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The 2007 audit, which was not made public but was obtained by the Star Tribune, found that MnDOT managers often expanded construction contracts without written justification or itemization, a violation of contract regulations.
“We believe our concerns are significant, as they also involve complying with requirements, maintaining the public trust, and maintaining good public relations,” Auditor Daniel Kahnke wrote in a March cover letter to Transportation Commissioner Carol Molnau.
The audit, which reviewed projects from 1999 through mid-2006, shows contractors and consultants often received millions beyond their original bids. That, while MnDOT delayed projects because of a lack of funding.
MnDOT said it is training managers to be more vigilant.
The audit, requested by Molnau, found that supplemental contracts were almost always arranged by MnDOT without competitive bids because managers are rushed to complete jobs.
The review came about after a road project south of Hastings on Highway 316 in fiscal 2005. The job’s original contract was for $5.5 million, but the cost rose to more than $8.6 million after three supplemental agreements. A third of the project’s value never went to competitive bids, the audit said.
Kahnke recommended that MnDOT create a task force to address its lack of controls. The task force hasn’t finished its work, but MnDOT plans to train managers to be more vigilant after projects start, said Lisa Freese, deputy commissioner of MnDOT.
“We feel like we are working hard with a process of continuous improvement,” Freese said.
Kahnke also warned that supplemental costs could rise even more because 40 percent of the projects he examined were still going on.
The report has yet to be distributed to legislators, who will start a new session in February.
Rep. Ron Erhardt, R-Edina and vice chairman of the House Transportation Finance Division, said legislators should examine the overruns.
“The decision-making process on the money that they have might not be going in the right direction,” Erhardt said.
MnDOT officials downplayed the overruns in an e-mail to the Star Tribune.
“The findings indicate that MnDOT supplemental agreements amount to approximately $20 million per year ... a relatively small amount, given the agency’s $550 million annual construction budget,” the e-mail said. “We’re constantly striving to make MnDOT work better.”
But the audit found that supplemental contracts are a “significant percentage of total construction costs,” and an increasing percentage of total costs.
For example, in fiscal 2002, MnDOT paid contractors about $7 million for supplemental contract work. By fiscal 2006, those costs had climbed to $28 million.
The audit criticized MnDOT for not tracking consultants’ plans. When contractors cause overruns, MnDOT managers should seek compensation from a firm’s insurance policy covering “errors and omissions,” the report said.
Minnesota Legislative Auditor Jim Nobles said he is investigating.
“MnDOT recognizes right there in black and white that they have a problem,” Nobles said.
