The recent events center settlement revealed that we received $485,004 in cash and forgiveness of bills owed to the contractors. The other $514,996 of the settlement was in the form of a write-down of the ‘contractor contingency’ which is a block of money that the owner (the City) allows the contractor (Mortenson) to access during construction to cover eventualities out of the control of the contractor (i.e. a subcontractor walks off the job, raw material prices spike, etc). At the end of the project, there was $1,524,402 left in the Contractor Contingency fund. Note this is OUR money (it never went to the contractor – it was in our bank account). At the end of the project, industry documents state, and in fact our contract states, that we retain that unused contingency. Now the city asserts it is not ‘our money’ because the contractor could access it. They assert that per the contract, if we were to find a ‘latent’ (hidden and not seen but NOT based on contractor negligence or fraud) defect within the 10 year statute of repose (time limit in South Dakota to find a defect that was hidden and go after the contractor) that they would have the right to access the contractor contingency fund to fix it.
That is TECHNICALLY true, in CERTAIN cases, however, it would have to be specifically a latent defect and something that we actually called the contractor back to fix among other requirements. The fact is the unused contingency money was in the city bank account, never left the bank account, and still remains in our bank account (we call it the ‘second-day’ fund). We intend to drain that account in 2018 and put it towards the events center bond payment. The money is not legally encumbered or restricted in any way. The city asserts that *IF* (and it’s a BIG IF), that if we found a latent defect and called the contractor back, they could ask to use the unused portion of the contractor contingency fund. That *MIGHT* be legally possible, depending on how you read the contract. I wanted to try to get to the bottom of this, so I reached out to experts in the industry, including those that actually DO construction manager at risk projects.
Events Center Settlement Siding
In short, they made clear at the end of the project, at closeout and reconciliation, any unused contractor contingency is NOT given to the contractor, and it is just assumed that it was money that wasn’t needed, and it is, was, and always will be the owners’ money. It was further stated that they had never once had it come up where they actually accessed the contractor contingency after the project was complete. In the real world, it just doesn’t happen (according to them). They (the contractors) consider it the owners money and don’t give it a second thought. Based on all I have learned, it appears clear to me that despite the city protestation of it being a big win, that contractors who do this don’t consider it as such. My impression is that it would have been met with a yawn by a contractor. After all, they consider the unused contractor contingency the owner’s money, they never had it, so why would they care if that line item was changed after the project was closed out? Also, consider one other thing. Does anyone find it coincidental that the reduction in the contractor contingency line item (which again happened well after the project was COMPLETE) was $514,996, which just by DUMB LUCK (?!?!) made the headline settlement number 1 MILLION dollars EXACTLY?
All of this leads to one inescapable common sense conclusion. The contractor contingency write-down was an accounting gimmick, used to make the settlement sound impressive, and give the administration the ability to brag that we got ‘a million bucks’ when in reality we got $485,004. Based on all of the above, I strongly believe this was a $485,004 settlement, NOT a million dollar settlement, and continuing to assert the 1 million dollar figure is deceptive. Ironically, based on new information I have gathered I believe the $485,004 was actually a ‘win’ for the city, because it appears rather clear to me we approved the siding, we were there daily on-site watching it go up for a year, and only after people started to complain – 30 days after the west wall was finished – did the city suddenly decide it wasn’t good enough. I happen to believe the city when they assert litigation would have been very risky.
I agree, based on the facts I think it is clear we got what we paid for, and the panels are installed to manufacturer specifications, and there is no defect, and we approved them, hence there is no negligence or bad acts to hold other parties responsible for. This appears to have been about one thing, saving face, and dropping the blame on other parties. We got what we asked for, and we complained after the fact, after watching the panels go up for a year, continuing to pay the contractor all the while. The other parties settled from what I can tell for one reason, not because there was any fault, but because it was simply a matter of deciding is it better to settle and pay something known, or go into court and pay hundreds of thousands in legal fees, which would likely result in a settlement at the end anyway.
To be clear I have found no evidence of corruption or malfeasance, at best it was only an error in judgement/bad decision. It may not have even been that. We knew the panels oil canned and deflected before they went on the wall. We moved forward anyway. That’s not the contractor’s fault. Consider it from their perspective, they created the mockups the city asked for before construction started, all parties were there to see them including multiple city employees, the city, its architect, and construction manager signed off on the panels. The panels were installed to manufacturer specifications INCLUDING on the radius, because although it is a curve, it is within the tolerance of the panels (although the curve accentuates the oil canning and deflection it is still within the required specifications), and the owner (city), architect, and construction manager were on site, day after day watching the panels going up, and obviously saw what they looked like, and continued to issue payments to the subcontractor(s) throughout that year, with nary a peep. You can’t choose the material, approve the install, and then watch it go on for a year and then complain after the fact. It’s that simple.
In the end, we got what we paid for. Some like the aesthetic effect, some don’t (myself included). Regardless, it is what we paid for and we knew what we were getting. The facts are undeniable on that point. The paper trail, the documentation, and first hand testimony make it undeniable in my mind.
Taken with permission from a Greg Neitzert Facebook Post on 10/26/2017