Critics hope city audit brings transparency to building projects

Auditors will review how City Hall picks construction firms and monitors building projects following complaints last year from citizens and city councilors about a lack of transparency.

Argus Leader Media is suing the city of Sioux Falls for access to documents related to a $1 million settlement with contractors over faulty siding at the Denny Sanford Premier Center. The city has refused to share financial details with the public, citing a confidentiality agreement in the settlement, as well as the arrangement under which the companies were hired, using a method known as a "construction manager at-risk."

Argus Leader sues city over $1M event center settlement secrecy

The Sioux Falls Internal Audit Division in a report to the City Council this week said its audits this year will include a review of the city's use of construction manager at-risk.

Under the arrangements, a company is hired to oversee the project in its entirety – from design through completion – and is responsible for finishing the work within a pre-determined budget amount. The city first used it for the event center project.

Previously, when the city tackled a building a project, an architect was typically hired to design the building. Once designed, a low-bidder would be hired to perform the construction. When hiccups are encountered along the way and designs need to be changed, alterations to the plan are publicly scrutinized and vetted by the City Council.

City and industry officials say the construction manager at-risk model makes for a smoother construction progress and protects taxpayers from paying more for projects that go over budget. But critics say it also takes some oversight out of the hands of elected leaders. Bruce Danielson, a regular activist at City Hall, and Councilor Greg Jamison, have complained there’s little public accountability when a construction manager is allowed to change project plans without council approval.

“You can’t have a new construction process like that go on without reviewing it and making sure the outcomes are going well,” Jamison said. “The $117 million that we spent (on the event center) deserves an audit, frankly.”

Internal Audit Manager Rich Oksol said the audit will vet contracts entered into by the city with an eye on making sure, when possible, the maximum-price guarantee was met. The audit will also make sure materials and construction met expectations and the process of selecting a construction manager at-risk is competitive.

The $24-million Midco Aquatic Center at Spellerberg Park became the second-ever city project to use the method. A pair of Sioux Falls companies were chosen this year to manage two other city projects – a proposed city administration building and a public parking ramp.

“You audit where you spent the most money, and obviously we spend a lot of money on construction contracts,” Oksol said.  “The selection process under construction manager at-risk … that’s a little different than typical construction projects. And change orders, it’s a little bit different so we want to look at that.”

Oksol said because this is the first time the city is auditing the delivery method, it’s unclear how detailed the final audit report will be.

Jamison and others are hopeful the final audit report will include details about where the city’s $117 million event center payment went – labor, materials or administrative costs. The number of subcontractors used in the project and how they were compensated is also expected in the report, he said.

“Through the audit we'll figure out what can we know and what can’t we know,” he said. “It’s been a little vague on what information the council and the public has access too, so hopefully this will show that anyone can see the change orders."

"If the auditors can’t look at details of public spending because they were deemed private because of the construction manager at-risk method, then we have a problem,” Jamison added.

Brian Perlberg, Senior Council for the Association of General Contractors, said the model came into prominence as an alternative delivery method in the 1990s, and the vast majority of states allow its use for public projects. Without specifically referring to the way the city of Sioux Falls administers projects, Perlberg said generally the method allows the project owner, in this case the city of Sioux Falls, to scrutinize construction costs.

“In all the contracts, I can’t remember one where the owner didn’t have the ability to audit cost,” he said.

M.J. Dalsin, a Sioux Falls roofing company, worked on the Premier Center project under the construction manager at-risk for the project, M.A. Mortenson Co., and was involved in the city’s settlement. M.J. Dalsin Operations Manager Jared Kuik said an audit should help quell lingering questions or perceptions of impropriety.

“It’ll show how much money was paid out to each subcontractor. That will be kind of a round about way of seeing how much Mortensen walked away with,” he said. “That would be the most interesting number to me.”