Generally speaking, privatization is about transferring duties and responsibilities held by government to private agencies and individuals. Costs that burden taxpayers are thereby reduced or eliminated. Another benefit is that the private sector often provides services at higher quality than does the government.
Privatization plays a greater role in society than shifting government duties and costs: It facilitates competition.
Privatization plays a greater role in society than shifting government duties and costs: It facilitates competition. Without competition, one cannot determine the true price (cost) of a commodity. Competition is often restricted on state and local government construction projects. Open competition could help keep costs from being inflated.
Instead of competitive bidding on public construction contracts, many state and local governments have formulated "project labor agreements" (PLAs) that designate an exclusive bargaining representativethat is, a unionbefore workers have been hired. In essence, these "prehire" agreements award a public contract to a union before competitive bidding begins.
PLAs severely limit the number of contractors and subcontractors that are available to perform work. According to the Bureau of Labor Statistics, over 82% of construction workers in 1995 were not unionized. Because of PLAs, the vast majority of construction workers and contractors are effectively removed from the bidding process, leaving only a small slice of unionized workers to compete for public works contracts.
Artificially high labor costs can result from a unions domination of the construction contract. On top of the higher wages usually demanded by unions, the lack of competition in the bidding process invites higher-than-market prices on almost every level. The burden of paying these escalated costs is directly transferred to working men and women through higher taxes.
One example of the impact of PLAs is the Roswell Park Cancer Institute in New York. The project consisted of several buildingssome built with PLAs, others not. A review of successful bids showed that projected costs were 26% higher for PLA-built buildings than for those bid more competitively.
The Calhoun County Jail and Lansing minor league baseball stadium are two Michigan examples of PLA construction projects. The state subsidized the stadium with over $1 million. With a total price tag of about $10 million, savings from more competitive bidding (versus a PLA) could have made the use of state tax money unnecessary.
When an individual or private corporation employs contractors to perform a job, the competitive process tends to enhance quality and an efficient use of resources. Specifications for a project are distributed to contractors and subcontractors in order to solicit their bids and to ensure that safety is not sacrificed for cost savings. This bidding process forces contractors to compete with one another to offer the lowest price available that meets the project specifications.
When government engages contractors, considerations other than price and quality may enter the equation. The duty to serve the publics best interests is sometimes outweighed by politics: partisanship, logrolling (trading votes for favored programs), various social agendas, and the personalities of the representatives.
Michigan citizens benefit from state statutes that require competitive bidding and mandate that public contracts be awarded to the "lowest responsible bidder." The Michigan Supreme Court and Court of Appeals have upheld these statutes and the underlying policy of competitive contracting in a long line of cases.
Taxpaying men and women are not the only losers when PLAs restrict competition to union contractors. The majority of workers, who choose not to belong to a labor union, are systematically denied the jobs that arise from government construction contracts.
Nevertheless, the United States Supreme Court has upheld the use of PLAs by state and local governments. The Court reasoned that, since private construction firms are permitted to enter prehire agreements under the NLRA 8(e) and 8(f), the state is also granted this power when acting as purchaser.
Instead of viewing the states action as discrimination against nonunion workers, the Court held that the states construction contracts were subject to the same "conditions specific to [the construction] industry" that allowed private construction firms the ability to form project labor agreements.
It is important to understand, however, that the Court did not mandate that these prehire agreements be used in awarding public contracts. The decision merely permits states to have PLAs, holding that prehire agreements are not illegal under federal law. State constitutions and statutes, though, may prohibit prehire agreements on public projects.
State and local officials can be pressured into PLAs because being on big labors bad side can have political costs, while courting organized labors affections can be rewarding. The AFL-CIO, for instance, spent more than $35 million supporting favored Congressional candidates in 1995.
The public will benefit from lower costs and higher quality services if all workersnot just union membersare allowed to compete for the privilege to build Michigans public works. That is something on which job providers, taxpayers, economists, and laborers should agree.