The Inflation Reduction Act of 2022 (IRA) is the largest investment ever made in our nation’s clean energy future—helping the United States meet our climate goals and creating more than 170,000 clean energy jobs in the law’s first year alone. To ensure that new clean energy jobs are good-paying, high-quality jobs, the IRA provides substantially increased tax benefits to taxpayers who pay prevailing wages and who meet certain registered apprenticeship requirements on a range of clean energy projects. Learn more about the IRA prevailing wages and registered apprenticeship provisions from the Internal Revenue Service and the Department of Labor.
In June 2024, the U.S. Department of Treasury (Treasury) and the Internal Revenue Service (IRS) issued a Final Rule to implement the IRA's prevailing wage and registered apprenticeship provisions. Recognizing that Project Labor Agreements can be a powerful tool to promote compliance with the IRA's prevailing wage provisions, the proposed rule includes several provisions related to Project Labor Agreements.
What is a Project Labor Agreement (PLA)?
A Project Labor Agreement (PLA)1 is a type of collective bargaining agreement unique to the construction industry.2 PLAs are pre-hire collective bargaining agreements negotiated between one or more construction unions and one or more construction employers (contractors/project owners) that establish the terms and conditions of employment for a specific construction project.3
Project Labor Agreements and the Inflation Reduction Act
To make sure that federal investments support good-paying, high-quality jobs in the clean energy economy, the IRA provides increased tax benefits for clean energy projects that pay prevailing wages and use registered apprenticeships on those projects. To prevent abuse, taxpayers who claim those increased tax benefits—but who fail to comply with prevailing wage and registered apprenticeship standards for claiming an increased credit—may be liable for back wages, interest on those back wages, and IRS penalties. Moreover, taxpayers would face significant additional consequences if they intentionally disregard the prevailing wage requirements to claim the increased credit, including owing double penalties and triple back wages. Taxpayers would face similar heightened penalties if they intentionally disregard the IRA's registered apprenticeship provisions.
Project developers are strongly encouraged, but not required, to consider negotiating Project Labor Agreements to help secure the increased tax benefits by ensuring compliance with the IRA's prevailing wage and registered apprenticeship requirements. Qualifying PLAs will: set wage rates at or above prevailing wages; include contract provisions complying with the final rule’s Registered Apprenticeship Requirements; provide for ongoing monitoring ongoing monitoring and administration by union officials; and establish an independent, effective dispute resolution mechanism for enforcing PWA requirements and correcting any underpayments in real time. Recognizing that PLAs are a valuable tool for promoting compliance with the IRA’s prevailing wage and registered apprenticeship provisions, the final rule waives penalties for taxpayers who have a qualifying PLA in place, so long as any back wages and interest owed to laborers and mechanics are paid by the day they file for the increased credit. The IRS will also take the fact that a taxpayer has a qualifying PLA in place into consideration during tax examinations and will consider books and records showing that a taxpayer complied with a qualifying PLA to be an indication that the project is complying with the PWA requirements.
Thus, a qualifying PLA would provide taxpayers more certainty that they will be in compliance with the final rule, can safely claim the credit, and won't owe steep tax penalties for any underpayments—all while promoting efficient, timely construction of clean energy projects.
Which PLAs Qualify for Benefits Under the IRA Prevailing Wage and Apprenticeships Final Rule?
To qualify for a penalty waiver under the final rule, a PLA must meet certain requirements tailored to the unique context of the IRA's prevailing wage and registered apprenticeship provisions. A qualifying PLA under the IRA final rule must, at a minimum:
- Be a collective bargaining agreement with one or more labor organizations (as defined in 29 U.S.C. 152(5)) of which building and construction employees are members, as described in 29 U.S.C. 158(f).
- Bind all contractors and subcontractors on the construction project through the inclusion of appropriate specifications in all relevant solicitation provisions and contract documents;
- Contain guarantees against strikes, lockouts, and similar job disruptions;
- Set forth effective, prompt, and mutually binding procedures for resolving labor disputes arising during the term of the project labor agreement;
- Contain provisions to pay at or above prevailing wages; and
- Contain provisions for referring and using qualified apprentices consistent with sections 45(b)(8)(A) through (C) of the IRA and guidance issued thereunder.
What Are Other Benefits of PLAs?
PLAs organize complex construction projects and ensure their efficient and timely completion.4 Because the IRA final rule only provides a penalty waiver to PLAs that include no-strike, no-lock-out clauses, qualifying PLAs will eliminate delays associated with labor unrest.5 PLAs are known for streamlining the administration of large projects by requiring all parties to enter into one agreement that contains universal terms that govern the work.6 PLAs also increase compliance with worker protection laws, including wage requirements and worker safety law.7 In addition to helping ensure timely construction of clean energy projects, and giving taxpayers more certainty that they are in compliance with the IRA's prevailing wage and apprenticeship provisions, qualifying PLAs could provide the following benefits:
- Reducing costs by increasing efficiency and coordination;
- Reducing uncertainty in the contracting process;
- Supporting contractor access to skilled workers;
- Improving worker safety and health outcomes;
- Expanding workforce training pathways for clean energy jobs; and,
- Preventing labor disputes (and related delays) on projects.
Learn more about the essential elements and benefits of PLAs here.
Other Ways That PLAs Can Promote Equity & Good Jobs
The IRA NPRM proposes minimum requirements for a PLA to qualify for tax benefits and protection from penalties—but taxpayers, contractors, and labor organizations are free to negotiate agreements with additional terms that promote desired results. For example, PLAs can promote diverse workforces and help taxpayers and contractors meet diversity, equity, inclusion, and accessibility objectives, including by:
- Incorporating objectives for hiring local community members, economically disadvantaged workers on projects (such as single custodial parents, individuals experiencing homelessness, individuals receiving public assistance), or workers from other underserved communities;
- Implementing strategic recruitment policies for workers from underserved communities;
- Requiring participation of small, green, and/or diverse business enterprises;
- Dedicating funds or creating partnerships for supportive services, such as childcare;
- Instituting equity plans and establishing monitoring bodies, employing enforcement mechanisms where appropriate, and requiring the public release of workforce diversity data.
In any agreement, the parties must ensure that their hiring efforts and initiatives comply with anti-discrimination protections for workers and any other relevant laws.
For general information on PLAs we encourage you to visit the DOL Good Jobs Initiative's Project Labor Agreement Resource Guide.
This information is being provided for background information purposes only and does not constitute official IRS tax guidance. Publications in the Federal Register and Internal Revenue Bulletin represent authoritative Internal Revenue Service guidance. Please visit IRS.gov/PWA for information on the prevailing wage and apprenticeship requirements.
Any links to non-federal websites on this page provide additional information that is consistent with the intended purpose of this federal site, but linking to such sites does not constitute an endorsement by the U.S. Department of Labor of the information or organization providing such information. For more information, please visit https://www.dol.gov/general/disclaim.
Footnotes
1This resource guide only addresses the use of private sector Project Labor Agreements as defined by 29 U.S.C. § 158 (f).
2Cong. Rsch. Serv., R41310, Project Labor Agreements, at 1 (2012), https://www.everycrsreport.com/files/20120628_R41310_731846eb1c5bc373a7ea40ebd566f72ded8a8771.pdf.
329 U.S.C. § 158 (f).
4Dale Berman & Matthew M. Bodah, Economic Policy Institute, Building Better: A Look at Best Practices for the Design of Project Labor Agreements, at 10 (2010), https://files.epi.org/page/-/pdf/BP274.pdf.
5Id. at 7–8.
6Id. at 10–12
7See, e.g., Dep't of Labor, Implementation of Project Labor Agreements in Federal Construction Projects: An Evaluation 21 (2011) (showing that PLAs are linked to increased compliance with worker safety law).