GMCS Editorial: I have represented management in union contract
negotiations, here in Philadelphia and throughout the United States, for many
years. I have yet to see any single
trade, or single contractor association approach that has ever “recovered” the
union construction market, anywhere in the US.
In my opinion, these “Market Recovery” funds
have always been a single trade approach to a larger market based dilemma. I have always viewed them as a system of “Social
Welfare” where we subsidize projects that we cannot/could not win through the competitive
bidding process. We ‘buy” this work through
increasing the overall cost of labor per hour and through dues check-offs and deductions
on the backs and through the paychecks of workers working on projects that are
not subsidized. So, in places like Philadelphia,
project developers and union employees in
the city pay union contractors to “buy” work in the suburbs. Couple this with the multi-employer contractor
associations “Industry Advancement Programs (IAP)” union contractor contributions
of $0.15 - $0.30 per man hour worked on each collective bargaining agreement,
and you could be adding nearly a dollar an hour to the wage package and still
no actual successful "market recovery” efforts in place in the region.
True Market Recovery requires a market based
approach from labor and management. Something that cannot be achieved here in Philadelphia
under our current models.
I welcome any honest opinions and respectful
discussions to the contrary.
When the FBI raided the headquarters of powerful labor
leader John "Johnny Doc" Dougherty and hauled out hundreds of cartons
of records, they made sure to grab those of an obscure union subsidy program called
"market recovery."
The records did not detail payments to Dougherty's Local
98 electrical workers but rather the reverse: cash from the International
Brotherhood of Electrical Workers to the bank accounts of contracting companies
themselves.
Of the nearly $900,000 in subsidies Local 98 paid out to
contractors in 2015, U.S. Labor Department records show more than $300,000 went
to two contractors - Dougherty Electric Inc. and MJK Electric Corp. - whose
offices the FBI also raided that day.
For one of the two, Donald "Gus" Dougherty Jr.,
owner of Dougherty Electric Inc., in South Philadelphia, it must have seemed
like deja vu.
Dougherty has already been imprisoned for, among other
crimes, defrauding Local 98 of more than a half a million dollars of its
"recovery funds."
In the world of construction, market recovery funds are
both standard practice and controversial.
For decades, building-trade unions here, not just IBEW
Local 98, have spent these funds as a way to gain work for their members by
subsidizing labor costs of union contractors, which allows them to lower their
bids and beat out non-union contractors for jobs. The hope is that discounting
one job will lead to others.
The practice goes by different names - targeting funds,
pinpoint funds, wage supplements, job recovery, and so on.
The funds are controversial both because it's not clear
if they work and because they hold the potential for abuse.
Contractors and union leaders say the funds have helped
them get and safeguard union jobs.
The story of Gus Dougherty and his company provides an
example of the way the funds can be abused.
Started in 1994, Dougherty's business is headquartered in
the same South Philadelphia neighborhood where John Dougherty grew up. The men
are friends, but not relatives.
Dougherty Electric grew and now lays claim to work in
some the city's largest projects, including the new 60-story Comcast tower.
From 2002 to 2004, Local 98 awarded Dougherty Electric
$672,625 in what the union then called "job recovery fund" money. But
instead of the money going to defray Dougherty Electric's expenses for union
labor, Gus Dougherty admitted in federal court that he put most of it -
$527,625 - in his own bank account.
"He used the money he converted and embezzled to
subsidize his lavish lifestyle," a government sentencing memorandum said
of Dougherty who pleaded guilty in 2008 to 99 counts of fraud and tax evasion.
For example, one day in April 2002, Dougherty Electric
received $40,000 in recovery money from Local 98.
That same day, Gus Dougherty moved $43,045 from the
company account to his personal account and then transferred the same amount to
Tweeter, the high-end consumer electronics retailer, government documents show.
Dougherty also admitted paying some Local 98 members cash
under the table for overtime hours while not making the appropriate payments -
$869,599 - to Local 98's benefit plans.
Gus Dougherty pled guilty to undercharging John Dougherty
for work on the labor leader's Moyamensing Avenue house. It's against the law
for employers to give union leaders "something of value."
John Dougherty was not charged in connection any of these
situations.
Even though Gus Dougherty has been to prison and back -
his Local 98 case still isn't over. Prosecutors object to the restitution he
paid to the union.
"The Court also should consider whether the
settlement agreement represents an arms-length transaction between Dougherty
and IBEW," prosecutors wrote in a federal court filing in July, three
weeks before federal agents raided the union hall and Gus Dougherty's business.
In 2008, Dougherty was ordered to pay $673,070 in
restitution to the union and its benefit funds.
In 2011, the union and its benefit funds agreed to accept
an immediate payment of $200,000 based, in part, on "the risk of
non-payment," the union's lawyer wrote in a court filing.
Meanwhile, since 2011, when Gus Dougherty paid the union
$473,070 less than the original judgment, he has received $470,000 in market
recovery funds - $170,000 in 2011 and $100,000 a year in 2012, 2014 and 2015.
Gus Dougherty did not return several calls for comment
and his lawyer, Eric W. Sitarchuk, declined to comment.
The union issued a statement: "Job Recovery is a
well-documented, meticulously monitored program that was approved by Local 98's
membership."
"Dougherty Electric and MJK Electric are among many
union contractors that have benefitted from the program."
At a Labor Day gathering, John Dougherty said the IBEW
sometimes has no choice but to provide market money.
If other unions on a construction site provide market
recovery money to contractors, Local 98 has to follow suit, he said.
Dougherty said that if a new line of business opens with
the potential for multiple jobs, market recovery money can help make sure it
goes union from the start.
Once on the job, "I believe our efficiency, our
training and the fact we bring no drama to the job speaks for itself," Doughtery
said.
Like Gus Dougherty, most of the contractors who received
Local 98 market recovery money declined to comment or didn't return calls.
However, one of the contractors did. Franklin P.
Holleran, president of H.B. Frazer Co. in King of Prussia, explained how he
uses market recovery money.
His firm, which employs 200 Local 98 electricians,
received $39,254 in market recovery money in 2015.
One of Holleran's steady customers was a pharmaceutical
firm that decided to hire a non-union electrical contractor to compare costs
and quality.
Not wanting to lose the work, Holleran asked Local 98 for
market recovery money. He got it.
As a result, H.B. Frazer and the non-union contractor
worked side by side on the project.
"The job went smooth as can be, no issues. And we're
still working there - on multiple different bids," without market recovery
subsidies, Holleran said. The non-union contractor didn't get hired back, he
said.
The typical market recovery award, Holleran said, amounts
to about 10 percent of the contract cost because unions and union contractors
believe the difference between union and non-union labor costs is about 10 to
15 percent.
Once the union has agreed to allow the discount, it makes
it available to other union contractors, who may be bidding for the same job.
In the Philadelphia area, Local 98 isn't the biggest
spender on market recovery by any measure. In 2015, Steamfitters Local 420,
with roughly the same amount of members, spent $1.38 million. The carpenters'
union, with four times the membership, spent $9 million over a much larger
geographic area.
"We call it crack-cocaine for our contractors. They
all want it," lamented John Kane, who leads Plumbers Local 690, which
spent $346,000 in market recovery in 2015. General contractors press the
sub-contractors to ask the unions for the money.
"It usually goes to the same contractors, because
they are the aggressive ones," willing to undertake the risk of going
after new business, Kane said.
For obvious reasons, non-union contractors don't like the
whole concept.
"It keeps things not very fair," said Joe
Perpeglia, chief executive of the Associated Building Contractors of
Southeastern Pennsylvania, an association of non-union contractors.
"I don't know where the money comes from," he
said, "but after awhile, it seems like it will have to be depleted. The
unions can't keep on subsidizing jobs."
The money actually comes from the workers themselves.
For example, Local 98 members agreed to pay 3.25 percent
of their gross monthly wages for market recovery, according to Local 98's 2015
bylaws.
On a market recovery job, the electricians and other
building trades workers still earn their normal hourly wage. The market
recovery money goes to the contractor to offset his payroll costs.
MJK Electrical Corp., the other contractor raided Aug. 5
by federal agents, was the largest recipient of Local 98 market recovery funds
in 2015 - $270,836 out of nearly $900,000.
From 2012 and 2015, Local 98 paid MJK nearly $1.5
million. Of that, $1.1 million is market recovery money and most of the rest
was Local 98 underwriting MJK's work on re-lighting Boathouse Row and other
projects.
Local 98 and MJK share a long history.
MJK incorporated in 1994, with Michael J. Jones as the
president and George J. Peltz as vice president and treasurer and offices in
Philadelphia and Berlin, New Jersey. Peltz has been a longtime contractor and
is well-known in the building trades.
With Jones, an African-American, at the helm, the company
gained minority contractor status.
During the Democratic convention, MJK handled some work
at the Wells Fargo Center, with Peltz the on-site representative. On its
website, the company says it handled convention and trade show work at
Philadelphia Marriott and the Convention Center.
Neither Peltz nor Jones returned calls for comment.
"Neither of them would be interested in talking to the press," said
their lawyer, Nicholas R. Montalto.
Source: Philly.com
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