Labor costs may change construction industry

Builders push for concessions from unions as contracts expire.

By Daniel Massey

A profane jeer greeted contractors as they ascended the red-carpeted stairs outside Cipriani Wall Street for last month's annual gala of the unionized construction industry.

The heckling, from an ad hoc chorus of angry workers who wielded signs assailing contractors' “greed” for demanding cost reductions, was just one indication of the turmoil shaking the city's construction industry.

With about two dozen contracts set to expire June 30, builders are pushing for significant concessions from unions. They say that the Great Recession has permanently altered the finances of the $24 billion industry and that without major changes to work rules, they will have to shift to nonunion workers.

“We're at a fundamental crossroads,” said Louis Coletti, president of the Building Trades Employers' Association. “We're sincere; we want to continue this business model. But we need some cooperation in reducing the cost differential between union and nonunion work.”




Mr. Coletti's contractors have zeroed in on getting rid of contractually mandated workers they consider unnecessary—like pricey master mechanics, oilers and Teamsters foremen who, according to developers, can add up to $1 a square foot to their projects. And they want to ax standby jobs that require certain steamfitters, operating engineers and other tradesman to be on the job full-time, despite being needed only in emergencies.

Employers call the negotiations a “threshold moment” and insist the 20% to 30% cost differential between union and nonunion work must be slashed to about 10%. They wield a report by the Regional Plan Association arguing that if current trends continue, “time alone will gradually erode union construction in New York until it becomes a minor player.”

The study, which was timed to come out as negotiations began, reported that nonunion jobs make up about 40% of all jobs in the construction industry, up from 10% in the 1970s.

“High costs ... combined with the enduring recession and lack of financing, have brought the industry to a critical moment in which serious reform may be imminent because it is so necessary,” the report said.

Union officials, while acknowledging the need for changes to jump-start building—construction employment citywide is down 22% from 2008—dismissed the report's recommendations and don't think the industry is facing a do-or-die moment.

“I think that's actually a ridiculous approach to business, that you can act like you have a crystal ball and forecast what will happen five or 10 years down the road,” said Paul Fernandes, chief of staff at the Building and Construction Trades Council of Greater New York. “Things aren't permanent, but just because they're not permanent doesn't mean we don't recognize that we're in a market that we have to deal with today ... that everyone has to sharpen their pencils.”

TENSIONS ESCALATE

Mr. Fernandes said the unions have already made concessions, citing cost-cutting deals that have stimulated $15 billion in private development, though the RPA report questioned the impact. He said that almost all large projects remain union-built and that employers are exaggerating the loss of market share.

Tensions reached a boiling point last week when Mr. Coletti revealed that he had informed Gary LaBarbera, the trades council president, that his group voted to terminate its participation in a more than 100-year-old agreement that commits contractors to using only union labor on job sites.

Pulling out of the agreement is “the first step to formally breaking the business model that has existed since 1903, where all contractors' jobs are built with 100% building trades members,” Mr. Coletti said. “It's a historic vote that nobody in the BTEA ever wanted to make.”

Union officials called the move a “negotiating ploy” that would have little impact because the agreement is embedded in collective bargaining pacts. Mr. Fernandes called its termination a “drop-dead issue” for unions, saying, “That's not something that would be on the table, from our perspective.”

Contractors and workers were not always at each other's throats. Early last year, after an industry consultant spoke to a meeting of contractors and construction union leaders about the need to win back market share from nonunion companies, they talked about jointly writing to workers and renting out Madison Square Garden to explain the state of the industry to the rank and file. In December, labor and management got together to map out a campaign to stamp out the growth of nonunion competition.

The Garden was never booked, and the campaign never happened. The two sides could not agree on how to bring down costs and, for the first time in 14 years, canceled their annual meeting.

Contractors then struck out on their own, warning union workers through subway advertisements and a website that nonunion labor puts their jobs at risk. The campaign incensed union officials, who felt contractors had no right to reach out directly to their members, and has made this year's contract talks the most contentious in recent memory.

Negotiations are expected to go down to the wire for contracts covering carpenters, concrete workers, Teamsters, mason tenders, steamfitters, operating engineers and others. Talks between the steamfitters and operating engineers could be bruising, as those groups have been the least willing to change work rules.

Developers have entered the fray via the Real Estate Board of New York, looking to free the construction process from the stranglehold of the operating engineers, who control what goes in and out of sites.

Last week, the contractors gained an upper hand on the operating engineers when the city said it would move forward with a national licensing exam for crane operators, against strong union objections. The possibility that nonunion operators could be licensed in the city pressures the union to make concessions.

The painters, whose deal expired in April, accepted a new contract that included givebacks, leading many in the construction industry to hope a pattern has been set. The workers got raises totaling 9% over four years but agreed to changes that will enable employers to realize significant savings. The union agreed to a 20% reduction in benefit contributions, cuts in wages and benefits on commercial projects in the outer boroughs, and more flexible shift start times.

LABOR DIVIDED ON CONCESSIONS

If that contract were replicated industry-wide, employers would be ecstatic. But the protesters outside Cipriani lambasted the painters' deal for giving away so much. Other trades have more leverage; painters work in an industry with plenty of nonunion workers are at the ready. Strikes, given the economic climate, are a long shot, and deals could be extended a year to allow for more negotiating.

But if contractors stick to their decision to pull out of the century-old deal that guarantees union-only job sites, last month's Cipriani protest could pale in comparison to demonstrations to come.

“We've been hearing for a long time that the two sides are quite angry at each other, but this is potentially the most serious standoff that we've heard about,” said Hope Cohen, associate director of the Regional Plan Association's Center for Urban Innovation. “Maybe there is going to be a strike.”