Why do Rochester projects keep increasing in price?

Yahoo

08-03-2025

Mar. 8—ROCHESTER — Norman Wahl says the $175 million estimated price tag for Rochester's planned Link Bus Rapid Transit system requires added transparency.
"That cost has been the subject of public conversation," the Rochester City Council member said ahead of a vote to reject a potential contract price that exceeded estimates by roughly $30 million.
The mismatch between a city estimate and contractors' bids comes on the heels of some other high-profile underestimates, including ones for the city's proposed sports and recreation complex that was part of a 2023 sales tax extension and a planned new parks and forestry building .
Taken in combination, it appears estimates are largely out of whack with reality, but city officials say a variety of factors are in play and no single reason exists for the increased cost estimates.
"There's so many layers to what goes into estimating and certain assumptions," Deputy City Administrator Cindy Steinhauser said, pointing out the beginning point in the estimating process comes with the initial proposal, which can happen years before construction starts.
"What always is a challenge on projects is the length of time that's allocated to completing the project," she said, adding, "A project that can be completed within a year is different from estimating for a project that's going to be completed over three years."
During the years between concept and construction, a project's scope can change, alongside changes in the greater economy.
The Link project has been subject to both influences since it first was visualized with a $114 million price tag that since has grown to $175 million.
First, the route changed, in order to connect the line to future development envisioned near a new bridge planned in southeast Rochester. That raised the cost estimate to $145 million.
And more recently, a federal requirement to increase contingency funds, higher-than-expected property costs and other unanticipated factors has raised the cost estimate still further, to $175 million. State Destination Medical Center funds are expected to cover the costs outside of the nearly $85 million in federal funds dedicated to the project.
City Hall isn't alone in facing such circumstances. Mat Miller, director of facilites and building operations for Olmsted County, said similar factors led to a $24 million final cost for what had been planned as a $17.4 million project to expand the county's Public Works Service Center and create a new Public Safety Training Center on the southeast edge of Rochester.
He said the project saw a $3 million increase in scope after county commissioners agreed to add a geothermal system to the project, and other costs ended up higher when material and labor prices increased in the wake of the pandemic.
Miller said budgeting based on concepts ends up being "more of an art than a science."
When it comes to establishing preliminary budgets, Miller and Steinhauser agreed a starting point can be based on the available funding. It can determine what might be done, without taking into account the full desired scope of a project, which could require added funding — and a revised estimate — in future months or years.
Miller frequently refers to developing the concept as "drawing in crayon," with the design development being in pencil, often taking into account comments from public review and insights from elected officials. If the budget is tight, it means adding one thing could remove something else — or it could signal the need to find more money to keep both.
"Once you get the construction documents, it's in pen," Miller said. "It's final details, and making any major shifts at that point typically is going to cost you more money because the engineering firm or architectural firm is going to have to redesign it."
Along the way, he said, estimating can start with a price per square foot based on similar projects, but each project has nuances that could result in needed adjustments.
When it comes to the county's planned $42 million exhibition center project in Graham Park, Miller said plans call for including alternates in final designs for bidding, meaning if bids are too high, things have been identified that can be cut from the project to keep it on budget.
Steinhauser said similar flexibility didn't exist in the Link bids rejected on Monday, partly due to the complexity of the project. While changes could have been made later, accepting a bid would have committed the city to a contractor.
The cost estimate for the Link project was based on a variety of calculations. Some of those, based on a linear-foot calculation for street reconstruction and similar work, actually matched the recent bids. It was the addition of transit station construction and related technology that pushed the bids beyond the city's estimates.
Steve Sampson Brown, Rochester's director of construction, said the city's consultants developed estimates for those parts of the project based on costs seen elsewhere for similar work. However, the contractors bidding on the Rochester project didn't have the same level of expertise as the contractors who performed those comparable projects.
It's not uncommon for the city to reject project bids to see if a lower price can be obtained. However, doing so can sometimes extend projects. The city's original goal was to finish the project by the end of 2026, but federal funding is contingent upon it being completed by August 2027. That means the city will have time to seek new bids.
The potential to split the Second Street portion of the project between contractors could spur added interest from companies equipped to take on the complex shelter and tunnel work, while the street work is done separately.
"What we are seeing in the local market, for traditional road construction work, we have a robust set of bidders who are interested in our projects, and the prices have been coming in as we have been estimating them in partnership with our public works and engineering team," Sampson Brown said, noting other bids associated with the Link project have been less than estimated costs.
Still, he said, guarantees do not exist amid other pressures. Material prices, he said, rose 4% in January when the recent bids were being prepared, and contractors are in demand amid construction in Rochester that has seen work nearly double in the past five years.
"All those blended factors is why we believe the bid came in much higher," he said.
When it comes to the city's plans for a new parks and forestry building in northeast Rochester, near the city's existing Public Works and Transit Operations Center at 4300 East River Road NE, Parks and Forestry Division Head Mike Nigbur said the reason that project cost has risen isn't as complex.
A new building to house vehicles, equipment and office space was expected to cost $35 million in 2023, when the Minnesota Legislature agreed to support half of the project. Since then, the project has changed to include providing needed space for public works staff, rather than seeking a second project.
With City Council approval, the budget increased to $43 million based on the increased scope, but initial design plans include some flexibility, if future bids end up higher than expected.
The potential price for the city's proposed sports and recreation complex isn't out of the concept stage. While a 2023 vote to support a sales tax extension included support for spending $65 million on the project, Nigbur and others said that money was never intended to fully fund the project.
That wasn't made clear to voters in the runup to the 2023 referendum, say Mayor Kim Norton and others. However, a study conducted in tandem with the political effort did state that the $65 million would be a minimum cost based on 2023 construction cost data.
It was not until after voters had approved the sales tax extension that a designer and construction consultant were hired, and their study pointed to the potential that costs for the sports complex would double. However, the ultimate cost for the project still is not known, because a design has not been selected. Or, to use Miller's analogy, the project is still drawn in crayon, with details yet to emerge in pencil.
Rochester Recreation and Facilities Division Head Ben Boldt said the City Council's authorization to purchase 160 acres in southeast Rochester provides the opportunity to move from concept to design, and the initial focus on the outdoor complex will provide added time to develop a more complete interior design, as well as a plan to fund it.
Additionally, he said the delay could save costs in the long run, since the indoor facility would face complexity similar to the Link project, and the specialized outdoor work won't face competition for contractors, who might bid on work tied to Mayo Clinic's "Bold. Forward. Unbound. in Rochester" expansion project.
"We feel in the next few years, it will be a less competitive construction environment," he said, pointing to the potential for reduced bid impacts.