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.

For decades, the U did have employees on staff assigned to perform on-site visits. Then, in the early Nineties, supervisors at Facilities Management, the U's construction division, became concerned that if their in-house inspectors failed to spot problems with the work, it could expose the U to liability. So the inspection program was subsequently phased out. "That was a mistaken concern," responds general counsel Mark Rotenberg. "We are not aware of any advice, any document, any memorandum out of this office that told Facilities Management to restrict its inspections or oversight."

Greg Fox, who now leads the university's construction team, agrees that the reduction of inspections was a mistake. In fact, when he was vice chancellor at the University of Minnesota-Duluth, Fox resisted pressure to make similar reductions. "The more oversight we can provide, the better the project will be in the long run," Fox observes. "My recommendation to the president will be that we expand those inspections." Asked whether the absence of inspections had hurt the U during the recent spate of construction, Fox is circumspect, saying only, "I'm not trying to go backwards."

The audit outlined other instances in which completed work failed to meet the university's written construction standards. And in some instances, the U essentially sanctioned the shortcomings. At the very least, according to the report, the school should have received financial benefits from those concessions--it didn't. On the Riverbend project, for instance, Ryan Companies was supposed to install approximately 1,000 access doors in the ductwork. University officials agreed to deviate from the standard and require Ryan to install just 25 of the doors. But, according to the audit, there was "no evidence" that the U got the requisite break in price.

Mike Bauer, Ryan's senior project manager for Riverbend and Coffman, says he has not reviewed the audit report. He maintains, however, that the U's construction standards "are not applicable in all cases, and if they're not applicable, then there's no credit for them." The plans for both Coffman and Riverbend were regularly amended, Bauer points out, and different departments and officials at the U made varied and sometimes conflicting demands. "The U's a good client, but you have to bob and weave, constantly trying to cater to them," Bauer adds. "As large as they are, you can't please everyone."

While it may be impossible to satisfy everyone at the U, it seems the school did its best to bend over backward for Ryan. For instance, Pamela Beader, a former interim associate vice president at the U, authorized an amendment to the Riverbend contract that calculated the allowable cost for Ryan's labor charges. According to the audit, the new language empowered Ryan to charge $60,000 more than what would have been permitted under the original language. Over the course of the project, that bill would grow to $750,000.

Under a policy adopted by the regents, all changes to contracts are supposed to be reviewed by the Office of the General Counsel. That did not happen in this case, notes Mark Rotenberg, the U's general counsel. "We require this so that people around here are not obligating the U willy-nilly to all sorts of deals. Getting control over contracts is a major problem."

Earlier this month, Rotenberg's office concluded a legal audit of construction activities at the U of M. "This is a rare kind of activity. We're usually busy fighting with the Clem Haskinses of the world," Rotenberg acknowledges. "But when you've got hundreds of millions of dollars of public money being spent, it's critically important that the public's interests be protected."

The general counsel's report covers much of the same ground as the audit, but it also ventures into new territory. Among other things, the report concludes that the U should eliminate its "pre-qualification" process for selecting architects and engineers. That process, the report notes, is not used by either the state or federal government, and it has served to both restrict the pool of competition on university projects and create "an unfortunate impression" of unfairness and favoritism.

While stopping short of asking the U to discontinue the use of design-build, Rotenberg's report also makes a host of recommendations: The regents should mandate a third-party review of all design-build project plans; inspections programs need to be expanded; and a more detailed contract language could be used to help determine "price reasonableness."

Greg Fox defends the U's use of design-build, saying the school managed to get a "good value" on its projects. Still, he expresses a preference for the conventional design-bid-build approach. After reading the auditor's report, Fox called auditor Gail Klatt. "I asked her, 'Is this a solvable problem, or is this something that is structural and organizational?'" Fox recalls. "The answer was, 'I think these are solvable.' And that was the response I was hoping to get."

In an e-mail message, President Yudof did not respond to the question of whether the university had gotten its money's worth on Coffman or Riverbend, declined City Pages' request for an interview, and referred specific questions to Klatt and Fox. He did, however, address the issue of design-build in general terms: "I suppose that my overall view is that both the traditional method for construction and design-build have associated risks and benefits for the university. In the future, I think there are things that the U can do to minimize the risks and maximize the benefits, but there is no silver bullet when it comes to large-scale construction projects in the public sector."

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