The Hidden and Not-So-Hidden Costs of Public Contracts
The current economic climate has been, to say the least, challenging for the construction industry. The number of new projects being awarded has decreased, and those projects that are being awarded come with new and sometimes unexpected costs for contractors. In an effort to overcome rising unemployment rates and budget deficits, it has become all too common for public contracts to come with “pay to play” price tags for mason contractors. Understanding some of these costs is key to maintaining a successful masonry business.
Some of the hidden costs included in public contracts are:
- Unexpected costs associated with supplying labor for the project
- Rental fees or taxes to maintain essential equipment at a construction site
- Time spent completing mandatory documentation to support that the contractor meets all of the special requirements required by the entity awarding the contract.
Chances are you have already had to address the following:
Project Labor Agreements. A Project Labor Agreement (PLA) is when the government awards a contract for public construction to a contractor who uses union labor. Federal law provides that contractors and their employees have the option of whether or not to unionize. For those contractors who choose not to unionize, a PLA can exponentially increase the cost for a mason contractor to bid on a public construction contract. Unless the contractor agrees in writing during the bidding process to include a collective bargaining agreement in the public construction contract and to unionize its operation, it is excluded from pursuing lucrative contracts.
Employment Agreement Programs. When bidding for municipal contracts, get familiar with any local programs designed to make a majority of your labor force for the contract consist of skilled labor in the local population. The programs ensure that qualified residents of a municipality are given primary consideration for new jobs created as a result of municipal financing and development projects.
For the mason contractor, obvious benefits and costs to bidding on a contract with an employment agreement program exist. Utilizing persons in the community where the project is to be completed means providing jobs to qualified residents and fostering good relations with the local community. The not-so-obvious costs include additional documentation required to defend compliance with the program and possible exposure to hefty monetary penalties in the event of noncompliance. Additionally, a contractor could be faced with the not-so-easy decision to suspend existing employees who may not reside in the municipality in favor of unknown persons who do reside in the community and who are direct beneficiaries of an employment agreement program.
Construction Material/Equipment Fees. A contractor cannot work on a project without using certain equipment and materials, and the costs associated with such use should be included in a bid. But what happens when the local or state government decides to impose a fee or a tax on the contractor for using the materials or equipment? It has become increasingly popular for local governments to introduce legislation that essentially charges a daily or weekly fee for contractors to have essential equipment at a construction site. Costs that were once covered under building permits are now parsed out, and contractors face weekly “rental fees” that can range in excess of hundreds – if not thousands – of dollars per week.
Get Answers. Depending upon the size of your business, the costs associated with bidding on public contracts can be overwhelming and may even be a deterrent to participating in the bidding process. If you find yourself in this position, it is worthwhile to consider becoming a member of an umbrella organization within the masonry industry. There are numerous associations throughout the United States that provide mason contractors with updates on legislative efforts that have a direct effect on contractors’ bottom lines. For example, the Mason Contractors Association of America lobbies for contractors to have successful businesses and to minimize those costs that can and do minimize your profits. If you are under deadlines to submit a bid, it is worthwhile to consult with an attorney familiar with the laws of the jurisdiction where you are attempting to do business.