Overview
Federal contractors spent the past three years navigating executive mandates limiting their ability to select their own workforces after being awarded a large federal service contract. These mandates also required them to use unionized workforces on certain federal construction projects, even when these requirements increased costs or delayed project completion. In the span of two days, the Trump administration and the US Court of Federal Claims took successive action to remove some of these requirements, providing federal contractors greater flexibility in managing their workforces and costs when bidding on and fulfilling federal contracts:
- On January 20, 2025, President Donald Trump revoked a Biden administration rule requiring federal contractors to offer continued employment to their predecessor’s employees, even when the predecessor’s unionized employees may not be ideally suited to fulfill the contract at issue. The Biden executive order (EO) made successor contractors “perfectly clear successors” under the National Labor Relations Act (NLRA) when the predecessor contractor had a unionized workforce. The “perfectly clear successor” designation required the successor contractor to bargain initial terms with the union or recognize an existing collective bargaining agreement.
- On January 21, 2025, the US Court of Federal Claims invalidated a Biden administration mandate that all federal contractors awarded construction projects costing $35 million or more use unionized workers, in large part because the government’s own studies established that the mandate was anticompetitive and increased costs.
The net result of these actions is that contractors can once again bid for and execute federal contracts to the best of their ability and in a cost-effective manner without having to assume certain obligations to union employees. Federal contractors should review current and upcoming bidding opportunities to determine if they can offer increased savings over incumbents through more competitive pricing.
In Depth
ELIMINATION OF EMPLOYEES’ “RIGHT OF FIRST REFUSAL”
Before January 2025, any federal contractor that won a service contract valued at more than $250,000 was required to offer existing employees a “right of first refusal” before hiring a new workforce. For example, a contractor that won a facility maintenance contract previously held by a different contractor must offer the prior contractor’s employees’ jobs before hiring its own candidates. This often led to legal obligations and operational issues, including the following:
- Under the NLRA, a successor employer acquiring a unionized operation may set its own initial terms of employment for union employees prior to bargaining, unless the successor employer is a “perfectly clear successor.” A successor is a “perfectly clear successor” if it intends to hire all, or virtually all, the predecessor’s employees. A “perfectly clear successor” cannot set its own initial employment terms before bargaining with the union and must comply with all its predecessor’s obligations, including any existing collective bargaining agreements and/or bargaining obligations. As a result, the Biden EO’s “right of first refusal” often acted as a requirement that contractors interested in bidding on certain service agreements be willing to assume union bargaining obligations as the cost of entry, even when doing so impacted their ability to perform the contract on budget.
- The predecessor may have been saddled with staffing or employment contracts objectively shown to increase costs and delay fulfillment of the contract’s requirements.
No more. Now, federal contractors must focus on cost-effectiveness and efficiency when determining how to staff new contracts, even when that means hiring new employees.
ELIMINATION OF MANDATORY PROJECT LABOR AGREEMENTS
Project labor agreements (PLAs) are collective bargaining agreements between a contractor and a union covering workers on a specific construction project. Until January 2025, an EO issued by former President Joe Biden required any federal contractor capable of bidding on a large construction project valued over $35 million to execute a PLA with a union just to be eligible for the contract.
The impact of this order was stark: When a contractor without a PLA submitted a competitive bid that was under budget, it was rejected out of hand, even if every other bidder came in over budget based on costs associated with their PLAs. Consequently, these contractors were forced to recognize and bargain with a union if they were awarded a qualified contract.
No more. The US Court of Federal Claims ruled the mandate is unlawful as applied because the “agencies’ own market research conclude[ed] project labor agreements would be anticompetitive,” but the agencies required PLAs anyway. Moving forward, federal agencies must utilize selection criteria designed to award contracts to the most qualified and cost-effective contractor through open competition, regardless of whether that contractor uses union workers.
NEXT STEPS
Both developments discussed above reflect the anticipated pro-business policy shifts underway at all federal agencies under the current administration. The US Court of Claims decision applies to the specific contracts at issue in that case and to future agency decisions. It does not apply retroactively. Any contractors currently operating with a PLA must continue to abide by its terms until it expires. Future contracts, however, will not be subject to the PLA requirement.
Federal contractors bidding on construction contracts or service agreements should quickly reassess current and upcoming contract opportunities and the workforce obligations that come with applying for and maintaining relevant federal contracts. Service contractors will have greater flexibility in managing their workforces and interacting with incumbent unions on predecessor contracts. In addition, potential service contractors without unions can remain union-free while applying for federal contracts.
