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With prevailing-wage overhaul next year, industry enters uncharted territory

The start of 2017 will mark a watershed moment for the Wisconsin construction industry.

For the first time in more than 80 years, contractors will no longer have prevailing wages propping up workers’ pay on schools and scores of other projects throughout the state.

To some, the change might seem insignificant. Since it will apply only to local projects, there will be no effect on massive state-funded projects like the $1.7 billion Zoo Interchange reconstruction. To most construction officials, though, it’s nothing to sniff at.

Locally commissioned public works — schools in particular — remain a big business in Wisconsin. The state Department of Revenue estimates that $1.32 billion worth of local government projects were subject to prevailing wages in 2013. That amounted to 48 percent of total spending on public projects.

Prevailing-wage opponents are expecting correspondingly big savings. When passing the overhaul last year, Republican lawmakers and their allies frequently argued that prevailing wages artificially inflate the cost of public projects at taxpayers’ expense.

Industry officials, for their part, are generally hesitant to make long-term predictions. Almost all acknowledge, though, that they will have to adapt in one way or another.

Union contractors could find themselves renegotiating contracts more often to make sure mandated union pay rates are not out of line with market wages. Nonunion contractors could struggle to underbid union rivals while still trying to pay skilled workers enough to keep them in the industry.

One widely expected result does not seem to be a given. If critics are right and prevailing wages artificially inflate labor costs, then a natural assumption is that pay will fall.

But labor and union representatives are quick to argue that the industry’s persistent labor shortage will exert a countervailing force. John Topp, executive director of the Brookfield-based Allied Construction Employers Association, said most contractors seem generally aware that their best employees would take a pay cut as a cue to start looking for work somewhere else.

“Construction is not an easy business,” he said. “And the people who have skills to do it usually don’t work for nothing.”

Topp said contractors were not necessarily pushing to lower pay when they sat down earlier this year to renegotiate union contracts for operating engineers and ironworkers in southeast Wisconsin.

“I think the contracts were well within the range of national averages,” said Topp, whose organization conducts union negotiations mainly on the behalf of sub- and specialty contractors. “I didn’t see anything that was significantly altered.”

One slightly surprising outcome was that construction companies agreed to lock themselves into five-year contracts. Topp said agreements with distant expiration dates can provide a sense of stability.

But what if the bottom should fall out of the economy again? Contractors could suddenly find themselves paying well above market rate — and having to compete against nonunion companies that no longer have to pay prevailing wages.

Whether long-term contracts will be the norm in next year’s negotiations is an open question. Many of the biggest collective-bargaining agreements in Wisconsin’s construction industry are scheduled to expire on May 31.

John Schmitt, president and business manager of the Wisconsin Laborers District Council, said he has little sense so far of what contractors will ask for this year but said earlier expiration dates will no doubt be part of the discussion.

“We are going to have a lot to talk about,” he said. “We may end up looking at things differently.”

Contractors are likewise a little bit at sea. Jim Hoffman, president of Black River Falls-based road builder Hoffman Construction, said he might find himself trying to hold down his bid prices by paring back per diem payments used to cover employees’ travel costs, hotel stays and similar expenses.

Uncertainty can also be found at companies that have no union affiliation. John Zignego, controller at the nonunion Zignego Co., said he opposes prevailing wages because he thinks they inflate public-project costs.

But he doubts Zignego officials will view wage cuts as the key to submitting low bids. For one, John Zignego said, the labor shortage is not exclusive to union companies.

“We don’t think wages are going to go down,” he said, “because if you do that, you are going to start losing your workforce.”

The head of Wisconsin’s biggest construction union said the real danger will be from competitors coming up from states where pay has historically been poor. Terry McGowan, president and business manager of Local 139 of the International Union of Operating Engineers, said cheap labor in the construction industry often equates to shoddy work and unsafe job sites.

Prevailing wages, he argues, help ensure competition for public works is limited to responsible companies.

“I don’t think a lot of lawmakers necessarily realize that if Billie Bob’s Construction Boys put in the lowest bid, they are going to come up here and start building our roads,” McGowan said.

Local governments might respond by trying to disqualify more bidders at the outset. The result could be increased surety-bonding requirements or strictly enforced “blacklists” that prevent companies with bad safety records from bidding.

Since McGowan’s operating engineers deal mostly with state-funded highways and roads, some might argue they have little to fear from the loss of prevailing wages for local projects. Still, signs have already emerged that total repeal will be on lawmakers’ agenda next year.

State Rep. Rob Hutton, a Republican from Brookfield, said Thursday he will try next year to eliminate prevailing wages for state projects. Other Republicans have said repeal could be part of a compromise reached to boost the state’s transportation budget.

McGowan said those proposals derive their appeal from unrealistic savings expectations.

“When labor makes up only 20 percent of construction costs,” he said, “they are just searching for change in the couch cushions.”

About Dan Shaw, [email protected]

Dan Shaw is the associate editor at The Daily Reporter. He can be reached at [email protected] or at 414-225-1807.

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