COST REVIEW FOR CONTRACTING ALTERNATIVES
FOR TRANSMISSION FACILITIES IN ALASKA
January 1996

Northrup / Thieblot

PREPARED IN PERFORMANCE OF CHUGACH ELECTRIC ASSOCIATION
CONTRACT NO: 95233

EXECUTIVE SUMMARY

Competition in the bidding process for the three proposed intertie projects of the Railbelt Utilities could result in substantial savings in their cost. The savings would come about not because of any change in content or quality of the finished projects, but simply from different contract conditions that would affect the cost and use of labor by the contractors who might be doing the line construction work.

Without, at this point, commenting on whether one condition or another might actually be possible to achieve, we have listed below in Summary Table 1 the estimated cost outcomes and savings under eight different combinations of labor contracting conditions involving union rates, concessionary union rates, rates under the Alaska public contracts law (prevailing rates, and open rates. Only differences that could be readily quantified, such as wages, fringe benefits, special payment requirements, and crew makeup restrictions, were included in the table. Other areas of possible expense (or savings) are discussed in the text, but not included.

Even thus simplified, the potential savings to be derived from opening bidding and free competition among all interested and qualified contractors regardless of their union affiliation or source of labor, would be immense-well 'over $20 million. To preserve control over the supply of labor, the International Brotherhood of Electrical Workers (IBEW)has already offered to give tip some of the costly extras in its standard contract ("Bradley [Lake] Concessions" in Summary Table 1, compared with "NECA Contract"), but the difference between those concessions and the estimated cost of doing the work under Alaska prevailing rates is still around $4 million. At each level except the open-shop, the presence of the "Little Davis-Bacon" act (LDBA) would increase contracting costs, because at the time this report was prepared, wage rates required by it were actually higher than union scale.

Not included in the table are three additional areas of savings that might arise from competitive bidding, even if the projects were built under Alaska prevailing rates. 1.) Some added savings would result from parts of the line contracts for which manhour estimates of labor use were not available. 2.) Savings would arise from the competition itself, if included among the bidders were any of the large, experienced open-shop contractors who are known to qualify for lower bonding rates and reduced worker's compensation insurance premiums, because all competitors would have to anticipate their ability to bid up to $1.5 million less as a result. 3.) As much as another $9 million could be saved by bidding the separately contracted parts of the projects (substations and energy storage facilities) competitively. If these savings were realized, they would add another $10.5 million to the open-shop savings and $5.6 million to prevailing rate savings, but nothing to the IBEW Bradley Lake Concessions.

If the Northern Intertie project were to be constructed by contractors free to choose their own source of labor, even if they were large open-shop contractors from the lower 48, there would be a much greater likelihood of employment being drawn from the local areas near to where the work is to be performed. It is worthy of note that under the lowest cost estimate, the average construction worker would take home in wages and fringe benefits (exclusive of social security, unemployment insurance, and workers' compensation insurance) over $80,000 per year. Thus the benefits of competition would not come at the detriment of either the area or the area's workers.