Panel adds another $10M to University of Iowa Children’s Hospital bill

IOWA CITY - Contractors fighting the University of Iowa over payments for work on its Stead Family Children's Hospital landed another victory this week when an arbitration panel ordered the UI to pay Merit Construction Co. another $9.7 million.

That amount adds to a $21.5 million award the American Arbitration Association ordered the UI to pay Modern Piping Inc. last year mostly for work on the 14-story Children's Hospital, with some going toward work on Hancher Auditorium.

The hospital opened in February 2017 after rampant design changes, delays and cost overruns documented in a 2018 Gazette investigation.

If the courts continue to uphold these awards, the $31.5 million in legal losses - not including UI expenses for arbitration, interest, legal experts and associated costs - will further balloon a Children's Hospital budget that started at about $270.8 million in 2011 and swelled to $360.2 million in 2015, when the project initially was expected to be completed.

Instead, the university pushed its planned opening to December 2016 and spent millions on temporary facades, expedited materials and overtime in order to host grand opening events. Unable to accommodate even that extended schedule, the UI pushed back the opening again - finally welcoming young patients in parts of the hospital in February 2017.

In summer 2018, the university reported to The Gazette its current cost commitments for the project at nearly $370 million - but with expectations to shave off $13.1 million from its contractor expenses.

If the university eventually comes out ahead in its legal disputes with the two Cedar Rapids companies, its commitments for the new hospital would be under budget at $356.6 million, according to documents. But these awards - should they stand - would add to the $370 million.

'We are evaluating the decision by the arbitration panel and are considering our options,” said UI Health Care spokesman Tom Moore in a statement.

Merit Construction Co. filed a pre-emptive motion Wednesday asking a district court to confirm its arbitration award, like a judge did for Modern Piping.

A judge in that earlier Modern Piping case rejected the university's argument that it had not agreed to arbitrate and confirmed the panel had authority to decide.

The university appealed the district judge's confirmation of the Modern Piping award, and the Iowa Court of Appeals now is considering that case.

While the appeal proceeds, interest on the unpaid award grows, according to Modern Piping attorneys. As of last month, interest on the award had reached more than $760,000.

Additionally, the university reported paying more than $315,000 in arbitration costs on both the Modern and Merit cases. Court documents indicate the UI also has spent hundreds of thousands on expert witnesses, with one in a deposition reporting receiving more than $300,000.

UI officials have not responded to The Gazette's requests for totals spent on expert witnesses and consultant reports related to its Children's Hospital disputes.

UI President Bruce Harreld in September railed against allegations his institution was prolonging the court battles in hopes of outlasting the contractors, and he ripped an attorney's suggestion that the UI's famed Jackson Pollock 'Mural” could be offered up if the university can't pay its bills.

'The notion that we're not good for the money is ludicrous,” Harreld said then, pointing out the UI is fighting what it views as legitimate disputes.

'We're not paying what we don't think we owe them,” he said.

Regents supported the university's decision, with member Larry McKibben telling Harreld during a public meeting, 'You are doing exactly the right thing,” and Nancy Dunkel noting, 'At the end of the day, we have a wonderful Children's Hospital that is saving lives every day. That's the bottom line.”

l Comments: (319) 339-3158; vanessa.miller@thegazette.com