The amount involved in M.A. Mortenson’s dispute over costs at the new Minnesota Vikings stadium — $15 million — equals the amount the company stands to collect for completing the $1.1 billion project on time.
As part of its aggressive bid for the project, the Twin Cities construction company set its fee at $12.5 million, about 1.7 percent of the construction cost. That’s lower than the industry norm of 2 to 3 percent. The company will collect “as much as $15 million” if the work is finished early.
That fee amount explains how a breakdown in negotiations with the Minnesota Sports Facilities Authority (MSFA) escalated into Mortenson’s demand Thursday for mediation over $15 million in disputed change orders on the project. A Mortenson spokesman said by e-mail Friday night that in dispute is “the cost and extra time related to changed and extra work directed by the MSFA after the final design documents were given to Mortenson,” and that of the $15 million in dispute, about $14 million would go to subcontractors who’ve already completed their work.
The move is unusual. Mortenson also built Target Field, completing that project without filing for mediation. Mortenson received an $11 million fee on that $545 million ballpark, which opened in 2010.
The Mortenson spokesman said that “while arbitration is an industry-accepted dispute resolution methodology, it is certainly not common in Mortenson’s experience. … In over 61 years of business in Minnesota, Mortenson has never before initiated arbitration against a customer and has never been in arbitration with a customer on a sports facility project anywhere.”
A. Peter Hilger, faculty director of the construction management program at the University of Minnesota, called the amount “peanuts” for a project this size, as well as “not completely out of the ordinary.”
In the construction industry, private discussions are the preferred method for working out disputes between an owner and the construction manager. The inability to resolve a dispute on such a high-profile project sends a temblor through the industry. The stadium is the largest public-private effort in Minnesota history, and Mortenson’s first NFL stadium.
Steve Hauser, who teaches construction management and contracts at the University of Minnesota, said Mortenson probably was reluctant to file for mediation.
“Mortenson certainly cares about its image in the community, and Mortenson certainly cares about its image with the Vikings,” he said, adding that $15 million may not be a lot in the scope of the project, but “I would have to presume if Mortenson doesn’t get that, it’s $15 million off their bottom line.”
For the MSFA, the dispute is the latest sign of stormy conditions and unclear leadership. Recently, former legislator Duane Benson resigned as an MSFA commissioner, saying he could no longer work with chairwoman Michele Kelm-Helgen. Gov. Mark Dayton named former DFL state Rep. Tony Sertich to replace Benson, starting with the Aug. 21 meeting.
Both Mortenson and the MSFA refused interview requests Friday.
In a statement, the MSFA said Mortenson set a guaranteed maximum price so the authority shouldn’t have to dip into the authority’s $30 million contingency fund to cover change orders.
John Wood, Mortenson senior vice president, said earlier Friday the MSFA directed “changed or extra work” in the past year not covered in the initial contract. “We have been unable to resolve this through negotiation,” Wood’s brief statement said.
Project changes not unusual
The feud over $15 million comes 11 months before the building is to open as the Vikings’ home for the 2016 NFL season. The approaching deadline gives little breathing space for error or adjustment.
Hilger said there’s no cause for alarm, because every project requires changes in scope and design.
“The challenge always becomes: Where’s the line?” in determining who pays for what, he said. “The average change-order growth on a project is 5 to 10 percent.”
This is no typical project; it’s a politically sensitive, highly visible addition to the Minneapolis skyline with city and state taxpayers covering half the cost. The Vikings are paying the other half and already have covered $90 million in new costs since construction began on the 66,000-seat stadium.
Hilger said the resolution of the dispute is likely to be less than $15 million.
As part of the mediation request, the contractor also seeks the right to go to arbitration if mediation fails.
Neither Mortenson nor the project appears to be in dire circumstances for now.
Hauser said he’s seen no evidence the project’s budget is a “runaway train” and that “from the sidewalk, it looks pretty goll-dang good.”
The Golden Valley-based company runs big projects throughout the country and listed 3,800 employees and $3 billion in revenue last year. Ultimately, Mortenson isn’t going to take a big hit. The company has completed the lucrative concrete work on the stadium. Pay for the workers comes from the MSFA, not Mortenson’s fee.
Even with the dispute, the company also has a strong incentive to keep pushing forward: A $5 million-per-game fine is leveled if the stadium doesn’t open on time.