In Minnesota, private negotiations are normally utilized to resolve disputes over routine changes required to complete a construction project. However, the construction industry is concerned over implementation of mediation to settle a dispute over $15 million in change orders for construction of the new Viking Stadium in the Twin Cities.
The construction contractor, MA Mortenson, requested formal mediation to resolve disputes over payment of the change orders. Negotiations earlier broke down with the Minnesota Sports Facilities Authority which has project oversight.
For its part in the project, Mortenson charged a fee of $12.5 million, approximately 1.7 percent of the $1.1 billion construction cost. The industry norm, however, is 2 to 3 percent. Mortenson may also collect up to $15 million if it completes the project on time. The company can also be fined up to $5 million per game if construction is not completed by the opening of the 2016 NFL season.
Every construction project requires changes in scope and design referred to as change orders. These normally add 5 to 10 percent to the cost of the construction. Private discussions over disputes between the owner and construction manager are the preferred method to resolve these disputes.
This project is the largest public-private effort in Minnesota history. Implementation of mediation in this high-profile project, instead of informal resolution, is accordingly causing concern among the industry and could impact commercial real estate transactions. If mediation fails, the dispute could proceed to arbitration.
Change orders in the amount of $15 million in a project of this scope i are not uncommon. However, this project is large, highly visible and politically sensitive and has involved disputes among the MSFA. The city and state paid half of the $490 million in added costs while the Vikings covered the remaining half.
Mortenson claims that changes were requested after it received final design documents and were not provided in the original contract. It also argued that $14 million would be paid to subcontractors. The MSFA said that it set a guaranteed maximum price and should not have to take money out of a $30 million contingency fund.
Owners and property managers should seek legal assistance when entering construction contracts to help avert disputes and unanticipated expenses. Legal advice can help commercial real estate deals proceed successfully.
Source: Star Tribune, “Vikings stadium cost dispute is critical to Mortenson’s share of the project,” By Rochelle Olson, Aug. 7, 2015