SIOUX FALLS, S.D. (KELO.com) -- The City of Sioux Falls has provided responses to the latest set of questions posed by KELO.com News regarding the settlement of the bent panels on the Premier Center.
Assistant City Attorney Karen Leonard and City Finance Director Tracy Turbak provided responses today to questions posed over a week ago about the once secret Denny Deal. Leonard's response is avaialble here; Turbak's here.
As to how much the City spent defending the Argus Leader's lawsuit to reveal the settlement agreement over the warped panels on the events center, the City said it did not have a figure, as the cost of the defense of the civil case was paid by the City's risk sharing pool, the South Dakota Public Assurance Alliance.
"The City does not have this information as the the South Dakota Public Assurance Alliance is the custodian of the invoices," Leonard wrote.
Leonard also responded to KELO.com News' question as to why the City's out of state law firm, Thompson Hine, did not provide a breakdown of billable hours like its local counsel, Cadwell Sanford, did.
She said this was a cost-savings and budgeting move by the city, with the billing set in stages and the Ohio firm bearing the risk of exceeding its fixed monthly fees.
Leonard wrote:
"At the outset of this project, Thompson Hine provided the city with the rare opportunity to completelycontrol legal costs. Thompson Hine divided the project into phases, and agreed in advance to a fixed feefor each component of its work. In that way, the city knew, in advance, what the fee would be and couldbudget accordingly. Thompson Hine took the risk of getting each phase done within the pre-agreed fixedfee, and absorbed any and all costs beyond the fixed fee. The fixed fee was in place for the initialinvestigation, preparation of the city’s claim and response to the claims of others, negotiation of thedefinitive settlement agreement and documentation of that agreement. The only component that wasnot covered was the subsequent, and unanticipated effort to secure the settlement with one party thathad a disagreement with the proposed settlement agreement. The alternative was to have ThompsonHine simply bill time, at its hourly rate, for all work required without any assurance or guarantee as to what the total amount would be. The city was pleased with the work of Thompson Hine, and believes itreceived great value."
Turbak wrote in a letter to the City Council that "the assumption that the $1.5 million of savings that remained in the contractor's contingency at project close-out would have come back to the city anyway" was a "false assumption."
Turbak wrote:
"If not for the settlement agreement, the amount remaining in the contractor’s contingency would most certainly have been less – far less. In fact, it is because of the settlement agreement such a large amount remained. As indicated, 100% of savings revert back to the City; but if the money has been spent, there are no savings to revert. In order to understand this position, you must understand the options that existed for the City three years ago."
KELO.com News also asked Leonard to explain as simply as possible how the Construction Manager at Risk Contract works in a project like the building of a multi-million dollar project like the Premier Center.
This is part of Leonard's explanation:
"By contrast, under a CMAR agreement, which was used on the Premier Center, there is full transparency into the contractor’s price. The amount the contractor (i.e. CM) can receive is still capped (the Guaranteed Maximum Price or GMP) but the contractor is only paid for amounts actually expended for reimbursable costs of the work plus a pre-negotiated fee and certain expenses for the contractor’s staff (so-called General Conditions). In this case, the CM fee was set at 2.25% of construction cost, while the CM contingency was initially set at 5% of construction cost. It is a misnomer to refer to the CM contingency as “the owner’s funds”. Those dollars are within the GMP, and during the course of construction they can be used by the contractor for a variety of purposes as long as the dollars are expended on actual costs of the work, as opposed to being “put in the contractor’s pocket” as additional profit. Moreover, the CM contingency is available to correct defective construction, or latent defects even after the project is completed, up to the relevant statute of limitations or statute of repose. As an accounting matter, if the owner chooses not to maintain, in a separate fund, the money that remains in the CM contingency for possible use by the contractor, then it must write a check out of its general fund if the contractor is called back to remedy defective work and there is still money left in the CM contingency. In this case, had the Owner demanded replacement of the metal wall panels, then the CM could have used dollars within the CM contingency to remedy the problem. Moreover, had any other defect appeared within the past two years, or if any defect manifests within the next few years, the entire CM contingency would normally be available for use by the CM to address the issue. In this case, however, as part of the settlement, the CM gave up its right to use the amount of CM contingency contributed to the settlement for any purpose. Accordingly, the CM contingency and final GMP have been reduced and those funds completely recovered by the owner with no possible claim for use of such amount by the CM for any purpose."
"So, in the absence of the settlement the $514,000 it is not “returned to the city” without restriction. Had the city determined to declare the metal panel wall defective in order the CM to modify it, those funds would have been used for that purpose. If the metal panel wall now start to leak, or if it is now determined that the panel wall is structurally defective, those funds would have been available to the CM to address the problem. Pursuant to the settlement, however, the CM has relinquished its right to those funds, so they are no longer available to the CM to address the problem. If any other latent defect within the CM’s responsibility showed up in the last two years or shows up in the future (subject to the statute of limitations or repose), those funds, which normally would have been available to the CM are no longer available."
KELO.com News will be following up with the South Dakota Public Assurance Alliance to see if it will release the billing records regarding the City's defense of the Argus Leader lawsuit that eventually got the City to release the Denny Deal.