Minnesota Lawyer
The company building the new Minnesota Vikings stadium says subcontractors are getting squeezed in a $15 million dispute tied to cost overruns, but the authority overseeing the project said the claims are misguided.
Golden Valley-based M.A. Mortenson Co. requested arbitration after more than 120 change orders inflated costs and held up payments, it said. Roughly 25 of the contested change orders, worth a combined $8 million, have gone unresolved for 10 months or more, according to a filing made public on Friday.
“The majority of the costs associated with these [proposed change orders] have been incurred by Mortenson’s subcontractors and suppliers to implement changes in the work that have already been completed,” the contractor said in the filing, which sets up mediation proceedings ahead of possible arbitration.
About $14 million of the contested funding is tied to extra work completed by subcontractors, Mortenson Senior Vice President John Wood said in an interview. In some cases, the company has paid cash-strapped subcontractors without first receiving payment itself from the Metropolitan Sports Facilities Authority.
“Some of them were under some real duress and were having a difficult time seeing the opportunity to continue on the project without getting paid for the work they had done,” Wood said.
But the authority, formed by the state to guide the downtown Minneapolis project, contends the reimbursement sought by Mortenson runs counter to provisions in the stadium contract that release the authority from most financial obligations linked to cost overruns.
A statute prohibits the authority from shouldering such expenses, it said. Instead, it’s up to the contractor – in this case, Mortenson – to negotiate a contingency fund to absorb additional costs. The stadium project agreement includes a $29.7 million built-in contingency, according to the authority.
But the disputed changes came after the authority approved full design plans, Wood said, putting the responsibility for additional costs back on the MSFA.
Meanwhile, the authority leaned on the legislation to distance itself from the allegations. State lawmakers limited the public contribution to the stadium at $348 million from the state and $150 million from the city of Minneapolis, effectively ruling out additional payment from the state-appointed group.
Mortenson’s request for additional funding to address its claims would cause the authority to blow past that funding cap in violation of state law, it said.
“As good stewards of public funds, we need to be careful how we spend our contingency so we don’t run out of money,” Michele Kelm-Helgen, who leads the authority, said at a Friday meeting. “That’s our responsibility and that’s what we’re trying to do as we resolve this issue.”
She said the dispute, discussed at length earlier Friday behind closed doors, boils down to differences in interpretation of the $1.08 billion project’s cost structure. The parties will work to clear up the issue over the next couple of weeks, she said, adding that Mortenson remains a strong partner in the stadium effort.
In its filing, Mortenson spelled out one of the contested change orders – a design tweak that required it to tear out and replace a pair of electrical feeders its subcontractors had already installed at the site in order to include a third one. The change racked up more than $1 million in additional costs, the contractor said in its filing, but the authority has so far not definitively accepted or rejected it, delaying payment to Mortenson and its subcontractors — a violation of the construction services agreement, Mortenson said.
“Despite Mortenson’s repeated and longstanding requests, the authority has failed to issue … Mortenson contract revisions that fairly and adequately compensate Mortenson and its subcontractors for the additional costs and time impacts they have incurred in connection with changes in work,” the contractor said.
The authority, however, argues Mortenson has not provided enough information for it to evaluate the electrical work claim despite three specific requests. The authority also said Mortenson put forth too-broad information to support its other claims, preventing the group from addressing them.
Since construction started, the team has poured more than $100 million into the project beyond its initial $477 million commitment, mostly for interior features and improvements. A handful unveiled this week, including signage and video-board upgrades, together cost $616,692.
Pricing conflicts are not uncommon in large-scale, complex projects like the Vikings stadium. It’s tough, even for the most sophisticated players, to predict every change to plans at the outset when parties hash out terms. Still, the proceedings mark Mortenson’s first time staring down arbitration with a customer, Wood said.
Despite the discord, Kelm-Helgen said the project remains on track and is expected to stick to its schedule through mediation and arbitration proceedings. The stadium is slated for completion in July 2016.
