The arena project relied on a feasibility study from CSL International. Ellerbe Becket was hired to design it, and publicly backed bonds were taken out to finance it.
It sounds nearly the same as the new arena project underway at the University of Oregon. Same players, similar funding model, only this project is an arena renovation of the Dunkin’ Donuts Center in Providence, R.I. – it’s also a project that went roughly $20 million over budget and is failing to earn as much revenue as predicted.
Cost overruns for arena projects such as the Dunkin’ Donuts Center aren’t unusual.
Arena parking
The University is nearing a decision about whether it will construct an underground parking structure, which will likely be paid for with state bonds and parking fees, a University official said Friday.
The University is still awaiting a traffic impact analysis by David Evans and Associates, Inc. and a cost estimate from JMI Sports, but it has already received an offer from an anonymous donor that could cover 40 percent of the parking structure’s cost, said Frances Dyke, vice president of finance and administration.
Four years ago the University received authorization for a $10.9 million bond to pay for a parking structure somewhere on campus, Dyke told the University Senate on Wednesday.
In order to pay for 65 percent of the debt on that bond, Dyke said the University is considering charging students, staff and spectators going to the arena.
“We have a need for parking on campus for our students, faculty and staff regardless,” Dyke told the Emerald on Friday. “We need to do that if possible.”
The parking structure could go under a portion of the arena and E. 13th Avenue.
Dyke declined to provide a specific estimate for the structure, but did say it has to be “much, much lower” than the $50 million figure tossed out by University Senators.
Now is the best time to complete a parking structure, Dyke said, because it can share resources with the arena’s construction.
Dyke also said an underground structure is a better option than an above ground one because it frees up other land for future development.
“Back in the late ’80s the administration considered a parking structure by the music school,” she said. “If we did that we wouldn’t be building the education school right now.”
The Sprint Center in Kansas City, Mo., which opened in 2007, cost $26 million more than expected. The American Airlines Arena in Dallas went $60 million over budget in 2001, and the Prudential Center in Newark, N.J. had gone nearly $85 million more than hoped for when it opened last year.
Who foots the bill when costs skyrocket varies.
At the Dunkin’ Donuts Center, it’s taxpayers. At the Prudential Center, it’s the team owners.
But at the University it would be the project’s developers, JMI Sports, said Frances Dyke, vice president for finance and administration.
“The arena can’t go over the $200 million because that’s the expenditure limitation we have,” she said. “It’s (JMI Sports’) job to keep it under the $200 million.”
The University is contracting with JMI Sports to lead the planning and development efforts. The contract with that developer stipulates that the University will not pay more than $200 million for the arena. If costs unexpectedly increase, that burden falls on the developer.
The University’s Office of the General Counsel is responding to the Emerald’s request to view the contract.
But even though the contract stipulates a $200 million spending cap doesn’t mean the University can’t end up paying more – if it agrees to it.
“(If) the University wants something added or something else happens and the contractor makes a convincing case that it should be paid more money,” then costs to the University could increase, said University law professor James Mooney, who specializes in contractual law. “Even though there is a term in the original contract saying under no circumstances will the price exceed $200 million, if they agree later to change that, you can always modify a contract that you entered into.”
The only other way the contract could change would be in extreme circumstances of price increases or if the project becomes impossible to finish. That would allow the contractor to claim mutual mistake and walk out of the contract, Mooney said.
But “that’s incredibly unlikely in this case,” he said.
Dunkin’ Donuts Center
Rather than controversy about how much revenue the arena in Rhode Island would generate, the biggest point of contention has been how much the renovation would cost.
The original estimate for the renovation, done in 2004, was $58 million. The estimate was provided by design firm Ellerbe Becket – the same firm that’s working with TVA Architects to design the University’s arena. By the time construction was nearly complete in July 2007, Ellerbe’s estimate was $23 million short, according to news reports in the Providence Journal.
Ellerbe Becket is a Minnesota-based design and architecture firm with a national client base. It renovated Autzen Stadium in 2003.
At the Dunkin’ Donuts Center, cost increases transcended just material costs, but also included design flaws. Ellerbe Becket hired a fire code consultant who misread the state fire code and concluded the arena didn’t need new sprinklers and smoke detectors. In fact, it did, and that error alone cost more than $2 million to rectify.
Workers hit a telephone line outside the arena, and also had to circumvent telephone and electrical wires underneath the site that weren’t included in the drawings, the Providence Journal reported.
To pay the overrun, the Rhode Island Convention Center Authority, which owns the arena, persuaded lawmakers to approve a $12.5 million publicly backed bond that would be paid by taxpayers over the next 30 years.
The authority has also scrambled to make cutbacks to the arena in order to keep costs down. Because of the cutbacks, the arena, which closed for only four months during the project, has failed to meet CSL International’s revenue projections.
The 2004 CSL report said the arena could generate an additional $1.5 million annually. Instead, it lost $1.3 million, the Providence Journal reported.
The authority is contemplating suing Ellerbe Becket for the faulty cost prediction.
The design firm declined to comment and referred the Emerald to Phil Weiler, the University’s media relations director. Weiler was unfamiliar with the struggles with the Dunkin’ Donuts Center renovation.
But renovation projects are inherently more complex than building from scratch, said Peter Keyes, University architectural professor and member of the University Senate.
“The big fact is that any kind of renovation has a lot more uncertainty to it than new construction,” he said. “You never know what’s in a building until you open it up.”
Although construction projects rarely come under budget, Keyes said he’s less wary of new construction than renovations.
“People have a much better handle on estimating,” he said, “but external things do happen.”
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