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AGENDA RECOMMENDATION |
City Manager's Report 8.A.
City Council Regular Meeting
- Meeting Date:
- 04/28/2025
Agenda Item:
Report on Project and motion approving Change Orders 5-12 for Capital Improvement Project 10994; Riverfront Drive.
Recommendation/Action(s):
Approve change orders.
Summary:
Staff have been working to close out the Riverfront Drive Project. While working through the final project invoices, we have identified issues that need attention. They include the final change orders, the incentive pay for the contractor as permitted in the contract, and procurement of the traffic signals and streetlights for the project.
Change Orders
In accordance with Section 2.08, subdivision 5 of the Mankato City Code, the City Manager is to report as soon as practicable on change orders approved per the City Code. The Council received reports for Change Orders 1-4 previously on June 24, 2024, and July 22, 2024. Change Order 3 added 4 days to the contract completion date. The original date for substantial completion was November 1, 2024. In late January and early February, the Engineering Department received Change Orders 5-11 from the contractor. Staff reviewed them and the City Manager was made aware of them in early March. The following is a summary of Change Orders 5-11.
Change Order 5
The contractor substantially completed the project on October 24, 2024, and the traffic control devices and detour route were going to be removed on this date. The City requested the devices, and the detour route remain in place until October 28, due to the street closure for the Day of the Dead event occurring within the project area. This work added one day to the contract completion date and had a value of $687.50.
Change Order 6
Upon discovery and inspection of the in-place bituminous pavement sections within the project, the City requested that the contractor match existing depths and perform the necessary milling activities to make sufficient connections. This work added one day to the contract completion time and had a value of $26,737.70.
Change Order 7
Due to springtime flooding and high river levels, the in-place storm system from Main Street to Plum Street was completely full of water and could not be tied into as initially planned. Adjustments to the structures located in the 100 and 200 blocks of Riverfront Drive were deemed necessary and a vertical watermain diversion was placed between 6+00 and 6+50 to maintain proper coverage and clearance under an existing storm drainpipe. This work added 7 days to the contract completion date and had a value of $43,609.52.
Change Order 8
The Contractor incurred expenses while making attempts to install the intersection pedestrian ramps as described in the Plan. It became necessary to deviate from planned grades and alignments to ensure buildings tie in properly and to maintain ADA compliance. The deviation from the Plan required extensive field engineering. This work added 4 days to the contract completion date and had a value of $50,162.75.
Change Order 9
The City requested that the contractor provide hydroseeding and erosion-control blankets in lieu of sod to restore disturbed areas where topsoil was placed. This work added no days and had a value of $2,706.00.
Change Order 10
The Contractor incurred expenses for items that were not included in the Plans. This involved structure adjustments, grade differential corrections, appurtenance removals, and utility abandonment. This work added 15 days to the contract completion date and had a value of $86,801.03.
Change Order 11
The Contractor has requested that additional days be added to the substantial completion date due to rain events during the project. This request added 9 days to the contract completion date.
The original contract value was $8,240,343.95. Change Orders 1-4 had a value of $87,856.01 and Change Orders 5-11 total $210,704.50, for a cumulative total of $298,560.51, which equates to 3.6% of the original project budget. If approved, the adjusted contract value becomes $8,538,904.46.
Staff are in receipt of the change orders. Those change orders fall within the dollar amounts of the City Manager’s approval authority and City Code requires the reporting of them to the City Council.
Incentive Pay
Due to the location of the project and the anticipated disruption to the public and businesses, a provision for incentive pay was included in the contract. The contract specified that if all work was completed and ready for final payment prior to the agreed-upon completion date, incentive pay would be awarded in the amount of $7,000 per day for up to 40 days. As noted in the Change Orders above, the contractor did meet the requirement as stated in the contract and is eligible for the incentive payment of $280,000.
The contract for the project requires this to be paid as a change order. It is recommended we add this as Change Order 12. Adding this to the other change orders, it adjusts the change orders total to $578,560.51, which equates to 7% of the original project budget. As identified, this no longer fits within the City Manager’s ability to approve. If approved, the adjusted contract value becomes $8,818,904.46. Staff recommend approval of the change order.
Traffic Signals and Streetlights
As part of the initial scope of the project, streetlights, traffic signals, and cabinets were intended to be replaced along with the addition of a new signal at Rock Street. These devices were included in the Feasibility Study presented at the Improvement Hearing on November 27, 2023. As part of the review to close out the project, staff discovered that the Engineering Department placed an order for streetlights, traffic signals, and signal cabinets outside of the bid, using the State of MN Contract, and opened a reimbursable account with the State Aid Office of MnDOT in March 2024. According to the invoices, these accounted for $947,128.
The City Manager and Director of Administrative Services were not aware that these streetlights and traffic signals were ordered in this fashion. This ordering pattern was discovered in late March 2025. The actions by the Engineering Department did not follow the City’s procurement policy, which requires City Council prior authorization for this type of purchase.
Additionally, the City Manager and Director of Administrative Services discovered in late March that our engineers did not include the signals in the contract award as an owner-provided item when the Council reviewed the bids on April 22, 2024. At that Council meeting, the bids and an updated budget for the project were presented and approved. Although these elements were intended to be paid for through the reimbursement of State Aid Funds, proper procedures should have been followed, and the proper authorizations should have been sought.
Staff recommend corrective authorization for the purchase of the traffic signals and streetlights via the state contract and using Municipal State Aid and/or Federal Funds for the project to cover these costs.
Special Assessments
Our review of the overall project has also identified an issue with how our City Engineers presented the preliminary special assessment data. On December 11, 2023, the City held a preliminary assessment hearing. The staff report for the hearing suggested preliminary special assessments of $1,034,700. At the hearing, the Council received public comments and then unanimously adopted the preliminary special assessment roll.
However, the number used in the staff memo was not correct and, after research, we are not able to determine how the number was calculated. In reviewing the roll that was adopted, the roll actually totaled $1,742,222.41, not $1,034,700 as reported. Unfortunately, the incorrect number was used during the Improvement Hearing in November 2023, the Preliminary Assessment Hearing in December 2023, and when the bids were considered in April 2024. We have reviewed and verified the notices the property owners received for the Preliminary Hearing. They were based on a total $1,742,222.41 in anticipated collections.
In addition, during the project, there was private work requested for two parcels, for which we have a petition from the property owners. The amount of total work is $123,309. Driveway and utility costs were estimated in the preliminary assessment roll and our policy is to charge the actual amounts of these costs. These amounts will be included in the final assessment roll when presented.
As we are working to close out the project, we are reviewing the overall sources and uses of funds for the project. We anticipate concluding this work by mid-summer and anticipate that we will hold the final assessment hearing earlier than fall, which has been our custom. This earlier date does not change when the property owners start paying their assessments, which will remain in 2026. It does provide more time for property owners to pay their assessments in full without interest. By law, property owners have until November 15, to pay their special assessments without interest.
Next Steps
As a result of our discoveries, the following actions have been taken or are planned to take place in the near future:
Change Orders
In accordance with Section 2.08, subdivision 5 of the Mankato City Code, the City Manager is to report as soon as practicable on change orders approved per the City Code. The Council received reports for Change Orders 1-4 previously on June 24, 2024, and July 22, 2024. Change Order 3 added 4 days to the contract completion date. The original date for substantial completion was November 1, 2024. In late January and early February, the Engineering Department received Change Orders 5-11 from the contractor. Staff reviewed them and the City Manager was made aware of them in early March. The following is a summary of Change Orders 5-11.
Change Order 5
The contractor substantially completed the project on October 24, 2024, and the traffic control devices and detour route were going to be removed on this date. The City requested the devices, and the detour route remain in place until October 28, due to the street closure for the Day of the Dead event occurring within the project area. This work added one day to the contract completion date and had a value of $687.50.
Change Order 6
Upon discovery and inspection of the in-place bituminous pavement sections within the project, the City requested that the contractor match existing depths and perform the necessary milling activities to make sufficient connections. This work added one day to the contract completion time and had a value of $26,737.70.
Change Order 7
Due to springtime flooding and high river levels, the in-place storm system from Main Street to Plum Street was completely full of water and could not be tied into as initially planned. Adjustments to the structures located in the 100 and 200 blocks of Riverfront Drive were deemed necessary and a vertical watermain diversion was placed between 6+00 and 6+50 to maintain proper coverage and clearance under an existing storm drainpipe. This work added 7 days to the contract completion date and had a value of $43,609.52.
Change Order 8
The Contractor incurred expenses while making attempts to install the intersection pedestrian ramps as described in the Plan. It became necessary to deviate from planned grades and alignments to ensure buildings tie in properly and to maintain ADA compliance. The deviation from the Plan required extensive field engineering. This work added 4 days to the contract completion date and had a value of $50,162.75.
Change Order 9
The City requested that the contractor provide hydroseeding and erosion-control blankets in lieu of sod to restore disturbed areas where topsoil was placed. This work added no days and had a value of $2,706.00.
Change Order 10
The Contractor incurred expenses for items that were not included in the Plans. This involved structure adjustments, grade differential corrections, appurtenance removals, and utility abandonment. This work added 15 days to the contract completion date and had a value of $86,801.03.
Change Order 11
The Contractor has requested that additional days be added to the substantial completion date due to rain events during the project. This request added 9 days to the contract completion date.
The original contract value was $8,240,343.95. Change Orders 1-4 had a value of $87,856.01 and Change Orders 5-11 total $210,704.50, for a cumulative total of $298,560.51, which equates to 3.6% of the original project budget. If approved, the adjusted contract value becomes $8,538,904.46.
Staff are in receipt of the change orders. Those change orders fall within the dollar amounts of the City Manager’s approval authority and City Code requires the reporting of them to the City Council.
Incentive Pay
Due to the location of the project and the anticipated disruption to the public and businesses, a provision for incentive pay was included in the contract. The contract specified that if all work was completed and ready for final payment prior to the agreed-upon completion date, incentive pay would be awarded in the amount of $7,000 per day for up to 40 days. As noted in the Change Orders above, the contractor did meet the requirement as stated in the contract and is eligible for the incentive payment of $280,000.
The contract for the project requires this to be paid as a change order. It is recommended we add this as Change Order 12. Adding this to the other change orders, it adjusts the change orders total to $578,560.51, which equates to 7% of the original project budget. As identified, this no longer fits within the City Manager’s ability to approve. If approved, the adjusted contract value becomes $8,818,904.46. Staff recommend approval of the change order.
Traffic Signals and Streetlights
As part of the initial scope of the project, streetlights, traffic signals, and cabinets were intended to be replaced along with the addition of a new signal at Rock Street. These devices were included in the Feasibility Study presented at the Improvement Hearing on November 27, 2023. As part of the review to close out the project, staff discovered that the Engineering Department placed an order for streetlights, traffic signals, and signal cabinets outside of the bid, using the State of MN Contract, and opened a reimbursable account with the State Aid Office of MnDOT in March 2024. According to the invoices, these accounted for $947,128.
The City Manager and Director of Administrative Services were not aware that these streetlights and traffic signals were ordered in this fashion. This ordering pattern was discovered in late March 2025. The actions by the Engineering Department did not follow the City’s procurement policy, which requires City Council prior authorization for this type of purchase.
Additionally, the City Manager and Director of Administrative Services discovered in late March that our engineers did not include the signals in the contract award as an owner-provided item when the Council reviewed the bids on April 22, 2024. At that Council meeting, the bids and an updated budget for the project were presented and approved. Although these elements were intended to be paid for through the reimbursement of State Aid Funds, proper procedures should have been followed, and the proper authorizations should have been sought.
Staff recommend corrective authorization for the purchase of the traffic signals and streetlights via the state contract and using Municipal State Aid and/or Federal Funds for the project to cover these costs.
Special Assessments
Our review of the overall project has also identified an issue with how our City Engineers presented the preliminary special assessment data. On December 11, 2023, the City held a preliminary assessment hearing. The staff report for the hearing suggested preliminary special assessments of $1,034,700. At the hearing, the Council received public comments and then unanimously adopted the preliminary special assessment roll.
However, the number used in the staff memo was not correct and, after research, we are not able to determine how the number was calculated. In reviewing the roll that was adopted, the roll actually totaled $1,742,222.41, not $1,034,700 as reported. Unfortunately, the incorrect number was used during the Improvement Hearing in November 2023, the Preliminary Assessment Hearing in December 2023, and when the bids were considered in April 2024. We have reviewed and verified the notices the property owners received for the Preliminary Hearing. They were based on a total $1,742,222.41 in anticipated collections.
In addition, during the project, there was private work requested for two parcels, for which we have a petition from the property owners. The amount of total work is $123,309. Driveway and utility costs were estimated in the preliminary assessment roll and our policy is to charge the actual amounts of these costs. These amounts will be included in the final assessment roll when presented.
As we are working to close out the project, we are reviewing the overall sources and uses of funds for the project. We anticipate concluding this work by mid-summer and anticipate that we will hold the final assessment hearing earlier than fall, which has been our custom. This earlier date does not change when the property owners start paying their assessments, which will remain in 2026. It does provide more time for property owners to pay their assessments in full without interest. By law, property owners have until November 15, to pay their special assessments without interest.
Next Steps
As a result of our discoveries, the following actions have been taken or are planned to take place in the near future:
- We have reviewed other projects to ensure compliance with state law and our policies. To date, we have not found any further inconsistencies or occurrences.
- We have reviewed our procurement procedures with our auditors and are assured that our procedures are appropriate and have scheduled retraining for our staff.
- We are reviewing the proposed final assessment roll and the overall sources and uses of funds for the project. As this work concludes, we will update the City Council.
- We have hired an outside investigator to assist in reviewing this project. No further public information is available regarding this active investigation at this time.