February 19, 2016
Statement from Minnesota Sports Facilities Authority Chair Michele Kelm-Helgen regarding the mediation settlement.
As you may recall, the Authority, Mortenson, and the Design Team have been engaged in negotiations and a mediation process. We have had many long sessions, over many months discussing how to address disputed cost issues that have arisen over the past years. The current disputed costs started at $15 M and have now grown to $16.8 M. The Minnesota Sports Facilities Authority and its consultants have estimated potential future disputed cost issues of $9M-$12M, which is expected to cover costs until Project completion. But to put this into perspective these cost disputes are less than 2% of the total project budget.
We think we have reached a sensible resolution of those issues, and we're pleased to present to the Board for its consideration a settlement agreement that could not only resolve the existing claims of $16.8M, but also creates a process that responsibly resolves an estimated $9M-$12M in future claims numbers, that together with current claims are estimated to be $26M-$29M.
The agreement reached calls for the Authority to contribute $16.25M toward a settlement. I want to be clear, no additional state/taxpayer money is needed for this settlement. Current project funds along with an additional contribution from the Vikings will cover this as I will further outline.
The settlement includes a provision that calls for the Authority to deposit its contribution in an escrow account until Substantial Completion (which is July 29th,). This settlement has Mortenson assuming the financial risk for potential future cost issues until substantial completion. At that time, Mortenson will have the option to either accept the escrow amount in settlement of what are now existing claims and future claims. By Substantial Completion, what are today future estimated claims should be then fully known, as Mortenson will continue to track its actual costs on these claims from now until Substantial Completion. The knowledge of what those costs actually total at Substantial Completion will allow Mortenson to decide whether to accept the escrow in settlement of all claims or proceed forward with the arbitration it has filed, if its claim costs are significantly higher than we all anticipate today.
If Mortenson does not accept the Authority’s escrow amount, the $16.25M that the Authority has contributed will return to the Authority. The Authority also has the option of rejecting the settlement and receiving a return of its money, if the amount of certain future claims exceed their estimated cost and we decide we need to reserve this money to cover those future cost issues as well.
The premise of this escrow account structure is that it allows both parties to have protection to move in a different direction at Substantial Completion should either party experience major, unexpected cost increases. Neither party anticipates this will happen, but it provides protection to both parties.
For the MSFA to comfortably make this settlement, we needed to be sure we had enough money remaining in our contingency to close out the project. Our contingency release schedule and our current costs estimates, suggested we needed to leave at least $10M in MSFA contingency to close out the project. We have accomplished this goal; in fact, we have exceeded this amount.
To further recap and detail where we are at, following this settlement, which places $16.25M in an escrow account, the MSFA’s contingency balance will be $13.5M. We accomplished this with two major funding sources.
The MN Vikings have again stepped up and are adding $5.4M to the project for this settlement agreement and for improvements that have to be made. In addition, the MFSA has $4.5M in our project budget that was designated early on as money allocated to the MSFA for project close-out costs. We are moving this $4.5M to our contingency today to ensure we cover our costs and still have adequate contingency available to close out our project.
Furthermore, we are using this opportunity to fund some additional costs that arose as the project nears completion. A few examples of costs we are paying for today include things like cabling necessary for local and national broadcasters in the building and increased security requirements that led to the purchase of walk through magnetometers.
I believe we have approached this budget/claims/mediation in a most responsible and fiscally conservative manner. Like everything on this project, it was a very complicated agreement, but creating a process that addresses current AND future claims is unavoidably complex. Our mediation took some time to complete, as we needed to make sure our contingent reserves were adequate to complete the project, and we scrubbed our budgets thoroughly before agreeing to a final settlement number.
We also wanted to make sure we covered future cost issues, so we have some certainty on costs, as we complete this project. Then, we ensured another level of protection through the Authority’s ability to withdraw from the settlement just in case unexpected issues, which no one anticipates, should occur.
What is unique and hopeful about this settlement structure, however, is that it creates positive incentives for every party to act in a way that reduces the chance for and amount of future claims. These incentives should encourage and lead the Authority and Mortenson to accept the settlement escrow at Substantial Completion and thereby finalize the settlement.
This is another MAJOR milestone that we have completed, and it allows us to preserve the excellent, collaborative working relationship among the Authority, the Design Team, and Mortenson so we can complete this amazing building on time and on budget.
I want to thank the board for their support in our negotiations every step along the way, and our staff, our attorneys, our mediator and our consultants who helped us shape this agreement. Once again, it was a partnership with the Authority, the Vikings, Mortenson and the Design Team coming together and re-committing to the effective partnership we had formed.
We will answer any questions of the press following our board meeting, and copies of this statement are available for the press as well.