Project Labor Agreements are key to our clean energy transition

A large-scale American energy transition is upon us. The Inflation Reduction Act, signed into law in 2022 by President Joe Biden, allocates nearly $400 billion for new energy projects, including solar, wind, carbon capture and sequestration, hydrogen, nuclear and more.

It represents what politicians in both parties have long suggested was the key to American energy independence: an “all of the above” strategy.

That is, if we can deploy the sufficiently skilled workforce to build, maintain and operate these facilities.

So how do we do it?

First, we need to acknowledge that for all of their environmental risks, America’s legacy fossil fuel sector has produced a largely sustainable workforce model. The industry long ago recognized the importance of partnership with skilled trade unions to attract, train and retain the skilled workforce it needed. Not surprisingly, U.S. government data has found that legacy energy projects typically feature two to three times the level of union density as renewable projects.

Another study, analyzing the energy industry in Minnesota, North Dakota and South Dakota, found that clean energy projects were simply not competitive in the labor market relative to their legacy industry peers, and increasingly reliant on lower-skilled workers from out-of-state to build projects.

To its credit, the Inflation Reduction Act has recognized the importance of job quality and local workforce development as central tenets of America’s clean energy transition. Most of the tax incentives linked to new project development require minimum labor standards, including prevailing wages and apprenticeship utilization.

These standards are an insurance policy for taxpayers that ensures often complex projects— like nuclear plants or hydro-electric facilities, for example — are producing quality jobs for our economy and being built by competent workers who will uphold the highest standards of safety and craftsmanship.

However, there is still another tool that can be utilized by project developers to ensure these projects are completed on time and on budget: Project Labor Agreements, or PLAs.

PLAs are a de-risking mechanism. They are pre-hire agreements between employers and skilled trade unions that establish the terms and conditions of employment for all workers on a construction project. They enable contractors to know, definitively, what their costs will be, and typically include language that eliminates the risk of strikes, lockouts, or other labor disruptions that could throw a project off track.

Important to America’s energy transition, they would also support a reliable system for developing the skilled workers these projects will demand. And supporting apprenticeships, they would include a built-in method for both contractors and unions to jointly undertake the critical task of workforce development, ensuring programs are sufficiently robust and responsive to both current and future industry needs.

This latter point cannot be emphasized enough. We are living through an historically tight labor market, especially within the construction sector that’s needed to build next-generation projects with skill and precision.

A tool to prevent labor shortages, disruption

Indeed, recent survey data from the Associated General Contractors of America has found non-union contractors were far more likely to report workforce supply issues, project delays due to labor shortages, loss of workers to other industries, and to call their workforce training pipeline “poor” relative to the union alternative. The reason: Because this side of America’s construction industry simply does not invest in training or workforce development in the same way as unions and their signatory contractors.

All of which brings me to the issue of project costs, which is a common misconception about PLAs. Yes, workers are better paid and better trained. But these investments in training and job quality represent just a tiny fraction of the overall cost picture. PLAs are a tool that helps prevent workforce shortages and labor disruptions, as well as the lagging productivity, craftsmanship and safety problems associated with under-trained workers that can often increase project costs. This is why researchers from New York to California have concluded that PLAs do not increase overall project costs, nor do they hinder bid competition.

Indeed, research from the non-partisan Illinois Economic Policy Institute analyzed more than 400 PLA projects from our state’s Capital Development Board between 2011 and 2013, noting that winning bids typically came in nearly 5% below the original engineer’s estimate. It also found that PLA projects experienced a lower rate of cost overruns than comparable private sector projects and were finished within one month of the estimated completion date more than 70% of the time.

Ultimately, PLAs have proven to be a valuable tool for delivering certainty and quality to a new generation of large-scale construction projects. As the Inflation Reduction Act begins the work of transitioning America’s complex energy system into this new era, their utilization can be a winning formula for project owners, for workers, and for taxpayers. Most importantly, by promoting job quality and workforce stability for increasingly in-demand industries, they are the insurance policy we need to ensure the critical work ahead truly delivers as promised for our economy and communities.

Marc Poulos is the executive director of the Indiana, Illinois & Iowa Foundation for Fair Contracting.