University of Iowa asks for $5M more in lawsuit against utilities partner

IOWA CITY — The day before the University of Iowa’s new private utilities partner sued the campus, accusing it of breaching obligations, the university — again — accused the partner of failing to meet performance standards, demanding it pay another $5 million.

That Jan. 25 claim for $5 million — stemming from UI’s accusations that the private operator was falling below “key performance indicators” — was the latest in a growing list of disputes that prompted the private partner to sue the university Jan. 26.

Not three years into the March 10, 2020, 50-year, $1.165 billion public-private partnership agreement that created an endowment for the UI to support its strategic plan, the private utilities partner made its early backroom disputes with the UI over the massive deal public by filing a lawsuit in federal court. And it escalated from there.

Although the UI didn’t include that $5 million in a counter lawsuit it filed in March against the utilities partner — which goes by the name University of Iowa Energy Collaborative — the university since has added it, doubling the financial relief it seeks for a portion of the alleged performance failures from $5 to $10 million.

“As a result of UIEC’s breaches of the concession agreement, the university has been damaged in an amount to be proven at trial,” a UI lawsuit amendment in June states.

The university also wants a court to:

On the other side, among its demands, the private collaborative wants the court to:

Immediate conflict

The UI — which initially expressed disappointment “that our utilities partner has a different interpretation of the contract and felt the need to file a lawsuit against the university” — derailed the federal case by highlighting conflict-resolution terms in the agreement and by filing its own lawsuit March 31 in Johnson County District Court.

The university in June updated that lawsuit against its partner with the $10 million demand. And the collaborative 10 days later filed an answer that incorporated counterclaims against the university — essentially echoing those in its original lawsuit.

Last week, both sides agreed to move the case to Iowa’s Business Specialty Court, which aims to “move business and complex commercial litigation cases through the court system more expeditiously, lowering costs for litigants and the court system.” Both sides benefit, according to the Iowa Judicial Branch, in that judges with experience and expertise in business litigation are assigned to the cases.

Specific knowledge of public-private energy partnerships — a growing trend across American colleges and universities — will be imperative, given much of the argument in this case hinges on each side’s differing interpretations of the 1,800-page agreement.

“The contractual provisions were so carefully negotiated and drafted that the university’s president likened the process to ‘writing the U.S. Constitution,” according to the energy collaborative’s counterclaim.

And still, despite its complexities, the collaborative in its claim asserts “the core legal principles and contractual provisions governing this dispute are straightforward.”

“Under the concession agreement, (the collaborative) is responsible for operating and maintaining the university’s utility system during the concession agreement’s 50-year term, including making capital improvements,” according to the claim.

In exchange for its services and for a $1.165 billion upfront payment, the university committed to making annual payments to the partner — including, among other things, capital and operating costs and a $35 million fixed fee.

Capital project conflicts

But issues around that payment schedule emerged almost immediately “when the parties were working to calculate the utility fee owed to UIEC for fiscal year 2021,” which began July 1, 2020 — just over three months after the deal closed.

“The university — with its billion dollars now in hand — began searching for ways to reduce its payment obligations to UIEC and chip away at UIEC’s contractual rights,” according to the collaborative’s claim.

Both sides also have sparred over facility projects, planning for those projects and the disruption they caused. In two instances, the energy collaborative said the UI reversed approvals for capital work after unexpected events changed their scope.

In one case, just months after closing the deal, the UI in June 2020 accepted a proposal to repair roofs on the main power plant and other utility system buildings. Before that repair work began, however, the August 2020 derecho swept through — causing damage, although not enough to substantially change the scope or cost of the project. Still, the UI in December reversed its funding approval and declined to cover any of the repair expenses or file an insurance claim, according to the collaborative.

Even when considering UI’s utility system property insurance, the collaborative is responsible for $250,000 of any deductible. “The university has taken the position that this limitation on UIEC’s liability only applies if the university chooses to file a claim for insurance coverage,” which it has refused to do, according to the collaborative.

“The parties never intended for UIEC to bear the full risk of costs up to the university’s deductible without any reimbursement, as that would have created an unmeasurable risk over the 50-year concession period,” according to the claim. “Such a risk, in turn, would have prevented UIEC from obtaining financing for and closing on the P3 deal.”

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