MANKATO — Now approaching its midway point, one of the biggest municipal construction projects in Mankato history is serving as a test case for expanded powers the City Council provided its city manager in 2024 to approve large additional payments to contractors.
The mammoth modernization project at Mankato’s regional sewage treatment plant has seen City Manager Susan Arntz approve just over $625,000 in unanticipated additional payments to the contractor. Other changes from original plans have brought $145,000 in savings. So the net jump in expenses is $480,000 — less than one-half of 1% of the overall anticipated construction costs, according to a written update provided to the City Council last week.
Deerwood-based Rice Lake Construction Group was awarded the $83.7 million contract, which has now risen to $84.2 million with the change orders approved by Arntz. A construction contingency fund and the cost of consulting engineers bring the total project to slightly less than $94 million.
Just two weeks after the contract with Rice Lake was awarded, the council agreed to grant Arntz the authority to approve change orders much larger than what Mankato’s city manager had traditionally been allowed to unilaterally authorize. Change orders are adjustments in the design, scope or materials used in a construction project when unforeseen issues surface during construction.
Expanded authority
Under the old rules, the city manager needed council permission to approve a change order of $25,000 or more.
The revised approach still requires council approval for change orders topping $25,000 for smaller construction projects valued at $2.5 million or less. But for larger undertakings, the city manager can now single-handedly approve additions to the contract up to 5% of its total value — a threshold of about $4.19 million for the sewage plant. In the event that change orders cumulatively top that amount, advance permission by the elected officials would be required for each subsequent additional payment to the contractor.
In seeking the change in spring of 2024, Arntz and Administrative Services Director Parker Skophammer predicted that a project as massive as the sewage plant upgrade would inevitably require multiple adjustments costing $25,000 or more and that requiring the council to convene and approve each one would unnecessarily delay construction progress, driving up the total cost of the work.
Although council members were broadly supportive of the revised ordinance in spring 2024, Michael McLaughlin expressed some discomfort at what 5% represented in the sewage plant project.
“At some point, there needs to be a ceiling added,” McLaughlin said. “… The rest of it makes complete sense. I don’t want to be a wrench in the gearbox.”
Under the revised policy, Arntz is required to, “as soon as practicable after the authorization or approval of any change order, submit a report thereof to the City Council.”
Arntz’s initial report to the council on Nov. 10 covered 13 change orders she had approved, including just one above $25,000: a $36,000 additional payment to Rice Lake for “4-inch PEW Near EQ Control Building.” Combined with project adjustments that delivered cost savings, the net impact of those change orders was just $19,000.
Rising cost, scant detail
Interim Public Works Director Karl Keel provided an oral report to the council at the November meeting, although it was general in nature with no added detail about the individual change orders. Council members didn’t ask any questions about the change orders.
Since then, another 16 change orders have been approved, with six of them exceeding $25,000. There were a pair of six-figure change orders: $172,940 for “30-inch EXF Conflict Resolution near WRF” and $117,701 for “sitework changes.” The others were $84,566 for “Generator Pad Details,” $59,605 for “EQ Area Piping Inspection and Repairs” and $52,052 for “EQ Basin Duct Bank Repair.”
The additional change orders approved by Arntz totaled $545,809 in new payments to Rice Lake with other adjustments to the project reducing costs by just over $85,000 for a net increase in the contract of $460,745.
Those changes were listed in a report approved by the council on Monday without discussion as part of the consent calendar, which is reserved for a group of agenda items — deemed as noncontroversial — that are passed on a single roll-call vote.
The result was a half-million dollars in added payments being made to a contractor by a single city official with the publicly available explanation consisting of phrases ranging from three to six words. Keel told The Free Press he works with Arntz to find the right balance between providing adequate information to elected officials without excessive technical detail.
In response to a question from The Free Press about the most expensive change order, Keel’s explanation served as an example. The nearly $173,000 payment to Rice Lake for “30-inch EXF Conflict Resolution near WRF” involved a large distribution pipe that moves water between equalization basins at the plant. The plans for the new pipe’s location conflicted with a underground concrete duct bank containing power conduits because the elevation of the duct bank was different than anticipated.
Necessary adjustments to deal with that brought added costs and the accompanying need to reimburse the contractor.
Such surprises are common in construction projects, particularly when underground work is involved, Keel said. That’s particularly true when dealing with infrastructure that’s decades old like the Mankato sewage treatment plant, which dates back to the 1950s with multiple additions and expansions in the following decades. The result is sometimes spotty blueprints and other construction records.
“It was built over many years, many years ago,” he said. “So the records are there, but they’re not great.”
The construction contract is now 49% completed, according to the report: “Project is trending slightly behind schedule, but within budget.”
Keel said there will be more change orders, but he’s hopeful they won’t be as large as the most recent batch.
“The good news is we’re getting closer to the end of the digging portion of the project,” he said.
The new policy has worked well to keep the project on track, according to Arntz. Without the ability to quickly approve change orders, delays would have occurred — particularly when a subcontractor has a specific job to do and can’t shift to another task on the work site while awaiting authorization for the change.
“We’re happy the project is mostly on time,” she said.
As for whether enough detail is being provided to justify large additional expenditures, Arntz said the standard is the same for any use of public dollars.
“The explanation, regardless of the dollar amount, has to be sufficient to understand why the change order is necessary,” she said.
The fact that no council members or anyone else has asked for more information provides an indication that descriptions such as “sitework changes” or “generator pad details” were sufficient enough explanation, Arntz said.
“If the council were to have more questions, we’d supply more information,” she said. “We haven’t received those questions from the council or the public. So I think we’re tracking on sufficiency.”
More than a year to go
The contract provided 1,000 days for the project to be finished, which would have meant March or April 2027. Mid-2027 is the revised end date.
Mankato’s sewage treatment plant, officially called the Water Resources Recovery Facility, serves about 65,000 area residents and accepts waste from the neighboring communities of North Mankato, Eagle Lake, Madison Lake, South Bend Township, the Lake Washington Sanitation District and Skyline.
In addition to providing service to a broader region, the plant is exceptionally efficient at cleansing the wastewater before it is discharged into the Minnesota River.
In fact, the plant’s discharge is so low in phosphorus that Mankato has been able to sell phosphorus credits to other communities and industries in the Minnesota River basin that are struggling to meet discharge standards, including Granite Falls and Walnut Grove, the Lower Sioux Indian Community, a Granite Falls power plant and a Marshall corn-processing plant.
Roughly half of the project cost is being covered by state and federal grants with the rest being financed with local funds, primarily through utility bills paid by water and sewer customers.