‘Think hard’ about Met Council’s ability to oversee any future light rail construction, says auditor

It wasn’t a formal part of the latest audit of the Southwest Light Rail Transit project, but it summarized in frank language the sentiments of many who have followed the project, both in government and in the public.

After being asked during a hearing of the Legislative Audit Commission what advice she had for how light rail projects should be managed in the future. Legislative Auditor Judy Randall was direct:

“The council and the state have other light rail transit projects coming up, that are being discussed, that are being vetted,” she said Wednesday. “Now is the time to think hard about who should be the responsible party for those projects.

“Based on what we’ve seen and based on the structure that we have for funding and building, I’m not convinced that Met Council is the right entity to be the responsible authority for those projects.”

Randall’s comments come amid a series of special audits directed by the Legislature to dig into SWLRT. The project’s critics represent both Republicans and DFLers, with the most-withering questioning coming Wednesday from Sen. Mark Koran, R-North Branch, and Sen. Scott Dibble, DFL-Minneapolis.

“The agency is impervious to critiques and criticism and good ideas,” Dibble said. Koran noted the investment in transit projects from the just-completed session and wondered if the Met Council could be trusted to do what it’s being asked to do.

“We’re supposed to trust your organization to deliver better and be accountable when we have seen nothing in this project. We’ve seen very little change,” Koran said.

Randall tied her concerns about future projects to an issue raised by her office in March.

“It gets back to the questions from our previous report: ‘Who is responsible for these projects and who is paying for these projects?’ If they’re not the same people, why not? Let’s think about that as a state,” Randall said. Perhaps Hennepin County, which is producing most of the non-federal money for the project, should be the agency overseeing construction, she said.

“That’s worth considering,” she said. “We’ve learned a lot over the past 20 years and over the last several reports our office has issued. Shame on us if as a state we don’t do things differently going forward.”

The Met Council is currently developing plans to extend the Blue Line from Target Field to Brooklyn Park, a project for which the Legislature provided $50 million in the latest budget. Ramsey County is exploring a link from downtown St. Paul to the airport. The Riverview Corridor would likely be turned over to the Met Council should it reach the development stage.

Randall’s reference to who is paying speaks to the often-awkward structure of light rail projects in Minnesota in which the Met Council, as a multi-county entity, manages construction and operation but has no source of money to pay for it. Funding has come from the federal government, the counties through which projects run and, at earlier stages, the state.

This past session the Legislature adopted a regional sales tax of 0.75% with the proceeds going to the Met Council for transit projects, the first significant source of money for the agency. But that same transportation budget prohibits the Met Council from using any of the new money on SWLRT until a task force considering restructuring the agency, including making it an elected body, finishes its work next year.

The Legislature also created a task force to look into making the governor-appointed council one that is elected by voters in the seven-county area. It also included additional reporting requirements on cost overruns and threatened to turn construction management over to the state Department of Transportation.

Met Council Chair Charlie Zelle tried to walk a line between objecting to some of the findings and being humble about the problems with the agency and the project. A combative response letter claimed the auditor’s suggestions could have led to even higher costs and delays.

“While we appreciate the Office of the Legislative Auditor’s attention to this matter, several of the report’s recommendations do not align with (federal) guidance or construction law, are not appropriate for a project of this size and complexity, and in some instances could have contributed to additional delay,” Zelle wrote.

Wednesday, he first responded to a sarcastic review of his letter by Dibble in which the senator said it appeared to suggest the Met Council was perfect and the report was deeply flawed.

“I wish Met Council was perfect. Sadly we are not,” Zelle said. “We are learning every day and have learned a lot throughout this project and from the reviews by the legislative auditor.” Zelle repeated that the project’s problems really began with the routing decision that included the shallow tunnel at Kenilworth and flawed cost estimates before the project was bid.

“We continue to face the risks of this corridor,” he said.

But the council chair said he has asked Federal Transit Administration overseers if the project is flawed or mismanaged — if he has “dropped the ball” — and is told they support the project.

“They say you have some of the best project teams they have seen around the country,” he said of the FTA, adding that the cost overruns and problems on SWLRT are similar, and in some cases, less than what has become common with light rail projects elsewhere. 

When the 14.5-mile project from Target Field to Eden Prairie was approved by the federal government in 2018, it was supposed to cost $2 billion and carry its first passengers in 2023. It is now 75% complete. It is now set to open in 2027 and cost $2.767 billion.

And on Wednesday, neither Zelle nor deputy general manager Nick Thompson expressed total confidence that the dollar amount wouldn’t change again.

“We are still in the riskiest area of construction, completing the Kenilworth Tunnel, so there are possibilities of additional cost,” Zelle said. “But we have no evidence now to know what that will be.”

Wednesday’s audit was just the third in a series of blistering audits of the project and the Met Council. It probed deeper into the details of the relationship between the council and its contractors than previous reports that looked at the 20-year history of the 14.5-mile extension of the Green Line to Eden Prairie and the reasons why it is far behind in time and far ahead on spending.

Throughout the year-long process, Randall’s office has complained about the level of cooperation and transparency by the special government that provides regional services in the seven-county metro area. In March, she raised the specter of resorting to subpoenas to the council staff.

“The Metropolitan Council was not as cooperative as most state agencies are when we come calling,” Randall said then. “We did ask for a lot of information but with every request, the Metropolitan Council requested an extension on the deadline. We often had to make requests several times.”

In fact, the report on the contracting aspects of the audit was released this week instead of back in March with the previous audit because of slow or puzzling responses from the agency, Randall said. In one case, the auditor asked for more information about how it dealt with findings that the contractor wasn’t compliant with specifications of the design. In return, it was sent 6,000 unsorted and unlabeled e-mail messages, attachments and related files. Of those, fewer than 10% were relevant to the auditor’s request, she said.

Wednesday’s report covered seemingly technical issues relating to how the Met Council managed its contract with Lunda-McCrossan, a joint venture involving two large contractors. This civil construction contract includes the physical tracks, stations, bridges, tunnels, retaining walls and other structures and has been the area with the most problems.

“We found that the Metropolitan Council has not adequately enforced several aspects of its key Southwest Light Rail Transit (Southwest LRT) construction contracts, nor does it have adequate documentation to support some project decisions,” the latest audit concluded. A revision of the contract last year — the so-called settlement agreement that established the current budget and timeline —  made improvements in contract management. The report found that the council had not done enough to hold the contractor to costs or to push back at change orders.

“In part this was due to the limitations of the original contract,” said David Kirchner, the manager of the project for the Office of the Legislative Auditor. “The contract enabled the Metropolitan Council to withhold or deduct payments to enforce the provisions. However, the contract had few other enforcement tools and the council was reluctant to use the withholding power it had. It didn’t want to take a confrontational approach.”

Randall said the council was in fear of potential litigation or the contractor walking away from the project.

“When you have that kind of imbalance, it wasn’t really a true partnership,” she said.

There were 658 change orders between March of 2019 and October of 2022, and 550 of those increased costs. The net change was to add $219 million to the budget.

The audit found that the Met Council staff lost confidence in the independent contractor assigned to assess the costs of proposed change orders. After following a process to adjust the independent contractor’s estimates upward, the Met Council often agreed to amounts closer to the construction contractor’s own estimates.

“We don’t really understand why the council continued to use cost estimates that it found to be deficient over and over again over three years and continued paying the cost estimator to provide cost estimates that it was disregarding,” Kirchner told the audit commission.

The Met Council has since replaced that independent contractor and has decided to no longer have the same contractor do the cost estimates of the project and then assess the estimates to change aspects of the project.

The legislative auditor was critical of the use of a process where the contractor was allowed to proceed with change orders before terms were agreed to. It also found that the Met Council did not adequately require the contractor to conform to what the contract called for in terms of construction and worried that it might not have the documentation to try to hold the contractor to the contract when the project is completed.

In response to questions, the auditors said they did not see evidence of corruption or note any violations of federal or state laws. One more audit that will look deeper at the financial elements of the project could come by the end of this summer.

But Randall said there were gaps in oversight by the Met Council and an oversight board made up of Hennepin County commissioners and Met Council members that approved smaller change orders. It was expected that the officials would listen to the experts from the staff in the early stages of the project, “but as this project — excuse the pun — began to go off the rails and there were more and more questions, I would expect an oversight body itself to ask more and more questions.

“We didn’t see them being engaged,” Randall said.

Editor’s Note: Peter Callaghan wrote this story for MinnPost.com, which initially published it on June 29.

Callaghan covers the state government for MinnPost.

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