Managing Costs Amid Inflation & Tariffs
- MCA
- May 13
- 3 min read
Construction project managers and owners are nervously watching the cost of construction materials due to increased tariffs on imports. Those may be beyond their control, but they can control the other 60 percent of their budget.
“With materials accounting for about 40 percent of costs, builders estimated that if the tariffs on Canada persist, budgets could rise by 3 percent. That‘s a small fraction, but on a $400 million project it would mean more than $10 million extra levied on taxpayers,” The Boston Globe reported.
These project managers and owners face tough decisions as they shop around for alternative sources for materials, scale back on projects, or try to find additional funding.
The other 60 percent, including the cost of construction services and labor, are best determined through fair and open competition. Whether public or private, a construction project is served best when all qualified contractors are encouraged to submit competitive bids.
"The Massachusetts public procurement laws were established to provide, in a pre-qualified environment, fair and open competition across all trades. This has proved to provide the lowest responsible costs for public projects, and any firm, whether union or not, merely needs to be prequalified by DCAMM to submit a proposal," Skanska USA Building advised the Worcester Redevelopment Authority in 2019.
Private and public project leaders are often approached to go union-only in construction. However, it’s been shown PLAs are a guaranteed way to increase project costs with little benefit.
“According to our consultant a PLA would add 10-15% onto construction costs. With an estimated $270.5 million in construction costs, this would equate to $27-40.5 million added to the project, exclusively funded by the City and residents,” wrote then Lowell City Manager Eileen Donohue in a 2019 memo to the Lowell City Council.
All contractors on public construction – union or not – must pay the prevailing wage. They are subject to both the same Division of Capital Asset Management and Maintenance (DCAMM) certification and local prequalification. Quality control comes not from PLAs, but from these state and local requirements.
Why do PLAs increase the costs? First, the reduction in competitive bidders means the union shops are less aggressive in lowering their prices. Second, unions work on rules that are not always the most efficient.
"One of the factors that increase construction costs on these projects are requirements from the unions to have some number of support workers on site at all times, whether needed or not. These workers merely drive up the cost without a resultant benefit to the project, but the unions require them," Skanska USA Building advised Worcester.
The increased cost is just one of many reasons a variety of independent observers have concluded PLAs are bad policy.
“Massachusetts continues to espouse the need for a more competitive and affordable business climate. But we cannot expect bette
r results if we continue to enact the same tired old policies like project labor agreements.”
“And limiting the bidding only to union labor hikes project costs. Such a price-increasing effect is a generally recognized impact of constricted competition. It pertains in particular when nonunion firms have been eliminated from even bidding on the project; if unionized firms know their only rivals for a project are other union firms, they will feel significantly less pressure to take a sharp pencil to their bid.”
"Notwithstanding the lip service the PLA pays to being open to all bidders, it most assuredly is not. The evidence before the court is that the PLA poses such a significant disadvantage to open shops as to render a competitive bid impossible … For all intents and purposes, the PLA excludes open shops from bidding, as it essentially requires bidders to execute an agreement to use union laborers on the Project."
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