids by contracting agencies. In some cases, the presence of public monies include financing directed through government agencies but structured for the private market. The Service Contract Act is a statute that functions in ways like Davis-Bacon but applies to non-construction employment and projects and certain support personnel

By way of summary, the core statutes generally applicable are, as follows:

The transactional elements of contracts must be include wage rates by the awarding entity.  See (https://www.dol.gov/agencies/whd/government-contracts/construction). Where a particular rate is incomplete or inapplicable by its terms, there is a tool known as the “conformable rate process” that involves an assigned contracting officer and the Department of Labor in Washington. At times, formal rate surveys are necessary – unlike common state processes, labor union contracts, while influential are not automatically adopted as the appropriate rates.

The transactional mechanics of contracting is also closely regulated at all tiers.  For example, contracts must specify the clauses contained in 29 CFR 5.5 (a) (1) through (10). Additional requirements may also be inserted at the entity level. As the infrastructure and spending packages are finalized, these could include specific provisions on the purchase and manufacture of equipment used in a project, its installation, labor negotiation requirements and other terms and conditions, including the panoply of evolving elements of so called “Buy America” requirements that affect the sourcing of materials and the wages of those employed to do the manufacturing.

One of the most overlooked elements of these requirements is that omission of such mandatory contract language will make the originating contractor directly liable for violations a contracting partner might ordinarily be responsible for, even to the extent of nullifying the usual role of contractual indemnification language and such other clauses as may be required

Small changes in the underlying statutes could have far reaching effects. For example, federal law has long recognized that jurisdiction extends to work performed on a regulated site, but work “off-site” unless dedicated to and incorporate to such a site is not.

However, one phrase used by labor advocates and plaintiffs’ lawyers has been to contextually relate the two if the work is seen as performed “in the execution” of the overall project. The California Supreme Court was asked in two cases to apply this approach to peripheral maintenance of support, repair and mechanical servicing of equipment used for a project and, in a related case, to the maintenance of railroad rolling stock. The cases are Mendoza v. Fonseca McElroy Grinding Co., Inc. (S2535740 and Busker v. Wabtec Corporation (S251135), both decided on August 16, 2021.

The analysis (both the majority opinions, concurring and dissent are excellent scholarly pieces worth reading for a deeper dive. Most pertinent is that the Court made it clear that new areas of coverage must be in the underlying statute. As work proceeds on infrastructure, that is part of what we are monitoring for.

II. What is a Project Labor Agreement and How Does It Affect Transactions Financing, Structure and Bidding?

A project labor agreement (“PLA”), sometimes known as a project stabilization agreement, or when tailored to blend with local government policy goals, as a community workforce agreement, is entered into by a government entity with a construction project owner and a union or consortium of unions for planned projects. Such agreements may lawfully be executed on private (nonpublic works) projects, even though one party to the agreement may be a public entity. The concept authorized by the Supreme Court in Building & Constr. Trades Council v. Associated Builders & Contractors of Mass./R. I., Inc., 507 U.S. 218 (1993), is that a public entity may lawfully act in the private arena as a “market participant”.

An express limitation is that what is implemented is not framed as a regulatory requirement, even though indirect conditions, as neutrality provisions such as financing eligibility are. In a case in which the author was counsel for the principal amicus, Chamber of Commerce of United States v. Brown, 554 U.S. 60 (2008) the Court concluded that such a requirement violated an employer’s right to choose under the National Labor Relations Act. This distinction is one of the critical areas where the infrastructure and spending packages may impose new kinds of union incentive provisions that amend employer NLRA rights in favor of unions.

Other PLA related provisions that can be expected are exemptions from laws protecting workers if a PLA is in place (commonplace now in some states), or exclusionary or mandated sole source requirements as to benefit plans and apprenticeships. It is likely that even if such provisions are enacted, they will be subject to legal challenge.

Although they are, by their nature, controlled in their terms and application by the signatory labor unions, PLAs must include provisions that allow non-union companies to work on those projects, provided they agree, in writing, to follow the terms and conditions of the adopted labor agreement(s). The PLA is the modern economic equivalent of the “one job” agreement where a union agrees to execute a labor agreement valid and enforceable only for the duration of a single construction project

The PLA has far reaching effects on transaction structure, in that participating companies and ventures can make choices as to how they would capitalize, insure, license and sign – thus, for a given project entities, could design a joint venture to perform work, or by forming limited purpose acquisitions or mergers to effectively enable compliance while limiting obligations and liability by that status

PLAs impose more requirements than wages and benefits, but also affect who and how those payments are made.  For example, even if an employer has existing benefit plans for its employees, the PLA may require that (duplicate) union benefits be paid. One of the likely amendments to the infrastructure legislation is an opt out provision to eliminate this requirement.

Another complication is control of how and under which trade workers are classified, i.e. carpenters, laborers, electricians and other subtrades. Most commonly, an arbitration mechanism is established that adjudicates company – union; inter union jurisdictional and worker disputes. When known as “labor peace agreements” such PLA(s) seek to prohibit labor actions, such as strikes. The rational of promoting labor peace is regularly relied upon to provide a legal basis for a project owner, even a public entity, to enter into what otherwise might be an unlawful regulatory scheme.

It must also be noted that the new administration may seek, either in the new legislation or in an executive order, to create a structure for PLAs under true Davis-Bacon projects.

 An Obama era rule (https://www.govinfo.gov/content/pkg/CFR-2010-title3-vol1/pdf/CFR-2010-title3-vol1-eo13502.pdf) required case by case authorization on specific projects with public notice and challenge requirements, which were not generally successfully met on projects where attempted.  An infrastructure package could revise those requirements to make approval much more likely.

III. How Will the PRO Act Provisions Affect Transactions?

The PRO (Protecting the Right to Organize (PRO) Act (H.R. 842) Act is a freestanding legislative proposal designed to alter how the labor relations rules apply in favor of labor organizing. Commonly discussed provisions include limitations on state right to work provisions (which allow workers to opt out of mandatory union dues under certain situations), more union friendly election and organizing rules and related provisions. One of the most significant but less publicly discussed elements is the introduction of monetary penalties and fines for labor law violations, known as unfair labor practices. While the likelihood of passage of the PRO Act as free-standing legislation is unknown, the strong likelihood is that elements of its provisions will be added to contracts for projects that are financed through the infrastructure initiative.

IV. How will the Newly Restructured National Labor Relations Board and Agency Leadership Affect Transactional Decision-making?

Effective August 27, Democratic nominees will hold the majority on the National Labor Relations Board.  To put this in context, it is useful to review a portion of the priority case and subject matter list issued by Jennifer Abruzzo as general counsel of the National Labor Relations Board (NLRB). Ms. Abruzzo, a union side in-house counsel with deep working knowledge of the Act, has begun her tenure by publishing an analytical list of issues and cases that are ripe for taking up that could result in changes. See GC Counsel Memo 21-04 (August 12, 2021) GC Memo 21-04.pdf

Of the many areas addressed in the memo (which in practice functions as an enforcement and priority guidance for case handling) is the identification of issues involving union access. The GC specifically calls out two areas of interest potentially relating to infrastructure. These are:

  1. cases involving the applicability of Tobin Center for the Performing Arts, 368 NLRB No. 46 (2019) (overruling New York New York Hotel & Casino, 356 NLRB 907 (2011) and holding that a property owner may exclude off duty contractor
    employees seeking access to engage in Section 7 activity unless they work both
    regularly and exclusively on the property and the property owner fails to show
    they have one or more reasonably non-trespassory alternative means of
    communication) and
  2. Cases involving the applicability of UPMC, 368 NLRB No. 2 (2019), and Kroger Ltd Partnership, 368 NLRB No. 64 (2019) (overruling Sandusky Mall, 329 NLRB 618 (1999) and redefining discrimination to allow an employer to exclude union
    representatives from, inter alia, access to public spaces on employer property).

V. Summary and Conclusions

This article will be part of a series as infrastructure and its inherent complications become clear. Future updates will include specific comments from my transactional and financial teams as details become available.

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