By Brian Johnson
The price of the state of Minnesota’s 2011 road and bridge construction season is likely going to go up by millions of dollars, and that money won’t upgrade an additional foot of highway.
It will go toward settling some contractor claims stemming from July’s state government shutdown that brought nearly 100 Minnesota Department of Transportation projects to a screeching halt during peak season when contractors must make most of their money.
MnDOT has the “potential” for 110 shutdown-related construction claims, said Chris Joyce, MnDOT’s public affairs supervisor.
After receiving notice to return to work after the shutdown, which ended after Gov. Mark Dayton and GOP legislative leaders agreed to a budget deal, contractors had seven days to notify MnDOT that they were reserving their right to file a claim.
Joyce said it will be several months before MnDOT can put a total cost on the claims, because there is no deadline for filing that paperwork.
But it’s safe to say that the costs will be in the millions — with claims from relatively small subcontractors starting in the tens of thousands of dollars and going up from there.
J&L Steel & Electrical Services in Hudson, Wis., which is working on the Lafayette Bridge project in St. Paul, is looking at $30,000 in claims for the three weeks that the state government was in limbo, said company President LouAnne Berg.
And that’s just the beginning. If some of the work that is scheduled to be done this fall is pushed into January or the next construction season, for example, the costs are likely to go up because of the weather and potentially higher labor costs.
“If we were supposed to set structural steel in October and now we are going to set it in January, we have inefficiencies due to the weather,” Berg said. “If you lose 20 percent productivity, you are going to bill the state for that.”
Shipments for things like steel may be delayed as a result of the shutdown, and “if steel gets delayed for six months, are they still going to be able to get the steel for the same price?” she added.
“It’s an unforeseen monster as to what is going to happen down the road.”
Dianne Holte, president and chief executive officer of Ramsey-based Holte Contracting, said she is looking at about $48,000 in claims on a Highway 34 project near Park Rapids, Minn.
“We moved our equipment off [during the shutdown],” said Holte, a subcontractor for Central Specialties on that job. “You can’t just shut down the job and leave your equipment there and not try to get other work when you don’t know how long the state is going to be shut down.”
Berg and Holte’s claims are small potatoes compared with the large prime contractors.
“I can’t imagine what kind of bill the state is going to get for that,” Berg said.
Construction claims related to project work stoppages are rare, said MnDOT’s Mike Leegard.
In Leegard’s eight years as claims engineer for MnDOT, he has dealt with numerous claims related to issues like unforeseen site conditions and changes in the nature of the work.
But he can recall only a couple of instances where the claim had to do with suspension of a project.
“We don’t suspend that many projects,” Leegard said in a phone interview.
Under MnDOT’s contract specifications, the engineer of record handles construction claims, and Leegard serves as an adviser.
Both Trauner and HNTB are working under “not to exceed” contracts: $100,000 in Trauner’s case and $108,993.93 in HNTB’s case, according to Joyce. In other words, she noted, the final cost could be between $0 and those values.
Basically, the consultants will be sifting through piles of paperwork and chewing on lots of numbers.
“There will be a lot of things that will be very intense as far as accounting,” Leegard said.
Trauner and HNTB are on a certified list of approved MnDOT consultants.
The list is updated every few years. Once approved, the consultants are available to resolve disputes in a variety of categories, including construction contract “claim analysis and support.”
Leegard said MnDOT happened to be working on updating that list before the shutdown.
“Periodically, we do hire consultants to come in and help because, bottom line, the private sector can throw resources at problems way better than we can,” Leegard said. “I can’t react fast enough.”
MnDOT defines a claim as a demand for “money, time or some other adjustment” resulting from the difference in contract requirements at the time of bid compared with actual requirements during construction.
“You are looking at what is the difference between when the contract was bid and let, versus now,” Leegard said.
Each project affected by the shutdown may have claims in three separate areas: inefficiencies leading up to the shutdown, the actual suspension of work and inefficiencies after work resumed.
Contractors are asking for money to cover the costs of things like idled equipment, demobilizing and remobilizing, temporary traffic control, extended field and home office overhead, utility hookups to field offices and permit extensions.
The first step in examining a claim is to measure in nonmonetary terms how the project has been affected. Then, using standard accounting and federal highway formulas, the claims experts apply a cost to those impacts.
“We go through the impacts and costs, and if we arrive at an amicable deal between the contractor and the owner, we … pay through that existing contract with a supplemental agreement,” Leegard said.
If negotiations do not resolve a claim, the issue can go to mediation, arbitration or litigation, according to MnDOT.
Claims are addressed under sections 1402.2B and 1517 of MnDOT’s standard specifications for construction.
The section 1517 claims relate to “inefficiencies” before and after the shutdown; claims related directly to the suspension of the work are covered in section 1402.2B. The biggest difference: 1402.2B claims specifically exclude requests for profit.
Leegard said the impacts of the 1402.2B claims, in particular, are “very measurable. You are looking at idled equipment. You are looking at extended field overhead. … That is easy to document.”
“I would be surprised if many have to go to, say, alternative dispute resolution or mediation or something like that.”
It’s still an open question where MnDOT will get the money to pay the claims.
“We don’t know where the money will come from to pay the claims until we know the final amount,” Joyce said in an email.
But the number is likely to be in the millions. And it will take away from road and bridge construction efforts, said Margaret Donahoe, executive director of the Minnesota Transportation Alliance.
“For MnDOT, the money will have to come out of the construction budget … which means there will be fewer dollars for projects that have been programmed or new initiatives,” Donahoe said.
She cited the $398 million Better Roads initiative, which calls for improvements to 700 miles of highways over the next four years.
The program is made possible in part by lower-than-expected bids on other projects. Now, Donahoe said, a good chunk of those savings will be canceled out by the claims.
“It certainly will have an impact on the construction budget,” she said.