If They Build It, U Will Pay

Flawed contracts. Cut corners. Inadequate inspections. Complaints about conflicts of interest. University of Minnesota president Mark Yudof might be getting out just in time.

Initially, the U planned to use the conventional design-bid-build approach for the project. With construction costs pegged at $78.6 million, and a target completion date of August 2000, Riverbend was a very big, very ambitious undertaking. It would quickly grow even bigger. By June 1999, the cost estimate had climbed to $81.7 million, and the target date was rolled back to fall 2001. In the written request for funding, Eric Kruse, then the U's vice president for University Services, assured the regents that it would be complicated but the project could be managed "to reconcile" with the new bottom line. Soon it became apparent that even that number was unrealistic. At the end of 1999, Kruse broke the news to the regents: The costs for the project would exceed the budget by at least $20 million. In a letter, Kruse urged the regents to shift the project to design-build; his logic was that the U had committed itself to solving the student-housing crunch and a fast-track approach was the only way to meet a self-imposed deadline.

The U had already experimented with design-build on a much smaller scale. Under the state's competitive bidding law, the U was not permitted to use design-build for projects funded principally with state dollars. But projects funded through other sources--such as grants or user fees--were exempt. In March 1999, the U completed its first design-build project, the $4.3 million Barbara Barker Center for Dance. By the end of the year, four other design-build projects on campus were wrapped up, including the $10.4 million renovations of Ford and Murphy halls, which came in on budget and on time.

By all accounts, Kruse was among the U's most vocal advocates for design-build. In April 2000, the regents agreed to scrap the original plans for the Riverbend student-housing project and hire a design-builder. "The University's design-build contract requires the contractor to guarantee the maximum price of the construction early in the Project," Kruse assured regents in a letter.

Around the same time, the long-planned renovation of Coffman Union was running into budget trouble as well. The bids came in 30 to 70 percent over the approved $50 million budget, and Kruse repeated his argument for going with design-build on the project. The U ultimately selected the same design-builder for both Riverbend and Coffman projects: the Ryan Companies, a Minneapolis construction firm that has made a name for itself in the fast-emerging field.

When it was all said and done, the Coffman budget had ballooned to $71 million, 42 percent above the original allocation; Riverbend climbed to $103 million, 27 percent higher than originally hoped. Kruse, who resigned in January, did not return City Pages calls for comment. According to Greg Fox, interim vice president for University Services, the price escalation on the projects was the result of an "extraordinarily hot" construction market.

David Metzen, chair of the Regents Facilities Committee, says the decision to authorize design-build on the two projects was driven by the belief that it "would make this happen faster and cheaper than the original way." But Metzen allows that the absence of competitive bidding, along with the always evolving plans that are characteristic of design-build, has made it hard to know whether the U was getting its money's worth. "I wouldn't say design-build is the answer, and I wouldn't say we've done great," he says. "The message from the regents is, 'Keep these things on budget.' But there are certain things you can't control."

 

Inadequate controls on the U's design-build projects, as it turns out, was the central theme of an internal audit completed April 30. Many of the red flags raised in the report involve relatively small amounts of money, but there are a number of egregious violations of principle. Perhaps the most memorable (and symbolic) revelation is that Ryan stuck the U of M with a $5,075 bill to have one of the construction company's own placards hung from a construction crane. In another case, an electrical subcontractor billed the school $37,000 for the installation of refrigerators and microwaves at Riverbend Commons--even though the cost of installation was supposed to have been included with the purchase of the appliances. In both cases, the money was returned only after the auditors complained.

In the 49-page report, Gail Klatt, the head of the University's Department of Audits, compiled a list of 38 proposed reforms to the design-build process, 11 of them deemed "essential." At the top of the list is the need for increased oversight and a call for independent inspections. Such controls, Klatt notes, are especially vital under design-build because the architects are "no longer contractually bound to the university," but to the builder, removing the designer's traditional incentive to serve as a watchdog.

According to Klatt's report, informal visits to job sites by U employees revealed several defects in workmanship and materials. In one case, an electrical contractor cut corners on high-voltage cable splices, creating "significant safety hazards." A repair was subsequently made. But such defects, the audit notes, should not be left to be discovered via casual visits.

Although the U uses a consultant, or owner's representative, to assist in the management of construction projects, it has not required that the person perform on-site inspections. And according to the auditor's report, Armlin North and Associates, the company the U hired as an owner's rep for Coffman and Riverbend, was "reluctant" to make on-site visits. (Earl North, a principal in the firm, referred questions to the university's news service.)

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