Request By:
Robert Sherman
Director, Legislative Research Commission
Opinion
Opinion By: JACK CONWAY, ATTORNEY GENERAL; Nicole H. Pang, Assistant Attorney General
Opinion of the Attorney General
Robert Sherman, Director of the Legislative Research Commission, on behalf of a member of the General Assembly, seeks this office's opinion on whether a local School District may enter a Project Labor Agreement with a labor organization in regards to the construction of a new school.
Project Labor Agreements
Commonly employed in the building and construction trade, Project Labor Agreements (hereinafter "PLAs") are comprehensive, pre-hire collective bargaining agreements, authorized by 29 U.S.C § 158 (f), between a project owner and labor organization that establishes the conditions of employment to which all contractors and employees involved in the construction of a specific project will be bound. Proponents of PLAs argue that benefits of the agreements can include:
(1) avoidance of work stoppages on long-term projects during which local collective bargaining agreements of different craft unions expire, (2) uniform work rules for different crafts working on the same project, and (3) access to a skilled labor force through the union referral systems. U.S. Gen. Accounting Office, Pub. No. GAO/GGD-98-82, Project Labor Agreements: The Extent of Their Use and Related Information at 1 (1998).
Project Labor Agreements have been used by federal government agencies for large scale public construction projects for many years. Examples of federally funded projects constructed under PLAs include the Grand Coulee Dam in Washington State in 1938 and NASA's Cape Canaveral in Florida. Currently, federal executive agencies are encouraged to use PLAs in projects exceeding $ 25 million. 1
The use of PLAs in public construction is not limited to the Federal government. Courts have commonly upheld the use of PLAs by state and local agencies in public works projects. In Building and Construction Trades Council v. Associated Builders & Contractors of Massachusetts/Rhode Island 2, 507 US 218, 231-232 (1993) the Supreme Court held that the Massachusetts Water Resources Authority, despite the fact that it was a public entity, was analogous to a private "owner" of a construction project and could choose to become a party to a lawful project labor agreement.
It is evident from the face of the statute that in enacting exemptions authorizing certain kinds of project labor agreements in the construction industry, Congress intended to accommodate conditions specific to that industry. Such conditions include, among others, the short-term nature of employment which makes post hire collective bargaining difficult, the contractor's need for predictable costs and a steady supply of skilled labor, and a long-standing custom of prehire bargaining in the industry. See S.Rep. No. 187, 86th Cong., 1st Sess., 28, 55-56 (1959); H.R.Rep. No. 741, 86th Cong., 1st Sess., 19-20 (1959) U.S.Code Cong. & Admin.News p. 2318.
There is no reason to expect these defining features of the construction industry to depend upon the public or private nature of the entity purchasing contracting services. To the extent that a private purchaser may choose a contractor based upon that contractor's willingness to enter into a prehire agreement, a public entity as purchaser should be permitted to do the same. Confronted with such a purchaser, those contractors who do not normally enter such agreements are faced with a choice. They may alter their usual mode of operation to secure the business opportunity at hand, or seek business from purchasers whose perceived needs do not include a project labor agreement. In the absence of any express or implied indication by Congress that a State may not manage its own property when it pursues its purely proprietary interests, and where analogous private conduct would be permitted, this Court will not infer such a restriction.
Challenges to PLAs involving public entities generally revolve around whether or not they violate local procurement laws. For the most part, courts throughout the nation have held that they do not. See, e.g., Laborers Local No. 942 v. Lampkin, 956 P.2d 422 (Alaska 1998); Associated Builders & Contractors, Inc. v. San Francisco Airports Comm'n, 981 P.2d 499 (Cal. 1999); John T. Callahan & Sons, Inc. v. City of Malden, 713 N.E.2d 955 (Mass. 1999); Associated Bldrs. & Contractors, Inc. v. Southern Nevada Waters Authority, 979 P.2d 224 (Nev. 1999); State ex re. Associated Builders & Contractors, Central Ohio Chapter v. Jefferson Co. Bd. Of Comm'rs, 665 N.E.2d 723 (Ohio Ct. App. 1995); and Master Builders of Iowa v. Polk County, 653 N.W. 2d 382 (Iowa 2002).
Although the courts in many of our sister states have permitted public agencies to become parties to PLAs, the matter appears to be one of first impression in the Commonwealth of Kentucky.
Discussion
The questions currently before us involve the Carter County School District Board of Education's (hereinafter "School Board") desire to enter into a PLA with Tri-State Building and Construction Trades Council (hereinafter "Tri-State") for the construction of an elementary school near Olive Hill, Kentucky. Specifically, Mr. Sherman asks whether or not a statute or regulation exists to prevent a labor agreement between a School Board and a Union. And, if no such legal impediment exists, would the use of a Project Labor Agreement be violative of the Kentucky Model Procurement Code's "best value" requirement and/or the "lowest and best responsible bidder" requirement found in the School Construction Statute at KRS 162.070?
First and foremost, we can find no specific statute, regulation or Kentucky case that specifically bars the use of a Project Labor Agreement in a public school construction project. As such, we must now determine whether or not a PLA used in a public school project conforms to our procurement laws.
The Commonwealth of Kentucky's purchasing policies and practices are codified in Chapter 45A of the Kentucky Revised Statutes as the "Kentucky Model Procurement Code" (hereinafter "KMPC"). Although counties and other municipal governments are not required to follow the KMPC, Carter County has chosen to adopt its provisions through KRS 45A.343. The purposes and policies behind the KMPC are found in KRS 45A.010 which states:
(1) This code shall be liberally construed and applied to promote its underlying purposes and policies.
(2) The underlying purposes and policies of this code shall be:
The Project Labor Agreement under consideration by the Carter County School District Board of Education consists of 18 Articles which delineate the responsibilities of the parties to the contract. While Articles II-XVIII set out the specific details of the PLA, Article I, entitled "Purpose", provides the grounds for the agreement. Among the reasons given for the PLA are:
. The recognition that the "construction of the new Tygart Creek Elementary School is important to the development of the economical and educational opportunities of the residents of the District of Carter County";
. "The need for the timely completion of the Project without interruption or delay";
. The need to establish "a framework for labor-management cooperation and stability";
. The desire "to maximize the employment opportunities of skilled craftspeople living within the local area";
. The desire "to mutually establish and stabilize wages, hours, and working conditions for craft workers";
. The advantages gained from "standard work rules and prohibitions against strikes, lockouts, slowdowns, and other work stoppages during the course of construction"; and
. The need for "predictable costs and a steady supply of skilled labor."
Many of the "Purposes" outlined in the Tri-State PLA mirror those recognized by the Supreme Court in Building and Construction Trades Council v. Associate Builders & Contractors of Massachusetts/Rhode Island, 507 US 218 (1993) when it permitted the use of a labor agreement in a construction project funded by a state government agency. Here, execution of the PLA under consideration will provide numerous benefits, such as timely completion, stable wages, no work stoppages, etc., to the School Board.
In order to satisfy the requirements established by the Kentucky Model Procurement Code, a Project Labor Agreement must comply with the Code's underlying policies and purposes. Chief among them are the fair and equitable treatment of all contractors and laborers, both union and non-union and the assurance that prices will remain competitive.
To "insure the fair and equitable treatment of all persons" and to promote "effective competition", the purchasing process must be non-discriminatory. The terms of the Tri-State PLA specifically state that any person or entity is free to submit a bid without regard to union or non-union status.
This Agreement shall not foreclose any person or entity from submitting a bid on this project. This Agreement does not distinguish between entities employing union labor and those employing non-union labor. It applies equally to all prospective bidders, with stated stipulations. Further, this Agreement does not require any contractor to become a "union" employer. It simply requires any person or entity, as a condition for being engaged to perform work on the project, to agree to be bound by the same rules and restrictions as all hereunder apply?
The PLA also stresses uniformity in the work place. All contractors who accept work on the Tygart Creek Elementary School Project must accept the terms of the PLA without exception.
[T]he Owner shall require all Contractors of whatever tier who have been awarded contracts for work covered by this Agreement, to accept and be bound by the terms and conditions of this Project Agreement by executing the Signature Page herein attached prior to commencing work on this Project.
And, even though the School Board's agreement is with a labor organization, the PLA emphasizes that there must be no discrimination between Union/Non-Union employees in the hiring of labor. It states:
While this Agreement requires contractors to use the registration facilities of local unions, the selection of applicants for work on the project is required to be done on a non-discriminatory basis, without regard to union or trade group membership. All construction labor unions are required by federal law to operate non-discriminatory hiring halls. Qualified non-union employees may ask to be placed upon the hiring hall referral list. Thus, under this Agreement, no individual or contractor is precluded from working on the project based upon their affiliation or non-affiliation with a labor union.
The KMPC and KRS 162.070 further equalize the treatment of potential contractors and foster competition through each statute's competitive bidding rules. The standard used to award a contract under the KMPC is "the responsive and responsible bidder whose bid offers the best value." KRS 45A.080(5). A "responsive bidder" is defined at KRS 45A.070 (7) as:
a person who has submitted a bid under KRS 45A.080 which conforms in all material respects to the invitation for bids, so that all bidders may stand on equal footing with respect to the method and timeliness of submission and as to the substance of any resulting contract.
A "Responsible bidder" is defined at KRS 45A.070(6) as:
a person who has the capability in all respects to perform fully the contract requirements, and the integrity and reliability which will assure good faith performance.
While the construction of the Tygart Creek Elementary School is certainly a public works project contemplated by the KMPC, it also falls under the purview of the school construction statute at KRS 162.070 which states in pertinent part:
The contracts for the erection of new school buildings, additions and repairs to old buildings, except additions or repairs not exceeding seven thousand five hundred dollars ($ 7,500), shall be made by the board of education with the lowest and best responsible bidder complying with the terms of the letting. .. (emphasis added)
Under the KMPC, the project owner must evaluate a bid on the basis of the "responsive and responsible bidder whose bid offers the best value."KRS 45A.080(5). The standard under the school construction statute requires "the lowest and best responsible bidder complying with the terms of the letting" . KRS 162.070. Although stated differently, both phrases carry nearly identical practical definitions.
Both the KMPC and KRS 162.070 require that the terms of the prospective contract be advertised. The KMPC states, "[a]dequate public notice of the invitation for bids shall be given a sufficient time prior to the date set forth for the opening of bids. " KRS 162.070 requires "advertisement for competitive bids pursuant to KRS Chapter 424." Additionally, both the KMPC and KRS 162.070 indicate that a successful bidder must be "responsible", i.e., willing and able to fully meet the terms, conditions and criteria outlined in the contract solicitations with integrity and reliability. The statutes require that the bids submitted by prospective contractors address the specific terms outlined by the project owner. The KMPC requires that eligible bids be "responsive" to the requirements outlined in the invitation to bid while KRS 162.070 states that the board of education will entertain bids "...complying with the terms of the letting. " Clearly then, under either statute, all of the potential bidders' proposals must adequately address every concern and requirement set out in the bid solicitation. Only bids that are "responsive" or "comply with the letting" will be considered during the evaluation process.
In terms of cost proposals, KRS 45A.080(5) looks at the bidder who offers the "best value". KRS 162.070 favors the lowest and "best" bidder. What is noticeably absent from the KMPC in its Policies and Purposes is a statement that lowest price is of the utmost concern. While cost must always be taken into consideration, especially in the economic climate we currently face, it is only one factor in determining "best value." Best value is defined at KRS 45A.070(3) as:
a procurement in which the decision is based on the primary objective of meeting the specific business requirements and best interests of the Commonwealth. These decisions shall be based on objective and quantifiable criteria that shall include price and that have been communicated to the offerors as set forth in the invitation for bids. (emphasis added).
The official definition of "best value", on its face, states that price is only one of the criteria on which a procurement decision should be based when trying to meet the specific business needs and best interests of the Commonwealth.
KRS 162.070's "best responsible bidder" is not defined by the school construction statute. Although no Kentucky case law exists to provide a definition of "best responsible bidder" in terms of public school construction, the court has discussed the term in general. In reviewing a public entity's award of a franchise agreement the Kentucky Supreme Court stated:
The requirement to sell to the highest and best responsible bidder does not prevent a government or public authority from excluding a particular bidder for good and valid reasons. The term "best" can be interpreted to include that the bidder must be responsible and have the apparent ability to carry out the terms of the agreement for the benefit of the public. E.M. Bailey Distributing Co., Inc. v. Conagra, Inc., 676 S.W.2d 770, 773 (Ky. 1984).
(emphasis added)
Although the Bailey case dealt with the "highest and best responsible bidder, " the Court stated the term "best" requires a bidder to carry out the terms of the agreement in a responsible manner. Furthermore, it is acceptable for a public entity to reject a bidder for a valid reason. Courts in other jurisdictions have evaluated PLAs under similar competitive bidding standards with similar results.
In Master Builders of Iowa v. Polk County, 653 N.W. 2d 382 (Iowa 2002), the Supreme Court of Iowa, was asked whether a county could lawfully utilize a PLA in the construction of an Events Center. Iowa's public bidding statute stated that a contract must be awarded to the "lowest responsible bidder. " In holding that the County could proceed with construction under the PLA, the Court stated:
We have determined previously that the competitive bidding statute operates to "provide a [county] with the best results at the lowest possible price." City of Des Moines, 498 N.W.2d at 704 (emphasis added). Finding the lowest possible price between bids is a simplistic and mechanical process limited to unsealing and comparing submitted bids. Determining the bid that will provide the best results requires greater discretion. It would be a waste of public resources-and thus a harm to the public as taxpayers-to require an entity such as the Board to simply react to whatever bids are produced in deciding what contractor is the most responsible and is most likely to produce the best results. See Assoc. Builders & Contractors, Inc. v. San Francisco Airports Comm'n, 21 Cal.4th 352, 87 Cal.Rptr.2d 654, 981 P.2d 499, 507 (1999);Queen City Constr., Inc. v. City of Rochester, 604 N.W.2d 368, 374 (Minn.Ct.App.1999); A. Pickett Constr., Inc. v. Luzerne County Convention Ctr. Auth., 738 A.2d 20, 24 (Pa.Cmwlth.Ct.1999). The Events Center PLA pre-defines the universe of responsible bidders as those that can and will operate under its terms thus allowing the Board to peremptorily designate the contractors it has determined will produce the best results. This does not mean that the Board is later constrained in choosing what contractor is the lowest responsible bidder. It simply means that the discretion to determine what constitutes the best results for a public contract exists throughout the contract letting process. Master Builders of Iowa v. Polk County, 653 N.W. 2d at 395.
In Queen City Construction, Inc. v. City of Rochester, 604 N.W.2d 368 (MN. CA. 2000), the City of Rochester sought to renovate a civic center it owned and operated. The City wished to use a PLA. The local bidding code required Rochester to award contracts to the "lowest reliable and responsible bidder. " In holding that Queen City Construction Company could not enjoin Rochester from imposing a PLA requirement, the Minnesota Court of Appeals stated:
In determining the "lowest reliable and responsible bidder, " a city may consider factors other than price. "Value is not always determined by price alone." Otter Tail Power Co. v. Village of Elbow Lake, 234 Minn. 419, 425, 49 N.W.2d 197, 201 (1951). Queen City Construction, Inc. v. City of Rochester, 604 N.W.2d at 374.
The Carter County School District Board of Education has expressed specific needs in the present situation. As an example, timing of construction will be crucial due to the nature of the school year. A bid will not qualify for consideration if the bidder is unwilling to, or cannot meet all of the terms put forth in the bid solicitation. A project owner has an interest in the manner in which the contract is executed and all bids that qualify for consideration may not necessarily address the needs of the project owner as well as others. Whether the "best bidder" or "best value" concept applies, neither the KMPC nor KRS 162.070 require cost to be the overriding factor in the bidding process.
Previous Attorney General Opinions
The PLA being considered by the School Board contains one clause that appears, at first blush, to be a discriminatory geographic preference:
The intent and understanding of the Parties is to maximize the employment opportunities of skilled craftspeople within the local area. In order to accomplish our goals it shall be required that all contractors and subcontractors employ at least 75% of all employees within the local area or demonstrate good faith efforts to do so. The local area is defined as residing within the following counties of Kentucky: Boyd, Carter, Elliott, Greenup, Lawrence, Lewis and Rowan.
In 1980, this office was asked to provide an opinion as to whether invitations to bid on a $ 1 million project to renovate the Rowan County Court Facility could be restricted to contractors with home offices in Rowan County, Kentucky.
You first ask whether or not the fiscal court can let the project under advertisement for competitive bids, but by invitation only to general contractors with home offices in Rowan County, Kentucky.
We stated:
It should be kept in mind that the bidding statutes are designed to prevent a waste of public money and abuses such as fraud, favoritism, improvidence and extravagance; and thus the bidding statutes must be strictly construed. 72 C.J.S. Supp., Public Contracts, Secs. 8 and 9, p.p. 182-184. In strictly construing KRS Chapter 45A, we arrive at the premise that in the absence of an explicit provision to the contrary, the restricting of bidders to Rowan County is not permitted. The statutes are designed to procure competitive bidding. Any action narrowing the number of potential qualified bidders would be in derogation of the statutory purpose. OAG 80-215.
Although we opined in OAG 80-215 that the Rowan Fiscal Court was impermissibly attempting to restrain competition by means of a geographic restriction, the same cannot be said of the School Board's and Tri-State's desire to "maximize the employment opportunities of skilled crafstspeople living within the local area."
In OAG 80-215, we stated, "a local government cannot do indirectly [here, restrict the bidders to general contractors of Rowan County] what it is prohibited from doing directly, i.e., avoiding competitive bidding. The Fiscal Court was aware that it was required to "let the project under advertisement for competitive bids. " However, the Fiscal Court sought to circumvent the bidding requirement by issuing invitations, but only inviting Rowan County contractors to bid.
The present factual situation is distinguishable from that in OAG 80-215. Even with the PLA's "desire to maximize the employment opportunities of skilled craftspeople living within the local area" clause, no discriminatory restraint on the bidding process occurs. Unlike the Rowan Fiscal Court in OAG 80-215, which only sought to accept bids from Rowan County contractors, the Carter County School District Board is not seeking to limit the bidding process to a geographic region. In the present case, any contractor, regardless of location, who is "responsive and responsible", i.e. willing and able to meet the requirements listed in the solicitation, is eligible to submit a bid. Here, all contractors wishing to work on the Tygart Creek Elementary School must be willing to be bound by the PLA. This includes all of the separate provisions in the PLA. Thus, all of the contractors submitting bids will have factored into consideration the requirement that they hire at least 75% of their employees from the local area or "demonstrate good faith efforts to do so." Furthermore, the "requirement" to employ labor from the seven local counties is not an absolute. Contractors must merely demonstrate "a good faith effort to do so." For those reasons, OAG 80-215 is not applicable or controlling in the current opinion.
Analysis
We can find no statute, regulation or case law authority that would strictly prevent the use of a labor agreement during the construction of a public school, provided that the agreement conforms to all applicable procurement laws and advances the "specific business requirements and best interests of the Commonwealth." KRS 45A.070 (3).
More particularly, we find no statute, regulation or case law authority that would prevent the Carter County School District Board of Education from entering a Project Labor Agreement with Tri-State Building and Construction Trades Council with respect to the construction of the new Tygart Creek Elementary School near Olive Hill, Kentucky.
A thorough review of the Project Labor Agreement indicates that it does not violate the purposes and policies of the Kentucky Model Procurement Act, KRS 45A et. seq. Of primary concern is the fact that the PLA may be discriminatory by excluding prospective bidders without a rational basis. We find that this particular PLA does not. Any person or entity may bid on the project. There is no distinction made between Union and non-Union contractors or employees. The Carter County School District Board maintains, at all times, the discretion to award all contracts. No contractor is required to join a Union to qualify for or maintain a job. Contractors must, however, agree to be bound by the uniform job rules established in the PLA. Furthermore, the selection of job applicants for referral of jobs will be on a non-discriminatory basis and will not be based on a person's union status. Every contractor and prospective employee begins the process on even footing.
Concerns about regional preferences are also misplaced. The KMPC regulates the procurement and bidding process as does KRS 162.070. Nothing in the PLA restricts the area from which bids may be accepted. No preference for local contractors is expressed. While the parties indicate a preference for local employees, the contractors are asked to exhibit a "good faith effort" to find such labor.
After giving due consideration to the potential issues set out by the Kentucky Department of Education in a letter to Carter County Schools Superintendent Darlene Gee, dated July 15, 2010 and input provided on behalf of the labor organizations, it is our opinion that the Carter County School District Board of Education may enter the proposed Project Labor Agreement with Tri-State Building and Construction Trades Council without violating the Kentucky Model Procurement Code, Chapter 45 A, et. seq. or KRS 162.070.
Footnotes
Footnotes
1 See Presidential Executive Order # 13502, February 6, 2009.
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2 More commonly known as the Boston Harbor case.
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