Are Federal Project Labor Agreements Raising Costs?
Federal project labor agreements are set to raise construction costs by nearly 5%. What does this mean for builders? #ConstructionIndustry
Federal project labor agreements are here to stay. If you're a builder, developer, or infrastructure investor trying to forecast project economics over the next 12 to 36 months, that's not a footnote — it's a line item that demands your full attention.
Turner Construction's latest cost projections put year-over-year increases at nearly 5%, and federal PLAs are a meaningful part of that story. Understanding the mechanics of why — and what it means for your next project — is the difference between a bid that wins and a contract that bleeds.
What Federal Project Labor Agreements Actually Are
A project labor agreement is a pre-hire collective bargaining agreement that sets the terms and conditions of employment for all workers on a specific construction project. Under a federal PLA, contractors and subcontractors — union or not — must agree to the terms before they can participate. That includes wages, benefits, dispute resolution processes, and often, union hiring hall referrals.
The Biden administration's 2022 executive order made PLAs mandatory on federal construction projects valued at $35 million or more. That threshold sweeps in an enormous portion of the federal construction pipeline: highways, federal buildings, military installations, clean energy projects funded through the Infrastructure Investment and Jobs Act, and more.
The intent was straightforward — reduce labor disputes, ensure skilled workforce availability, and deliver projects on time. Whether PLAs actually achieve those outcomes is genuinely contested, but the policy is settled law for now, and the construction industry has to operate within that reality.
PLAs have existed in some form since the 1930s, deployed on large, complex projects like Hoover Dam and the construction of various nuclear facilities. The federal mandate, however, is something new in scale. Applying a single labor framework across thousands of federally funded projects — many in regions where union density is low — creates friction that shows up in cost estimates.
The Cost Math: Why Turner's 5% Figure Matters
Turner's projection of nearly 5% year-over-year cost increases isn't happening in a vacuum. It reflects a convergence of pressures: material price volatility, a tight skilled labor market, supply chain strain, and the compliance burden of operating under federal PLAs on an expanding share of public work.
The PLA piece of this equation is particularly significant for non-union contractors. When a non-union shop bids on a federally covered project, it doesn't simply hire its existing workforce. It must either use union referral halls for labor or navigate a complex set of carve-outs and exemptions — both of which add administrative overhead and can slow mobilization. In markets where union penetration is low, the available labor pool through union halls may be thin, which pushes wages up or extends timelines.
Five percent compounding annually isn't abstract — on a $50 million federal infrastructure project, that's $2.5 million in year one, and the curve doesn't flatten. Over a five-year construction cycle, the cumulative impact on project economics is substantial enough to change which projects pencil out and which don't.
There's also the benefits contribution dimension. PLAs typically require contractors to make contributions to union health and pension funds, even if their workers are already covered by a company benefits plan. For non-union employers, that's double-dipping — paying twice for coverage — and it doesn't show up in headline wage rates. It shows up in the final bid number and eventually in project costs.
Who Wins, Who Loses, and Who Gets Squeezed
The stakeholder map here isn't simple. Organized labor — particularly the building trades — are clear beneficiaries of mandatory PLAs. Guaranteed work access, standardized wages, and contributions to union benefit funds all flow in their direction.
Large general contractors with established union relationships and the administrative infrastructure to manage PLA compliance are largely insulated. Turner, Gilbane, Skanska — these firms have been operating within union frameworks for decades. PLAs aren't new terrain for them.
The firms feeling the squeeze are regional and specialty contractors, many of whom built competitive businesses around non-union labor models. They face a choice: invest in the compliance infrastructure to bid PLA work, pass the costs through (hoping owners absorb them), or walk away from the federal market entirely. Some will choose door three, which reduces competition on federal bids and creates its own upward price pressure.
Public sector owners — federal agencies, state departments of transportation, GSA — ultimately absorb the cost impact, which means taxpayers do. Whether the tradeoff in labor stability and workforce reliability is worth it is a legitimate policy debate, but for builders and investors, the dollars are real regardless of where you land politically.
Infrastructure investors and developers pursuing federal incentives through programs like the Inflation Reduction Act need to factor PLA requirements into their underwriting assumptions. Many IRA-funded projects that want to access the full scope of domestic content and prevailing wage bonuses must comply with PLA-adjacent labor standards. The credits are generous, but they come with strings.
How Builders Should Navigate This Right Now
The contractors who will manage through this environment best are the ones treating PLA compliance as a core competency rather than an occasional headache.
Build the cost into the front end. The worst-case scenario for any builder is pricing a project at non-PLA cost assumptions and discovering late in preconstruction that the federal threshold applies. Model PLA compliance costs as a distinct line item during estimating — labor burden differentials, dual benefits exposure, potential hiring hall dependencies, and administrative overhead.
Invest in relationships with the building trades before you need them. Contractors who have established working relationships with local union halls move faster when a PLA project comes in. They know who to call, how the referral system works, and where the skilled tradespeople actually are. Cold-calling the hall after you've won the bid is a recipe for mobilization delays.
Understand the exemptions — because they exist. Federal PLA requirements include carve-outs for small businesses and certain categories of work. A sophisticated GC or program manager will structure project delivery to maximize flexibility within the rules, not assume the rules apply uniformly to every scope.
For developers and investors underwriting federal construction projects, the 5% annual escalation figure from Turner should be treated as a floor, not a ceiling, for sensitivity analysis. Model at 6–7% for stress testing. Projects with thin margins and multi-year timelines are most exposed.
Finally, watch the legal landscape. Challenges to mandatory federal PLAs have been active in federal courts, with various contractor associations arguing the policy exceeds executive authority. A change in administration or a significant court ruling could shift the requirements — but planning for regulatory reversal is a losing strategy. Build for the rules as written.
The Forward View
The federal construction pipeline is larger than it's been in decades. Between the Infrastructure Investment and Jobs Act, the CHIPS Act, and IRA-funded clean energy buildout, the volume of federally covered work is only going to grow. That means the cost dynamics created by mandatory PLAs will become a more — not less — dominant feature of construction economics over the next five to ten years.
The builders who treat this as an external force acting on them will keep getting surprised by cost overruns and bid losses. The ones who internalize PLA compliance as a strategic capability — who understand the labor markets, the union relationships, the legal nuances, and the financial modeling — will be positioned to compete for the most significant infrastructure projects in a generation.
At a 5% annual clip, construction costs don't wait for anyone to get comfortable. The window to build that capability is now.
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