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May

BNSF demands an extra $3.4 million for arena; threatens to throw project off schedule if city doesn’t pay

Arena coordinator Dan Marvin acknowledged today that Burlington Northern Santa Fe wants the city to pay it an extra $3.4 million to account for costs the railroad says it will incur due to a two-month delay in the construction schedule.

That would be in addition to the $44 million the city is already paying BNSF to move its railroad tracks west and sell property to the city for its arena project.

Marvin told Coby Mach of “Drive Time Lincoln” that the city’s agreement with BNSF allows the railroad giant to get more money from the city, if its costs increase.

“This is not what I would consider to be great news,” Marvin said. “I would say it was unexpected that we would get a charge of $3.4 million.”

Marvin said construction was originally supposed to be underway by the end of last summer, but didn’t begin until mid-October – after a closing was delayed because it took longer than expected to get legislation passed by the City Council and Joint Public Agency overseeing the project.

BNSF says that delay “has them scrambling to get men and material” together to meet their deadline of being out by September 2012. They say the cost to catch up is $3.4 million – and they will have to itemize those costs for the city. So far, BNSF has documented $54,000 in real costs due to the delay.

BNSF has threatened that if the city refuses to pay the extra $3.4 million by June 2, BNSF would consider that another delay caused by the city and said there’s no way the project can get done on schedule – and the mayor has long promised to bring the project in “on time and under budget.”

“They’ve said the cost could escalate to a point where we couldn’t even pay an amount to make the deadline,” Marvin said. “I think it does put the project in a certain amount of jeopardy if we don’t do that. We’ve certainly represented that we would like to have the building open by September 2013.”

Wow. In other words: Pay up or you’re not going to open the arena on time.

This puts the city in an interesting position – since it needs BNSF to move, no matter what. As Marvin put it, “We have a relationship we have to maintain with BN to meet a timeline.”

If the Joint Public Agency – a three-member board that oversees construction and financing of the arena – approves the cost increase, the money would go into an escrow account and be drawn upon by BNSF.

Marvin said the city has saved $1.5 million on the cost of issuing debt, and $1.5 million in environmental cleanup north of O Street – so the city could use those savings to cover the unanticipated cost. In addition, the project has a $25 million contingency fund – although it’s a bit early to begin dipping into that. More likely, the JPA will find savings elsewhere to come up with the remaining $400,000.

The JPA meets on June 2.

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