Construction Unions Agree To Cut Labor Costs

By Theresa Agovino

After six months of discussions, building contractors and unions have reached an agreement to slice labor costs. The problem is that developers estimate the deal will only save them no more than 15%—far less than the 25% they had sought when negotiations began.

Developers had hoped lower labor costs would help bring down a project’s total price tag, making financing easier to achieve amid the credit crunch and recession. Labor accounts for 45% to 60% of a project’s costs. But there are doubts about whether the negotiated cuts go deep enough to make a difference in getting new or stalled projects off the ground.

“It doesn’t seem to go far enough to deal with the problems of today,” says Steven Spinola, president of the Real Estate Board of New York.

The contractors and unions are expected to present a deal that they say will lower costs between 15% and 20%. Developers, however, estimate the savings will only total between 8% and 15%.

“You don’t know how big the savings will be until you bid out the contract,” says Mr. Spinola.

The vast majority of the savings stem from efficiencies from work rule changes, sources say. Unions have agreed to work an eight instead of a seven hour day. They have also agreed to honor a common list of holidays. However, sources said there are few if any wage or benefit concessions.

Many unions were unwilling to take pay or benefit cuts because their members are still working even though construction activity has slowed as projects are completed and there is a dearth of new ones to replace them. Some wondered why unions weren’t more flexible in the face of a dim employment outlook and a real threat from nonunion labor.

For example, the New York Building Congress, a trade group, reported that residential building permits in the first two months of the year reached 576 units in 133 buildings citywide. That is just 20% of the total reached in the same period in 2008 when permits were issued for 2,878 units in 344 buildings. Those figures represent just 13% of the total during the same time frame of 2007, when permits were issued for 4,476 units in 621 buildings throughout the five boroughs.

However, corralling the unions is difficult. The deal covers 25 different unions with 72 different labor agreements. Few of the union leaders were willing to step up and cut their members’ pay without real assurances their sacrifices would lead to more jobs, sources said.

Developers were also disappointed that the agreement won’t be automatically applied across the board. Sources say that instead developers will have to apply to have their project covered by the new work rules. One source says the owners of 14 developments have made applications and that requests will be granted depending on whether the unions believe their concessions will really benefit the project.

The timing of the announcement by the contractors and the unions is still being worked out. Local union officials had traveled to Washington D.C. in recent weeks to have their national organizations sign off on the deal but it is unclear if it has the official okay. Additionally, unions, contractors and developers would like Mayor Michael Bloomberg to attend the press conference they are planning to announce the deal. That means waiting for the Mayor to fit the event into his schedule.

A spokesman for the mayor had no immediate comment. Louis Coletti, president of the Building Trades Employers’ Association didn’t return a call and a spokesman for Gary La Barbera, president of the Building and Construction Trades Council of Greater New York, an alliance of union, declined comment.

In the past, Mr. Coletti has said there are roughly $4 billion to $5 billion worth of construction projects that have been stalled or haven’t started in recent months because of difficulties in obtaining financing. He has said that union concessions could help spur at least some of them forward.

However, building costs are falling even without labor concessions. Construction costs across the city have fallen anywhere from 5% to 15% since just last summer as prices for everything from structural steel to plumbing subcontractors sag along with demand.

Construction Industry Partnership Addresses Threats to Union Construction

Union World Edition: Mar 2009

Developers, owners, labor and management attending the Construction Industry Partnership Conference held in Hollywood, Florida, February 9th & 10th participate in the panel, “What will unionized construction in NYC look like in 2009?.” Moderating the discussion is NYS Building and Construction Trades Council, AFL-CIO President Ed Malloy. Participating in the panel is Local 3 Business Manager Christopher Erikson (4th from right).

At a contentious meeting of the Construction Industry Partnership (CIP) held February 9th & 10th, parties from labor, management and developers openly discussed a plan to combat the threats to unionized construction in New York City.

The event opened discussions regarding the effect the economic downturn has had on the construction industry in New York City and the projects that are threatened. Among the keynote speakers was Larry Silverstein, developer of Ground Zero. He outlined the difficulties being confronted by developers and the need to work together to overcome the economics of development so that construction can continue at Ground Zero and other areas throughout New York.

According to Silverstein, 10,000 construction jobs are in jeopardy at Ground Zero alone. At 7 World Trade Center, 3,000 workers were involved in its construction. “It was the last to fall and the first to be rebuilt,” boasted Silverstein, “however, we need to insure that all of Ground Zero is rebuilt in a timely fashion. It is projected 60,000 families live in downtown Manhattan. The area needs new office space for when the economy rebounds.”

Silverstein estimates that Tower 2 will consist of 3.1 million square feet of space and that Tower 3 at an estimated 1,100 feet tall will consist of 2.9 million square feet and Tower 4 at 975 feet will consist of 2.5 million square feet. “Each will connect with the Fulton Street Transportation Hub,” stated Silverstein.

The construction of Towers 2, 3, and 4 remain at risk according to Silverstein. Funding is drying up due to the economic downturn and slow progress on the public infrastructure is causing cost increases. “Billions needs to be borrowed in order to build; banks are not financing WTC projects. Projected rents are down 30 to 40% which cause banks to reevaluate the terms of their loans to developers,” stated Silverstein.

“We need to reestablish the bottom line on labor costs for banks to be willing to lend. Failure to produce a cost structure will result in not being able to build these jobs. I have been a union builder my entire life,” declared Silverstein. “Presently, Towers 2 & 3 are stopped and Tower 4 is about to stop. We need to work together to obtain whatever cost savings are necessary in order for the financing numbers to work so that the banks will lend to developers in NY.”

NY & NJ Port Authority Executive Director Chris Ward addressed the conference and reiterated many of the concerns ­expressed by Larry Silverstein. He also ­committed the PA to utilizing Building and Construction Trades affiliated workers on all PA work.

Developer Albert Kalimian expressed his need for $120 million in savings to complete the interior of his project at the former Red Cross Building on Amsterdam Avenue with union workers. The veiled threat to go non-union was met with much opposition by participants of the Conference. Many union officials objected to such veiled threats to go non-union as anti-productive at developing the necessary cooperation to combat the effects of the economic downturn.

Panel

One panel entitled, “What will unionized construction in NYC look like in 2009?” brought many of the issues confronting the industry to the front. The panel was moderated by Ed Malloy, president of the NYS Building and Construction Trades and included Local 3 Business Manager Christopher Erikson, ­Executive Director of the General Contractors Association Denise Richardson, Executive Director of the District Council of ­Carpenters Mike Forde, Building Contractors Association President Steve Alessio, Plumbers Local 1 Business Manager George Riley and General ­Counsel Building Contractors Association of NY Ray McGuire.

Local 3 Business Manager Christopher Erikson (center) along with Executive Director of the District Council of Carpenters Mike Forde (left) and Steve Allessio, President of the Building Contractors Association, participating in the panel “What will unionized construction in NYC look like in 2009?”

The panel at times had heated discussions regarding the present circumstances the building trades are confronting regarding the demands of employers and developers for a 25% cost reduction.

Denise Richardson reported that the general contractors she represents are presently busy but that work is scheduled to finish within a year and that projected work has dropped off significantly. She pointed out that out of the Federal stimulus package, only $3 billion is going to New York State with less than $1 billion to New York City. Eighty percent of her members’ work is government funded and that it is questionable, with the loss of tax revenue, if infrastructure work presently projected will go forward.

Business Manager Erikson pointed out to those in attendance that unlike many of those present who have not experienced unemployment recently, Local 3’s members have not experienced full employment since the terrorist attack on the World Trade Center. “We have a furlough program that shares the work opportunity among our membership. Our members are more productive than at any time in our history. He reminded everyone that the union cannot create the work yet we are being asked to do just that today by imposing upon ourselves up to 25% reductions in our costs. Perhaps rather than an across the board PLA, we need to pick one project and develop a PLA that will make it a success and then use that as a prototype for ensuring the success of other projects.

Steve Alessio stated that unless he sees a change he will not be present next year. “I will no longer walk away from the $100 million of work that was lost to non-union in 2008. I will use open shop if I must to stay in business.”

George Riley of the Plumbers Local 1 was optimistic, stating “that by working together we can and will meet the challenge. We can’t just agree to wage cuts and other adjustments. The Union movement is a democratic movement which requires the assent and cooperation of our members. Change takes time. We are all willing to embrace new construction techniques, technology and increased organizing activities to confront the present threat.”

Ray McGuire of BCA, unlike Riley, was pessimistic citing historical trends that indicate trade unions in decline. In response, Local 3 Business Manager Erikson stated over the last eight years his members have worked over 20 million man-hours annually and he finds it difficult to believe that there is an additional 20 million-man hours annually being performed non-union.

Developer Larry Silverstein addressed the participants of the CIP Conference.

Commitment to PLA

On the second day of the Conference the leadership of labor, management and developers announced they are committed to working together to confront the challenges expressed during the previous day. The tone changed markedly to one of mutual cooperation to overcome the present obstacles.

Announced by all was the intent to select six (6) projects presently threatened, to go forward and develop a project labor agreement that would hopefully become a prototype for a city-wide PLA for threatened projects.

Gary LaBarbara, president of the New York City Building and Construction Trades Council (BCTC) and Lou Colletti, executive director of the Building Trades Employers Association (BTEA) committed their organizations to work in cooperation in ­developing the project labor agreement.

Denis Hughes, president of the New York State AFL-CIO outlined the situation in his address. “We are in difficult economic times. We must make meaningful accommodations to succeed. I would suggest the industry identify 4 to 6 projects where financing is threatened, where a PLA could be agreed to by the end of February 2009 and become the prototype for future projects in need of help.

In addition the BCTC and BTEA must commit to one another their intention to work together and eliminate any lack of trust that may exist that one is not as committed as the other.
We should adopt a code of excellence that will build confidence among the developers, lenders and customers in their usage of BCTC and BTEA members.

We must insure that non-productive work practices will not be tolerated. Non-productive workers will be pressured by their peers and urged to be productive.”

Lou Colletti stated that “survival is what is at stake. Our world is collapsing; we have no new work! If we have no work there is no work for our Union partners to work on. We must take drastic action in order to survive. The demands being made for cost reduction is not coming from the employers of union labor but from the banks. As Larry Silverstein stated, banks are not lending monies to developers/builders. Equity in property is less than the financing needs on new projects and banks are looking to take back funding on existing projects due to re-evaluation of the original financing commitments. Labor equals 50% of total cost of construction and some relief must come from that sector of the industry.”

Local 3 Assistant Business Manager Raymond Melville poses a question to NY&NJ Port Authority Executive Director Chris Ward at the CIP Conference.

“There are no guarantees,” stated Colletti, “The contractors are not making the decisions, the banks are. In response to the concern that only union labor is taking the brunt of the cost reduction it is important that everyone understand that contractors have laid off 10 to 15% of their project managers and support personnel. Profit margins have evaporated and no longer exist. Many projects are done at cost. Contractors have forgone salaries and those who remain employed have seen their wages frozen, salaries reduced and reduced contributions to 401(k) plans.

The problems being confronted are industry-wide and industry-wide solutions must be developed. The commitment to a PLA to address the needs of the industry is the first step in the right direction.”

Alan Keyes: Stop Obama or U.S. will Cease to Exist

Strikebreakers

Deal to Cut Costs Is Close For Builders and Unions

By CHARLES V. BAGLI

Reeling from the real estate downturn in the city, construction unions and builders are edging closer to an agreement that they say will reduce labor costs and enable at least some of their projects in Manhattan to proceed despite the weak economy.

The stakes are high for both sides. Developers, who paid record-breaking prices for land during the boom years, are now desperately seeking ways to cut their costs and keep projects alive.

The unions, in turn, are eager to keep their members employed and to retain their traditional dominance over large-scale projects in New York. Yet many are reluctant to give up hard-won wages and benefits.

Some construction managers and union officials involved in the negotiations say that the pending agreement on work rules, wages and benefits would cut labor costs by 15 to 20 percent, but not the 25 percent originally sought by builders. Many involved are loath to discuss it publicly for fear of blowing up the fragile talks with the union construction trades, all of which are covered by contracts. The carpenters and the electricians have been much more willing to bend, union officials and contractors say, than the steamfitters and the operating engineers, the highly paid operators of cranes, bulldozers and other heavy equipment.

Some developers, however, are skeptical that any agreement will translate into substantial savings. Some doubt whether even a 25 percent reduction would be enough to salvage a residential project when rents have dropped by a third or more.

“A lot of my developers are concerned that it doesn’t go far enough,” Steven Spinola, president of the Real Estate Board of New York, said of the proposed agreement. “But we’re grateful discussions are taking place.”

Among the developers pushing for a deal are Larry Silverstein, who is building at ground zero, Stephen M. Ross, who has a slow-moving project on 42nd Street at 10th Avenue, and the Milstein family, which has a project under way at Battery Park City.

The three people at the center of the negotiations — Raymond G. McGuire, president of the Contractors Association of New York, Louis J. Coletti, president of the Building Trades Employers Association, and Gary La Barbera, president of the Building and Construction Trades Council of Greater New York, an alliance of unions (replacing Edward J. Malloy) — did not return calls requesting comment.

“Industry leaders,” said James A. Parrott, chief economist at the union-supported Fiscal Policy Institute, “should be seeking help from Washington to retain construction jobs and maintain wages, benefits and safety standards.”

“Our national economic recovery depends on labor and management working together to expand and not weaken the middle class,” he said.

Construction employment in New York City climbed to roughly 130,000 during the boom years. But a report by the New York Building Congress predicts that that number could fall by 23 percent to 100,000 next year.

Nonunion projects are showing up in what has been a union bastion: Manhattan. The Atlantic Development Group is putting up an 89-unit apartment house at 10th Avenue and 23rd Street in Chelsea with nonunion contractors. And at a union job on the Upper West Side, the Chetrit Group and Stellar Management took the highly unusual step of asking contractors for new bids on three 15-story buildings already under construction on Columbus Avenue, between 97th and 100th Streets. Developers and union officials expect nonunion contractors to take over the project.

“Our main goal was to continue with the project and keep as many people working as possible,” said Jeff Gdanski, a vice president at the Chetrit Group.

Bruce Ratner, a developer who traditionally builds with union contractors, recently stopped at the 38th floor of his planned 76-story Beekman Tower in Lower Manhattan, threatening to cap the building at 40 stories if construction unions did not accept concessions on wages and work rules.

Mr. Ratner, who is not involved in the current negotiations, stopped work for three months early last year while he scrambled to obtain $680 million in construction financing. At that time, he decided to switch from condominiums to rentals. In another cost-cutting move, he modified the design by the architect Frank Gehry, using a standard curtain wall instead of one that would seem to be undulating, on one of the tower’s eight sides.

It was not so long ago that major Manhattan developers and their lenders worried little about these things, figuring that rents and sale prices would gallop well ahead of the surging cost of land, concrete and steel.

But the cityscape is now littered with half-finished towers that have run into financial problems. Construction managers say that developers are stuck with land costs of $400 a square foot or more, up from $200 five years ago.

In January, developers and construction managers who often use union contractors began talking about a citywide agreement on wages, work rules and benefits. Developers and managers say they prefer union contractors, despite their higher wages, because they provide highly skilled workers.

“This year is not too bad,” said one union official who insisted on anonymity because he was not supposed to discuss the talks. “But 2010 is looking like we’re going off the ledge.”

But many unions have balked at wage cuts, particularly those who have not suffered layoffs, like cement workers and operating engineers. Some contractors have also questioned the value of the concessions that some unions have agreed upon, even ones that have been verified by consultants. There was talk of a compromise for a select group of six projects, including those owned by Mr. Ross, Mr. Silverstein and the Milstein family.

Executives and labor officials who have been briefed on the latest discussions say the unions may agree to consider projects on a “case-by-case” basis for a special “project labor agreement” that would save developers whose projects are otherwise not viable up to 20 percent on the current labor contracts.