July 29, 2009 State cash for chip fab spawns regions first PLA on private project The Business Review (Albany) - by Pam Allen
GlobalFoundries claims many firsts: New Yorks first $4.2 billion chip fab, the first tenant in the Luther Forest Technology Campus and the first company lured to the area with a record $1.2 billion in state cash and tax incentives.
Heres one more for the list: Seems its the first private project in the Capital Region tied to a union labor agreement.
And since that agreement was mediated with the help of David Patersons office and the support of area legislators, it probably wont be the last.
The bargaining chip for organized labor: The state committed $650 million in cash and $800 million in tax breaks to lure the chip plant to Malta in Saratoga County, about 25 miles north of Albany.
Those incentives do not change the private status of the project, but labor unions say the infusion of state money warranted a Project Labor Agreement, or PLA. PLAs are collective bargaining agreements negotiated between the project owner and the building and construction trades. They are commonly employed when the government builds schools, municipal buildings, infrastructure and other taxpayer-funded ventures.
Fred Kotler, of Cornell Universitys School of Industrial and Labor Relations, says the Global Foundries PLA could encourage more of its kind in the Capital Region.
It could very well be a precedent, says Kotler, associate director of Cornells Construction Industry Program.
Kotler is also author of a 32-page report released in March that supports public PLAs as a planned approach for standardizing hours, stabilizing a work force and saving money.
But open shops contend otherwise: They say theyre shut out of PLAs because they require large numbers of union workers.
These agreements mean that most open-shop contractors wont bid the projects, said Rebecca Meinking, president of the Empire State Chapter of Associated Builders & Contractors in Syracuse.
As Meinking sees it, any such precedent is a very dangerous one.
What it says it that whenever there is public money assisting a development project, the elected officials who approve the public expenditure can use the project as a way to pay back unions for their donations, she said.
PLAs set wages, benefits and work schedules, outline grievance procedures, prohibit strikes and set penalties when work isnt completed on time. They also favor union labor and require prevailing wages, which generally are higher than non-union wages.
The Business Review recently obtained a copy of the confidential labor agreement signed by M+W Zander, GlobalFoundries projects manager, and 14 local trade unions. The document is undated, but signatories confirm that the deal was finalized in early June.
The PLA requires that contractors pay prevailing wages and benefits to 93 percent of the employees.
The 7 percent excluded from the deal are technical services employees involved in speciality gas, chemicals, water and drain systems, or janitorial and maintenance work. Those contracts will be hired through M+W Zander, and without regard for labor status.
The PLA has a maximum 17 percent drag-along provision for non-union labor. That means that contractors can hire one non-union worker for every six union workers employed at the site, guaranteeing that 76 percent of the labor will come from union halls. Less than 30 percent of the states construction workers belong to a union.
That provision stymies non-union companies from bidding on jobs with PLAs, Meinking said. She also reviewed the 20-plus page agreement.
Why would a non-union shop want to use union workers over their own? Meinking said. For that reason, the 76 percent number will be much higher, she said.
Construction of Global Foundries Fab 2 is expected to employ 1,400. The plant is expected to employ another 1,400 when its fully operational in 2014. Right now, its only client is Advanced MicroDevices Inc. (NYSE: AMD). GlobalFoundries is owned by AMD and two investment funds owned by the Abu Dhabi government.
Work hours and payroll over the two-year construction period are estimated at 5 million and $300 million, respectively. The numbers for the 7 percent not covered by the PLA translate to 350,000 labor hours, or 175 full-time workers, a year. The 17-percent drag-along represents 850,000 labor hours, or 425 workers, a year.
Rick Whitney, president and CEO of M+W Zander U.S. Operations, said open shops that agree to the terms of the PLA can bid for work on the site.
And we understand that some may not want to do that, he said.
Meinking also says the 6-1 drag-along in the GlobalFoundries agreement is higher than in most PLAs. And that creates an even greater deterrent for non-union bids. Most PLA ratios are around 4-1, she said.
Michael Wallender, a partner with Couch White LLP in Albany, also reviewed the GlobalFoundries Project Labor Agreement.
He said the project doesnt legally require a PLA because a government entity isnt contracting the job. But, he said, the agreement is more reasonable than most PLAs he has seen.
But there may be good reason for that.
It appears that in order to get a PLA, there was an effort to agree to concessions. I think the agreement probably resulted from practical political pressure rather than legal necessity, said Wallender, who works in the firms construction law and labor law practice. His clients include developers, project owners and union- and non-union contractors.
The Greater Capital District Building and Construction Trades Council AFL-CIO, the 12,000-member labor organization that signed off on the agreement, declined comment for this story. GlobalFoundries also declined to comment, citing the documents confidentiality. Any bidder for the job receives a copy of the PLA.
Larry Bulman is business manager for the 500-member United Association of Journeymen and Apprentices of the Plumbing and Steamfitting Industry Local 773, one of the local trade groups that approved the agreement.
He called the PLA a huge commitment to the local work force. Bulman said non-union companies arent precluded from bidding, provided they adhere to the pay rates, benefits and conditions outlined in the agreement, and access labor through the local union halls.
We never would have asked for a PLA if the project didnt involve more than $1 billion in public incentives. Theres an enormous amount of public money involved, Bulman said.
Training is key to ensure that the work is done properly, he said. His local union spent more than $1 million in the last five years to certify people for the specialized work and learn cleanroom protocol.
We invested in our work force without any guarantee that anyone was going to sign on the dotted line, Bulman said.
He said the 6-1 drag-along was typical of most labor agreements. I think even the open shops realized we would make up the bulk of the work force.
