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George Harms Const. Co., Inc. v. New Jersey Turnpike Authority

Decided: July 7, 1994.

GEORGE HARMS CONSTRUCTION CO., INC., A NEW JERSEY CORPORATION, RONNIE ALLEN, CARLOS ALVAR, DAVID BADER, CHRISTINE BALIKO, WILLIAM MCMULLAN AND BRUCE ROBERTSON, APPELLANTS-APPELLANTS,
v.
NEW JERSEY TURNPIKE AUTHORITY, A BODY CORPORATE AND POLITIC, RESPONDENT-RESPONDENT. IN THE MATTER OF THE ADOPTION OF A RESOLUTION BY THE NEW JERSEY TURNPIKE AUTHORITY REQUIRING CONTRACTORS TO ENTER INTO PROJECT AGREEMENTS WITH LABOR UNIONS



On certification to the Superior Court, Appellate Division.

O'hern, Clifford, Pollock, Garibaldi, Stein, Handler, Wilentz

O'hern

The opinion of the Court was delivered by

O'HERN, J.

This appeal presents the question of whether a State agency has the power to require a contractor doing business with it to enter into a "project labor agreement" with designated unions. A

"project labor agreement" is a form of prehire agreement with labor organizations under which a contractor agrees to use the members of specified labor organizations on a project in exchange for the member unions' guarantees of labor stability. Such agreements serve important purposes in assuring efficient and economical administration of large construction projects. We hold, however, that our State public-bidding laws and the policies underlying them do not now contemplate the use of such agreements by State agencies to require contractors to hire members of only certain designated labor organizations to the exclusion of all others.

I

We base our opinion on the facts as represented by respondent, New Jersey Turnpike Authority (TPA).

In 1990, the TPA began to widen the Turnpike between Interchanges 11 and 15E (the Widening Project). The contracts for the Widening Project were subject to the competitive-bidding provisions of the "lowest responsible bidder" statute, N.J.S.A. 27:23-6.1(a). On August 24, 1993, George Harms Construction Co., Inc. (Harms) bid the lowest price to perform Contract No. W-6411, which covered the stretch of the Turnpike between Interchanges 14 and 15E, known as the "Southern Mixing Bowl." Harms's bid price was $20,464,360, and the next lowest bid was $20,542,393. However, on the same day, the TPA's Director of Law issued an internal memorandum recommending that the TPA award Widening Project contracts only to contractors that had entered into "project labor agreements." For authority, that memo relied on Building & Construction Trades Council v. Associated Builders & Contractors, Inc., U.S. , 113 S. Ct. 1190, 122 L. Ed. 2d 565 (1993) (Boston Harbor), which established that the National Labor Relations Act (NLRA), 29 U.S.C.A. §§ 151 to 169, does not preempt the use of project-labor agreements by state agencies acting as market participants in the construction industry. On August 31, 1993, the TPA adopted Resolution 19-93, which provided, in pertinent part, the following:

WHEREAS, in consideration of the critical nature of timely completion of the 1990-95 Widening Project * * * and the recent labor disruption affecting the

Widening Project, it is in the best interest of the Authority to implement the use of project labor agreements with respect to all construction contracts awarded heretofore and hereafter as part of the Widening Project;

NOW THEREFORE, BE IT RESOLVED that, for the foregoing reasons, as a condition of all contracts heretofore and hereafter advertised by the New Jersey Turnpike Authority in connection with the Widening Project, the Chief Engineer shall require contractors and subcontractors of all levels to enter into project labor agreements with the appropriate affiliated locals of the Building and Construction Trades Council of the AFL-CIO of the State of New Jersey * * * .

Resolution 19-93 defined a "project labor agreement" as

an agreement that recognizes designated unions as the exclusive bargaining representatives for all construction and craft employees, in exchange for the stipulation that there be no work stoppages, slowdowns, or disruptions during the life of the construction contract to which it applies, and which, therefore, contributes to a spirit of harmony, labor-management peace and stability during the life of that contract * * * .

Thus, Resolution 19-93 would have required the TPA to award the contract to the lowest-responsible bidder that had entered into a project-labor agreement with Building and Construction Trades Council (BCTC) unions.

The preference in the awarding of contracts allegedly stemmed from the State's concern that, in the words of Resolution 19-93, "the Authority had recently experienced labor disturbances namely work stoppages * * * ." The TPA's Director of Law explained at the August 31, 1993, Executive Session that "labor disturbances were threatened at Harms' construction site in the vicinity of Interchange 8A, and Harms requested that the [TPA] provide Harms' forces with State Police protection." The TPA's Chief Engineer was more specific: "In light of the July 1993 statewide strike of highway and utility construction sites by Local 825 and the refusal of other AFL-CIO locals to cross Local 825's picket lines, any further strikes would cause intolerable delays in light of the [TPA's] December 1995 deadline for completion of the Widening." Such delays would have hampered New Jersey's efforts to comply with federal clean-air requirements by 1996 to obtain federal transportation funds, and certain permits from the Army Corps of Engineers might have expired if work had been interrupted.

The conflict between the BCTC-affiliated Operating Engineers Local 825 and the United Steelworkers of America (the Steelworkers), to which Harms's employees belong, apparently stems from a jurisdictional dispute. As we understand that dispute, it revolves around the contrasting work patterns of the two unions. Steelworkers members will apparently perform a wide variety of different tasks, such as operating heavy machinery, digging ditches, and carpentry. Members of Local 825, on the other hand, only operate heavy machinery. When BCTC unions are involved, carpentry and digging must be performed by members of the Carpenters' and Laborers' Unions, not by the International Union of Operating Engineers.*fn1

On August 27, 1993, the TPA's Chief Engineer delivered a letter to Harms's president notifying Harms of a proposed project-labor-agreement requirement. The letter stated that the TPA would adopt the policy on August 31, 1993, and that the policy would apply to Contract No. W-6411 retroactively. The letter did not state that the policy would require Harms to sign the project-labor agreement with a BCTC affiliate. Harms assertedly discovered that fact when its counsel appeared at the TPA's Executive Session on August 31, 1993. Harms's counsel protested the policy because inasmuch as Harms had a long-standing collective-bargaining agreement with the Steelworkers, the NLRA precluded Harms from signing a project-labor agreement with any other union. However, the TPA disregarded Harms's objections and passed Resolution 19-93 as well as Resolution 25-93, which provided for the rejection of all current bids on Contract No. W-6411 to allow rebidding under the new policy. On September 15, 1993, the TPA's Executive Director denied Harms's appeals protesting

the TPA's rejection of Harms's bid and refused to reinstate the bid.

On September 13, 1993, then-Governor Florio executed Executive Order No. 99, which required all State agencies to adopt project-labor agreements with BCTC affiliates "whenever feasible and whenever such agreements substantially advance[] the interests of costs, efficiency, quality, safety, timeliness and the State's policy regarding minority- and women-owned businesses * * * ." 25 N.J.R. 4543 (Oct. 4, 1993).

On September 14, 1993, Harms and some of its employees who belong to the Steelworkers appealed the TPA's adoption of Resolutions 19-93 and 25-93. The Appellate Division heard that appeal with another appeal brought by the Utility and Transportation Contractors Association of New Jersey and subsequently issued a single unreported opinion sustaining the validity of the TPA's resolutions. The court held that the TPA's project-labor-agreement requirement for the Widening Project is permissible under the NLRA and that such agreements do not infringe on a person's constitutional right "to organize and bargain collectively." N.J. Const. art. I, P 19. Further, the court rejected Harms's contention that the TPA could not incorporate project-labor agreements into bid specifications without agency rulemaking. It found that those agreements do not conflict with the statutory duty of the TPA to award contracts to "the lowest responsible bidder."

We granted certification, 134 N.J. 560 (1993). Subsequently, on March 21, 1994, newly-elected Governor Whitman issued Executive Order No. 11, 26 N.J.R. 1558-59 (Apr. 18, 1994), which superseded Executive Order No. 99. Executive Order No. 11 allows project-labor agreements only "on a project-by-project basis" and does not require the use of any particular union. Because Executive Order No. 11 explicitly declares that it is "to have prospective effect only," 26 N.J.R. at 1559, the appeal before us is not moot.

II

Did the TPA comply with administrative due process in its adoption of the project-labor-agreement requirement and its rejection of Harms's bid?

A.

Appellants argue that the agency's resolutions are rules within the statutory definition of the Administrative Procedure Act (APA), N.J.S.A. 52:14B-1 to -21, and therefore that the agency must comply with the notice-and-comment provision of N.J.S.A. 52:14B-4. That provision essentially requires that prior to the adoption of any rule, the agency shall give at least thirty-days notice of its intended action; provide a summary of the proposed rule, with an opportunity for all interested persons to submit data, views, or arguments in writing or orally; and prepare a report summarizing the content of such submissions and the agency's response to those views, data, and arguments.

This Court's decision in Metromedia, Inc. v. Director, Division of Taxation, 97 N.J. 313, 478 A.2d 742 (1984), delineates the appropriate test to apply when determining whether an agency action constitutes rulemaking. Among the factors to be considered are: (1) the segment of the public to be affected; (2) the generality of application; (3) the prospectiveness of the result; and (4) the novelty of the legal standard announced. Id. at 331-32. All such factors need not be present for an agency determination to constitute rulemaking. Id. at 332. The agency should balance the factors according to weight, not number. In re Request for Solid Waste Util. Customer Lists, 106 N.J. 508, 518, 524 A.2d 386 (1987).

The TPA denies that the Metromedia factors are implicated. It contends that the specification of project-labor agreements is altogether exploratory and tentative as applied to the Widening Project and thus does not constitute rulemaking. Appellants contend that the policy is far more extensive than that because it will apply to all succeeding Turnpike-improvement projects. They further contend that the agency adopted the policy hurriedly,

without consultation or comment from any members of the interested public. We do not resolve in this case whether this agency action is subject to the strict requirements of N.J.S.A. 52:14B-4. We believe that the substantive issues transcend those procedural issues. We are certain, however, that whatever policies for project-labor agreements the TPA pursues, it would develop such policies more effectively following a hearing process. In addition, that process would establish a record against which the contesting claims under constitutional and statutory guidelines could be better assessed by a reviewing court. Specifically, if the record clearly established the relationship between the specifications and the policies of the bidding laws, we could better resolve the question of compliance with public-bidding laws. For example, a detailed record with comment and response as frequently occurs in the rulemaking context, see N.J.S.A. 52:14B-4, might have better explained how Harms's present employees might have fit into the bidding scheme. Could Harms have retained them as the TPA believes, or did the hiring-hall provisions effectively exclude them? A project-labor agreement has many subtle and complex facets, infra at (slip op. at 14-18), and overall agency policy should address the merits of the plethora of issues that are proper for inclusion in a project-labor agreement.

B.

Although the APA might not have required notice and a hearing prior to the adoption of the project-labor-agreement requirement, we address the notion of administrative due process. The APA alone does not exhaust the requirement of administrative due process; "the fact that [ ] agency action is not subject to the strict requirements of [the APA] does not mean that no process is required." In re Dep't of Ins.'s Order Nos. A89-119 & A90-125, 129 N.J. 365, 382 (1992). If the APA does not apply, we have held that "so long as the parties had adequate notice, a chance to know opposing evidence, and the opportunity to present evidence and argument in response, due

process would be fundamentally satisfied." Ibid. The TPA argues that due-process requirements have been met in this case because it provided Harms's counsel with the opportunity to attend and to speak at the Executive Session during which both the resolution establishing the project-labor-agreement requirement and the resolution vacating Harms's bid were adopted. We agree. Principles of administrative due process do not require that we reinstate Harms's bid.

Although the TPA did not deny Harms administrative due process, we resolve here the remaining question whether the TPA had the authority to reject all bids after it had opened Harms's bid. In Cardell Inc. v. Township of Woodbridge, 115 N.J. Super. 442, 450, 280 A.2d 203 (App. Div. 1971), the court noted that public entities do not have "unbridled power to reject bids, even where such right is served in the invitation for bidding" because such power would violate public policy and competitive-bidding laws. However, the court stated:

We do not imply that a [public entity] is without power to reject all bids under proper circumstances. No [public entity] could effectively engage in competitive bidding without such power. At the very least, the existence of the possibility of total rejection of bids serves as a strong inducement to bidders to keep their bids as low as circumstances permit. Suffice it to say that when a [public entity] concludes in good faith that the purposes of the public bidding statute are being violated, it may reject all bids submitted and in its discretion order a readvertising of the contract. Furthermore, * * * should circumstances arise which might cause the [public entity] to abandon or substantially revise the project, then a total rejection of bids might well be required.

[Id. at 450-51.]

The Appellate Division, in M.A. Stephen Construction Co. v. Borough of Rumson, 117 N.J. Super. 431, 438, 285 A.2d 55 (1971), applied the Cardell rationale and held that a public entity could not circumvent the requirement of our public-bidding laws to award contracts to the lowest responsible bidder by the entity's arbitrary or unreasonable action. Further, the M.A. Stephen court held that a public entity had the right to reject all bids and the duty to exercise that right "in good faith and for sound public reasons." Ibid.

The TPA's Resolution 25-93 rejected all bids received for Contract No. W-6411 because the bid specifications provided to prospective contractors lacked the requirement that contractors enter into a project-labor agreement with appropriate BCTC unions. That resolution, together with Resolution 19-93, contained the TPA's reasoning for rejecting the bids. The TPA materially changed its specifications incorporating the project-labor requirement to ensure prompt settlement or prevention of labor disputes in the public sector, which is our State's declared policy, see N.J.S.A. 34:13A-2; to guarantee labor stability; and to advance harmonious labor-management relations. In the best interest of the TPA and the public, the TPA wanted to complete in a timely manner the Widening Project within the Project's budget. The TPA had experienced work stoppage on the Widening Project for approximately three weeks in July 1993. That circumstance, along with the Boston Harbor decision, caused the TPA to "substantially revise the project" by including a bid specification requiring potential contractors to enter into project-labor agreements with BCTC unions and rejecting all bids submitted on Contract No. W-6411. Cardell, supra, 115 N.J. Super. at 451. The TPA may have erred in its view of the law, but on this record, no evidence exists to show that in rejecting all bids the agency acted other than in good faith, in its interest, and in the interest of the public.

III

What is a project-labor agreement?

We do not intend this to be a treatise on economics or labor relations but merely general background for the issues as we understand them. For background information on collective bargaining in the construction industry, we draw on general reference materials, and primarily on an overview of the construction industry set forth in David B. Brenner, The Effect of ERISA Preemption on Prevailing Wages and Collective Bargaining in the Construction Industry, 1993 Det. C.L. Rev. 1123.

In that article, Mr. Brenner explains the tremendous economic significance of the construction industry:

The construction industry plays a strategic role in determining the health and vitality of the U.S. economy. Construction accounts for an estimated 7-15% of the nation's total economic activity. As of April 1993, Department of Commerce estimates for the total value of new construction at a seasonally adjusted annual rate was $444.4 billion. Public construction comprised $116.2 billion of that amount.

Because of its large size, construction exerts its influence on other sectors of industry and impacts their labor relations.

[Id. at 1127 (footnotes omitted).]

However, the author proceeds to observe that although the construction industry's economic significance may be national in scope, "there can be no replacement for the reality that, even if some of the individual components may change or are imported from outside a local labor market, the ultimate assembly of a bridge or a building remains a localized affair." Ibid.

The pattern of employment in the construction industry is characterized by employee mobility. Workers are assembled for specific jobs. A general contractor often subcontracts portions of the job according to interest and ability. The subcontractors may also delegate various aspects of their work. As a result, the industry uses union hiring halls as a primary source of labor. (A hiring hall is a place where workers report and the union refers those workers to contractors for employment.)

Obviously, to compete success fully in the market, a bidder must know the cost of labor for a job. What is known as a "Little Davis Bacon Act" or a "Prevailing Wage Statute" requires New Jersey contractors, as it does those in other states, to pay the prevailing-wage rate on public-bidding projects. N.J.S.A. 34:11-56.27. Because the construction industry is still substantially unionized, that requirement in effect means paying union wages on public jobs. Consequently, most public contractors have used union employees on public-works projects. Different unions, however, have different work practices. See supra at (slip op. at 6).

Contractors also use prehire agreements to ensure labor-cost predictability. "A pre-hire agreement is a contract agreed to by

an employer and a union before the workers to be covered by the contract have been hired." International Ass'n of Bridge, Structural & Ornamental Iron Workers v. NLRB, 843 F.2d 770, 773 (3d Cir.), cert. denied, 488 U.S. 889, 109 S. Ct. 222, 102 L. Ed. 2d 213 (1988). Initially, the National Labor Relations Board (NLRB) had determined that prehire agreements were illegal in that they designated an exclusive union representative for the employees before an election had been held. Recognizing the impact of that holding in the construction industry, Congress added section 8(f) to the NLRA in 1959. That section provides:

It shall not be an unfair labor practice * * * for an employer engaged primarily in the building and construction industry to make an agreement covering employees engaged (or who, upon their employment, will be engaged) in the building and construction industry with a labor organization of which building and construction employees are members * * * because (1) the majority status of such labor organization has not been established * * * or (2) such agreement requires as a condition of employment, membership in such labor organization * * *.

[29 U.S.C.A. § 158(f).]

Thus, section 8(f) expressly authorizes negotiation, adoption, and implementation of collective-bargaining agreements in the construction industry without initial reference to the union's actual majority status and permits such agreements to contain union-security clauses. In that amendment, Congress specifically sanctioned established industry practices that the NLRB had previously found unlawful. However, although section 8(f) permits employers and unions in the construction industry to enter into prehire agreements that designate a union as the exclusive representative without a formal election, the employees, now union members, may vote to decertify the union as their exclusive representative, using the formal NLRA procedures. 29 U.S.C.A. § 159(e).

Employees may belong to a local union of their craft that sends representatives to a council such as the BCTC. Among its other functions, a council may act as bargaining agent and it may conduct negotiations for its member unions. Generally, a council is financially supported by the local unions, which in turn pass on the cost to their members. Employers will often enter master

agreements with councils such as BCTC to mitigate the effect of jurisdictional disputes among unions on the progress of construction projects. Such councils have been recognized as labor organizations for purposes of the NLRA. NLRB v. Metallic Bldg. Co., 204 F.2d 826 (5th Cir. 1953), cert. denied, 347 U.S. 911, 74 S. Ct. 473, 98 L. Ed. 1068 (1954); Southeast La. Bldg. & Constr. Trades Council v. Scheyd, Brennan, Inc., 334 F. Supp. 720 (E.D. La. 1971).

A project-labor agreement is a form of master agreement limited to one project. Most such agreements

require[] the contractors and subcontractors to recognize [a particular labor organization] as bargaining representative for all craft employees, to hire workers through the hiring halls of the [organization's] constituent unions, to require hired workers to join the relevant union within seven days, to follow specified dispute-resolution procedures, to apply the [organization's] wage, benefit, seniority, apprenticeship and other rules, and to make contributions to the * * * unions' benefit funds. In return for the [proprietor's] promise to insist that contractors sign the agreement, the [organization] * * * promises the [proprietor] labor peace throughout the * * * life of the construction project.

[Associated Builders & Contractors, Inc. v. Massachusetts Water Resources Auth., 935 F.2d 345, 360 (1st Cir. 1991) (Breyer, C.J., Dissenting), rev'd sub nom. Building & Constr. Trades Council v. Associated Builders & Contractors, Inc., U.S. , 113 S. Ct. 1190, 122 L. Ed. 2d 565 (1993).]

In this case, the TPA required contractors and subcontractors working on the Widening Project to enter into a project-labor agreement with the New Jersey BCTC, an AFL-CIO organization comprised of several different unions representing various crafts.

IV

Does the Boston Harbor decision preemptively determine the validity of the TPA's project-labor-agreement resolution?

In his August 24 memorandum to the Executive Director of the TPA, the agency's Director of Law referred to the Boston Harbor decision as the legal basis for the TPA's adoption of Resolution 19-93:

Recent analysis by General Counsel of the [Boston Harbor] case confirms that the New Jersey Turnpike Authority could legally enforce pre-hire arrangements between contractors and labor unions working on the Turnpike. Specifically, the Authority, by way of supplemental bid specifications, could require that a contractor

on a given construction project enter into a project labor agreement guaranteeing stability for the life of the project.

The issue in Boston Harbor was whether the Massachusetts Water Resource Authority could require as a condition for a contract award that the winning bidder and its subcontractors abide by a project-labor agreement previously negotiated between Kaiser Engineers, Inc. and the Boston Metropolitan District BCTC. That agreement recognized BCTC as the exclusive bargaining representative for all workers employed to build sewage-treatment facilities for the cleaning of Boston Harbor in return for BCTC's promise of labor peace throughout the ten-year life of the construction project. Specifically, the question was whether the agreement violated the NLRA.

Two types of federal-labor-law preemption forbid certain kinds of state action. They are succinctly described in Boston Harbor as follows:

The first, "Garmon pre-emption," forbids state and local regulation of activities that are "protected by § 7 * * *, [which establishes the right of employees to organize, bargain collectively, and engage in peaceful picketing and strikes,] or constitute an unfair labor practice under § 8." * * *

A second pre-emption principle, "Machinists pre-emption," prohibits state and municipal regulation of areas that have been left "'to be controlled ...


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