In January and June of this year, the Federal Acquisition Regulatory Council and the U.S. Supreme Court took actions that could impact general contractors and subcontractors who work on federal construction projects.
The extent to which these actions will impact contractors remains to be seen and will depend in large part on the nature and location of a contractor’s business. However, some sense of the potential impact can be predicted by analyzing the application of the predecessor to Executive Order 14063 and analyzing the manner in which disputes with federal agencies will be resolved in light of the U.S. Supreme Court’s overruling of Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc.
Executive Order 14063
On Jan. 22, 2024, the rule amending 48 C.F.R. 22.503 went into effect. This new rule gave effect to Pres. Joe Biden’s Executive Order 14063, which made it mandatory, with very limited exceptions, for federal agencies overseeing large-scale federal construction projects to ensure that all involved contractors and subcontractors agree to enter into a project labor agreement (PLA).
Large-scale construction projects are defined as federal projects with a total estimated cost of $35 million or more. A PLA is defined as “a pre-hire collective bargaining agreement with one or more labor organizations that establishes the conditions of employment for a construction project.”
E.O. 14063 replaced a Pres. Barack Obama-era order that had merely encouraged the use of a PLA on projects valued at $25 million or more. Though the scope of the Obama-era order was limited in comparison, recall that the Obama-era order also repealed a ban on government-mandated PLAs that had been in place since Pres. George W. Bush’s signing of E.O. 13202.
Of additional note, 48 C.F.R. 22.503 grants federal agencies discretion to require use of a PLA on projects with a total cost of less than $35 million, “if appropriate.” In ascertaining whether it is “appropriate” to mandate a PLA, the rule requires that a federal agency conclude that the use of a PLA will, among other things, advance the federal government’s interest in achieving economy and efficiency and be consistent with the law.
There are a number of reasons why a contractor may seek to avoid bidding a project that will require participation in a PLA, including the lack of qualified union construction labor in the project area. Per U.S. Bureau of Labor Statistics, only 10.7% of U.S. construction workers were members of a union in 2023. In Texas, one of 28 states with a statutory or constitutional “right-to-work” policy, only 4.5% of all wage and salary workers belong to a union. As such, it could prove difficult for contractors in states like Texas to mobilize the skilled labor required to participate in a large-scale federal project.
The Obama-era predecessor to E.O. 14063 was mostly ignored. According to the Office of Management and Budget, there were a total of 2,000 qualifying contracts between 2009 and 2021. A PLA was used only 12 times. This renders it highly unlikely that a PLA-adverse contractor will be required to forego bidding a grant-funded project or Federal Acquisition Regulation (FAR)-related project that totals less than $35 million.
As for the number of projects, including orders against Indefinite Delivery/Indefinite Quantity (IDIQ) contracts valued at $35 million or more, Federal Procurement Data System data reveals an average of 119 annual awards between 2019 and 2021. Though we were unable to secure exact figures via research or inquiry, we believe it likely that IDIQ awards comprised a significant percentage of the qualifying contracts. The number of covered construction contracts could be further reduced via the new rule’s exceptions. Per FAR’s summary of the new rule, it is anticipated that 10% to 50% of covered construction contracts will be granted an exception. As such, contractors that are unwilling or unable to enter into a collective bargaining agreement should not expect to lose out on a significant number of opportunities.
Chevron Deference
On June 25, 1984, the U.S. Supreme Court sided with Chevron U.S.A in a case brought by the Natural Resources Defense Council, Inc. (NRDC) [Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984)]. The case represented a challenge to the Environmental Protection Agency’s (EPA) interpretation of the word “source,” found in the Clean Air Act of 1963. Where the term had been interpreted as applying only to plant alterations and additions, the EPA simplified the meaning down to “plant.” This change created a path for companies to build new projects without going through the EPA’s lengthy review process.
NRDC challenged the new definition and prevailed in the lower court. The Supreme Court overturned the lower court decision, holding that the courts should defer to federal agencies. In doing so, the Court created a two-part test that would come to be known as Chevron Deference, which would go on to be cited in more than 20,000 subsequent cases and administrative decisions.
On June 28, 2024, the nation’s highest court issued a 6-3 opinion that overruled the Chevron decision. In Loper Bright Enterprises v. Raimondo (144 S.Ct. 2244), a case involving a commercial fisherman’s challenge to a conservation-based regulation, the Court held that courts need not and, under the Administrative Procedure Act, may not defer to an agency’s interpretation of the law simply because a statute is ambiguous. In doing so, the Court reinstated pre-Chevron precedent that held agency interpretation should be afforded weight on a case-by-case basis, but standing alone can never be determinative.
As noted within the Loper decision, Chevron Deference created a scenario in which successive administrations could change course without authority to do so. Numerous such transitions occurred during the reign of Chevron Deference, sometimes to the benefit of contractors and sometimes to their detriment.
It is questionable whether the new rules governing interpretation will eliminate or reduce uncertainty for contractors. There are those who argue that granting the judiciary the right to make the determination will eliminate the potential for ever-changing interpretations, but there are more than 670 judges sitting in 94 different federal district courts across our nation. These judges were appointed by different administrations dating back to Pres. Ronald Reagan. It is true that there are only 12 courts of appeal (COA) that will be called upon to reconcile variances at the lower court level, but it is well known that the COA’s philosophies can vary to the same extent that the philosophies of successive administrations may vary.
Federal agencies are certain to now face more frequent challenges regarding their interpretation of ambiguous statutes, including agencies overseeing construction like the Occupational Safety and Health Administration, the EPA, the General Services Administration, the Department of Transportation, the Federal Energy Regulatory Commission, and the Army Corps of Engineers. It will be interesting to see which of the existing and future interpretations that contractors and their associations will seek to challenge in the coming months.
Though some uncertainty regarding outcomes may remain, it is inarguable that the odds of successfully challenging a federal agency’s interpretation have increased significantly for contractors due to the demise of Chevron Deference.