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.