Agreement forthcoming in University of Iowa Stead Family Children's Hospital dispute with contractor Modern Piping

Deal follows $21.5 million award

The University of Iowa Stead Family Children’s Hospital is seen from Kinnick Stadium in Iowa City on Friday, Apr. 21, 2017. (Stephen Mally/The Gazette)
The University of Iowa Stead Family Children’s Hospital is seen from Kinnick Stadium in Iowa City on Friday, Apr. 21, 2017. (Stephen Mally/The Gazette)

IOWA CITY — University of Iowa President Bruce Harreld on Wednesday evening reached “an agreement in principle” to settle a dispute with a contractor who recently won a nearly $21.5 million arbitration award related to its work on the new children’s hospital and Hancher Auditorium, according to court documents.

The university did not provide details of any agreement.

An attorney for Modern Piping Inc. reported the agreement Thursday in court documents that asked a judge to extend a deadline “because President Herrald reached an agreement in principal to settle the dispute on the evening of April 4, 2018.”

The deal comes less than a month after the university, on March 14, seemed to dig in its heels, filing a separate lawsuit asking a District Court judge to vacate the March 5 final arbitration award of $21.49 million plus continually accruing interest. The UI accused the panel that decided the award of acting “in manifest disregard of the law.”

The Gazette on March 30 made public details of the arbitration award, which the university and its health care operation must pay even as the institution is being forced to trim $5.5 million from its 2018 budget following midyear state funding cuts.

The hospital system too has launched unrelated efforts to cut millions after ending last year under budget and starting the new budget year with a $7.2 million deficit.

Leaders from both the UI and Iowa State University later this week are expected to give reports to the Board of Regents on the impact of state funding cuts. The board’s three public universities — including University of Northern Iowa, which was spared midyear cuts — also are scheduled to discuss proposed tuition increases, which they say have become increasingly necessary as state support declines.

The university’s dispute with Modern Piping started years ago with a complaint from the Cedar Rapids-based contractor, which accused the institution of owing it $8.4 million for work on the $360 million UI Stead Family Children’s Hospital and another $65,000 for work related to Hancher Auditorium.

The university in April 2016 asked the court to stop the American Arbitration Association from allowing Modern Piping to include the hospital dispute in its Hancher arbitration. But a judge eventually allowed it — prompting threats from the UI to appeal to the Iowa Supreme Court.

The high court declined to get involved, and the arbitration panel on March 5 sided with Modern Piping, noting the contractor “incurred substantial expense in performing additional work for which (the University of) Iowa was clearly responsible to pay.”

“We are also influenced by the fact that Iowa had no defenses to many of Modern Piping’s claims and admitted liability to them over the course of the hearings,” according to the panel’s award. “The panel finds that it would be contrary to both Iowa law and the interests of justice to permit Iowa to avoid paying Modern Piping for the moneys long due and to not compensate Modern Piping for interest on these expenditures.”

The university filed both a motion in the original case and a new separate lawsuit to vacate that award, saying it never agreed to arbitrate the children’s hospital dispute.

In addition to its dispute with Modern Piping, the university is in arbitration with a separate contractor involved in the 14-story children’s hospital — which opened in February 2017, later than expected and $89 million over its original budget.

The university initiated litigation in that case, accusing Merit Construction in October 2017 of failing to complete in a “timely and proper manner” worked outlined in four contracts worth $35 million.

Merit, of Cedar Rapids, countersued, denying the allegations and requesting arbitration, which a judge granted in February.

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