Industry/Business
Open shop helps cut new plant inflation Steady growth of open shop in chemical plant construction faces test this spring when many union contracts expire Although a steep rise in the cost of new chemical plants has made major news in the past several years, the actual trend in new plant inflation has been downward since the peak rates of 1974. Industry sources say the expected inflation rate this year may be one third of the 25 to 40% pace of two years ago. An important weapon chemical com panies have used increasingly to curb new plant inflation is the hiring of open shop contractors—heavy construction com panies whose employees are nbt covered by union contracts. The rise of the open shop at chemical building sites has dampened the rise in plant costs several ways. First, there are direct savings in wages from contractors' underbidding union shop competition. Second, signifi cant added savings from open shop have come in streamlined work rules to in crease productivity. And third, these de velopments have, in turn, induced union shop contractors to pare their own wage rate gains and to knock out some of the excesses of union featherbedding. April and May will be months of great importance to chemical company managements who either are having
Construction wages are up 65% since 1970 $ per hour a
12 Pipefitters
10 h
8 h
iron workers
i
1
ο
1970
71
72
73
74
75
a Union wages and benefits in Houston area as of Jan. 1 of each year. Source: Employers Council (of Houston)
76
For both union and nonunion workers absenteeism and turnover are problems
new plants built or who are planning new plants. These two months will see most of the action in construction labor bargaining this year. Labor contracts will be up for renewal for nearly three quarters of the unionized construction workers whose contracts are to expire in 1976. How the new contracts will read on increased costs will have a signifi cant effect on the outlook for continued growth of open shop or merit shop con struction at the expense of closed or union shop construction. Chemical managements will be fol lowing these contract renewals as will many other management groups. One of the major areas of growth in open shop contracting has been in chemical plants, particularly petrochemical units, along the Gulf Coast. Terms of these new con tracts will tell much about how the recent cooling might continue in inflation of new chemical plant costs. Such inflation in costs, although milder now, has put plenty of plans for new chemical plants on the shelf either permanently or for longer times than financial officers want to admit. Much of the shift to open shop con tracting—in which employees may or may not be members of a union depending on their own desires—developed because labor costs increased so rapidly for union shop contractors. As a result buyers of new chemical plants and of expansions to existing plants turned to open shop con tractors who offered significant cost sav ings. Definitions of open and merit shop vary. Strictly speaking, an open shop once meant nonunion employees. Now it more often means no contracts between the construction company and unions, even though some of the employees may belong to unions. Merit shop usually means
construction work with a core of employees not covered by a union con tract but with additional employees from subcontractors who may or may not be union workers. During the 1960's, surveys of members of the National Constructors Association (NCA), which is made up of union shop contractors, showed a more than doubling of the number of jobs lost to open shop contractors. The value, where reported, of this lost work more than quintupled. More than half of the lost jobs were pet rochemical units, most of which were lo cated along the Gulf Coast or in the Southeast. These areas generally are considered as having the least unionized construction labor forces in the U.S. The trend of gains in open shop con tracting continued through the early 1970's, although definitive data are lim ited. Now sources with construction contractors and with associations of contractors put the split at roughly 50-50 between open and closed shop contracting. This basic estimate is deceptive, how ever. Sources generally qualify it by pointing out that this is the split for total jobs, with a majority of large jobs going to union shop contractors. The basic reason is that really large open or merit shop contractors are few. To build a $200 mil lion olefins unit requires that a contractor have very substantial financial resources. Many other factors enter into esti mates of the share of chemical construc tion being done open shop. All industry sources agree that large construction company backlogs are near, if not be yond, previous records. Much of this work, of course, is to be done in foreign countries, especially in the Middle East. Hence, big contractors, either union shop or open shop, don't need to push March 15, 1976 C&EN
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extremely hard for work. This then leaves the smaller sized contractors, who either cannot or do not want to work in foreign countries, pushing harder for the smaller new jobs and much of the expansion, revamping, or similar work. Smaller size tends to be the rule for contractors working open shop because these firms lack an important advantage that union shop contractors have. This advantage is the union hiring hall as a labor source. A large contractor can reasonably expect to get as many union craftsmen as needed from the local hiring hall regardless of the location of the job. Because open shop contractors hire at the plant site and get employees by word of mouth they can face problems in getting personnel. Some large open shop contractors do bring employees to a new job site, but this can be expensive. As a result, an open shop contractor tends not to bid on jobs far from his current jobs because he might have problems finding labor. Personnel cost differences obviously are basic to growth of open shop contracting. The relative size of these differences has been shrinking for several reasons. And, the actual difference can vary quite widely depending on the job. Along the Gulf Coast, opinion on the savings in the cost of direct wages plus benefits for open vs. union shop construction falls mostly between 10 and 15% with a range of 5 to 20%. Relatively wide variations in wages and benefits paid by open shop contractors make comparison difficult. Besides direct wages and benefits, labor efficiency can strongly affect cost differences. "Work rules' 1 cover many areas in which open shop contractors claim cost advantages. Many work rules of unions have changed, or are changing rapidly now, however, as union officers become increasingly concerned over unemployment of their members. In no particular order of importance, advantages in work practices by open shop contractors fall into three broad categories, according to Dr. Herbert R. Northrup of the University of Pennsylvania and Dr. Howard G. Foster of the State University of New York, Buffalo. These industrial specialists have made an extensive study of open shop construction. One advantage is a contractor's use of unskilled or semiskilled labor to do suitable work sometimes given to higher paid, skilled craftsmen. A second is a contractor's use of a skilled worker in a variety of crafts rather than just the one craft which is the worker's union's specialty. The third is a contractor's not having to use unnecessary or unproductive personnel such as nonworking union foremen. Frequently changes of work rules are handled by what are called "project agreements" between unions and union contractors. These agreements vary in their terms. The basic purpose is to help union contractors to stay as competitive as possible with open shop contractors by 12
C&EN March 15, 1976
reducing the part of labor cost due to work rules that limit productivity. One of these agreements exists in the Houston area between NCA and the Houston Building & Trades Council. It applies to contract work on projects with a value of $2 million and higher. Among the provisions are those allowing employers to select and hire supervisors without union referral; those defining trainee classifications; and those forbidding jurisdictional disputes, limits of production, restrictions on use of tools and equipment, and the like. Somewhat similar agreements have been made in many other parts of the country. Frequently these agreements also are made for jobs involving power generation plants. This is the second fastest growing area, after petrochemicals, for jobs lost by union contractors to open shop contractors. Other reactions of construction workers' unions to growth of open shop construction are many and varied. One example is "publicity picketing," which aims to emphasize to the public that a job is open shop. Another area of union reaction involves opposition to so-called "double breasted" operations in which a single parent company has both union and open shop units. Most of these units now have managements and work forces sufficiently isolated so that the National Labor Relations Board is satisfied that they are independent. In this case union picketing and boycotting against the open shop units are illegal. Labor violence against open shop construction generally waxes and wanes with the overall economy. Violence also varies with location as a function of increasing or decreasing union strength. Earlier this year, violence flared in the Houston area when C-E Lummus, a union contractor, was replaced by Payne & Keller Inc., an open shop contractor, on construction of a new refinery unit at Charter International Oil. And violence erupted at Lake Charles, La., where Payne & Keller was building an ammonia plant for Jupiter Chemical. Work at these jobs continued with relatively minor problems. Police forces at both of these job sites were beefed up immediately after the initial violence and appeared so overwhelming that no further violence has occurred. Local, and increasingly federal, enforcement brings curbs to violence at open shop construction jobs. Police protection appears an important aid in letting the smaller open shop contractors get the work done. The occasional problems of violence pale on the Gulf Coast compared to the problems of absenteeism and turnover at construction projects. Pipefitters are a special concern in this regard since they are in great demand for the preponderance of chemical and refinery units in construction there. About 4500 pipefitters are the major craftsmen among the 11,000 working in the immediate Houston area. Wages are so high,
CHECKOFF MERGERS • Airco—Agrees to sell Viking division, producer of forged seamless rings with 1975 sales of more than $16 million, to Michigan Seamless Tube Co., South Lyon, Mich., for about $10 million. • Chemetron—Sells industrial gas operations in Hawaii, operated since 1966, to Big Three Industries for $1.2 million and the assumption of certain liabilities; Chemetron also is discussing purchase of Story Chemical's plant in Muskegon, Mich., and Story's Ott division for a price expected in excess of book value of about $8 million. • Crompton & Knowles—Agrees to acquire Kem Manufacturing Corp., producer of cleaning and other chemicals in Tucker, Ga., for unspecified amount of stock; Kem had 1975 sales of about $26 million. • Essex Chemical—Buys $3.5 million coatings and adhesives operation, Kleen-Stik division of Compac Corp., Monmouth Junction, N.J. • Inmont—Sells disperse dye inventories to Sandoz Colors & Chemicals—East Hanover, N. J., arm of the Swiss Sandoz—for undisclosed terms and transfers related dye technology to Sandoz to enable Sandoz to produce these products. • International Minerals & Chemical—Subsidiary IMC Exploration Co., Houston, acquires an unnamed privately held gas and oil producing company with assets mostly in Louisiana for about $38.5 million in cash. • Tenneco—Tenneco Chemicals subsidiary buys Chicago-based flexible polyurethane foam producer, International Foam division of Holiday Inns, for undisclosed terms. • Union Carbide—Buys ozone water treatment business of W. R. Grace and buys the ultrafiltration and reverse osmosis technology of Westinghouse Electric, both for undisclosed terms. • UOP—Completes sale of its fragrances division, Long Island City, N.Y., to Naarden International N.V., of Naarden, the Netherlands, for an undisclosed cash amount; the fragrances unit lost $3.5 million after taxes in 1975 (C&EN, Oct. 20, 1975, page 11).
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March 15, 1976 C&EN
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more than $10 per hour with fringes, and work so plentiful, that on a large job absenteeism can be 25% on Mondays, one constructors association official points out. Union officials are as baffled in finding ways to cope with this problem as are company managements. Workers are thought to decide on a particular standard of living, work enough to maintain it, and no more. These problems also have become severe for open shop contractors. This is to be expected since wages and benefits paid to open shop workers have been rising as fast as have those of union employees. As a result of rising pay, the cost edge of open shop contractors will have to depend more in the future on greater productivity of their employees. If open or merit shop contractors fail to continue this edge over closed or union shop contractors, the trend toward open shop construction will continue to slow. Other important management functions such as improved recruiting and training of workers and improved financial capability, will be necessary to maintain growth in open shop construction. Still, even if the growth rate of open shop construction keeps slowing it will have brought moderation to the rate of union shop cost increases. Contracts due shortly for negotiation may show this tempering effect with its softening influence on the overall rate of new plant cost inflation. Bruce F. Greek, C&EN Houston
Robintech meets new vinyl chloride standards "We expect to have no difficulty meeting federal and state regulations for vinyl chloride vapor monitoring," says J. T. Bressler, plant engineer at Robintech. The basis for Bressler's confidence is a computer-based chromatograph system. This system runs vinyl chloride analyses every 30 seconds at the company's polyvinyl chloride plant at Painesville, Ohio, and at the Shintech joint-venture PVC plant (with Shin-Etsu Chemical Co. of Japan) at Freeport, Tex. The Freeport monitoring operation is shown here with Charles L. Harrington (left) and Jim Goza reviewing a data printout. The monitoring system was designed by Applied Automation subsidiary of Phillips Petroleum. The system's main functions are continuous, timeweighted-average analysis of ambient air, automatic activation of alarms if vinyl chloride concentrations exceed limits, and the provision of data printouts to give a permanent record of air analysis results.
CDA Award
ARCO adds to massive chemical buildup Subsiding profits since the highly profitable days of 1974 have not slowed one of the biggest plant building drives in world petrochemicals. Quite the opposite. ARCO Chemical division of Atlantic Richfield has, if anything, earmarked more funds and accelerated construction schedules for its five-year, $1 billion petrochemical investment program announced in 1974 (C&EN, Oct. 28, 1974, page 8). That's the word from the prime mover in the oil company's swift emergence as a petrochemical power. Robert D. Bent, ARCO Chemical president since 1966, sees events of the past turbulent year merely adding incentive to the company's master plan for petrochemicals. This plan will result in at least a doubling by 1980 of ARCO Chemical's 1975 total sales of $542 million. This pace seems all the more notable in view of the fact that Atlantic Richfield did not get much of a start in petrochemicals until 1966 and did not really get moving until several years later. Why the oil company still sees chemicals as a top-priority future business comes out as Bent, 62, ticks off the 14
C&EN March 15, 1976
chemical division's project lineup for the late 1970's. Fundamental advantages for a company like Atlantic Richfield that have been reinforced in the past year include the steep rise in plant costs, the resulting premium for large plant size, the accompanying deterrent to new companies' entering basic petrochemicals, and the need for both multiple raw materials sources and multiple coproduct outlets within the producing company. Bent also sees vindication in the past year of his view that competition in petrochemicals from the Middle East will be both selective and delayed. The chemicals chief paused briefly in his new investment campaign last week to receive a top-level award, the Honor Award of the Commercial Development Association, at a formal dinner in New York City. The award recognizes not merely the rapidity of ARCO Chemical's growth but the company's continued introduction of new process technology such as propylene oxidation technology and the new ethylene glycol process commercialized by Oxirane, ARCO Chemical's joint venture with Halcon International. Interestingly enough, the head of Halcon, Dr. Ralph
. . . being forced to get away from cottage industry approach Landau, received top industry recognition for his part in Oxirane's success with the 1973 SCI Medal of the American Section of the Society of Chemical Industry (C&EN, Oct, 8, 1973, page 5). The nature of the group honoring Bent is particularly appropriate since Bent is an apostle of commercial development, He says that commercial development as a company function has come a long way in the past few decades but will need even higher priority in the future. Of past practice, he says, ''the routine portion of this thing labeled
