Judge to UI: Pay $21.5 million plus interest to University of Iowa Children's Hospital contractor

The University of Iowa Stead Family Children's Hospital is seen from Kinnick Stadium in Iowa City on Friday, Apr. 21, 20
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)

Delivering a decisive blow to the University of Iowa in its yearslong battle with a contractor over work on the new Stead Family Children’s Hospital and Hancher Auditorium, a Johnson County judge on Tuesday affirmed a $21.5 million award in the contractor’s favor.

Further, Judge Ian Thornhill tacked hundreds of thousands in interest onto the award, which the university has refused to pay in full since an arbitration panel issued it in February. Those totals don't include the university's portion of arbitration and court costs.

The university’s dispute with Modern Piping Inc. pulls back the curtain on what construction executives characterized as a “messy” and chaotic children’s hospital project, plagued by rampant design changes, miscommunication, budget overruns and missed deadlines — all of which bumped the project’s budget from $270.8 million to more than $360 million and delayed its opening by months.

UI officials recently reported commitments at $370 million, with contractors demanding more — as Modern Piping isn’t the only one in litigation over its treatment on the Board of Regents’ biggest-ever project. Merit Construction also is locked in a legal battle with the university over four bid packages it says are worth $64.1 million — not including attorneys fees, back charges and other costs — although much of that is in dispute.

That case is scheduled for arbitration this fall.

UI executives have said the children’s hospital was covered entirely with gifts, patient revenue and bonds — which the Board of Regents have had to increase to keep up with the project’s rising cost. The university — not the state — however is on the hook for the litigation payouts, even as it struggles with persistent legislative cuts that have it increasing tuition, freezing faculty pay, halting campus construction and closing some centers.

UI officials did not immediately provide a statement to The Gazette following the judge’s ruling Tuesday.

Gazette Investigation

IOWA CITY - With another year of construction left on a gleaming new children's hospital, University of Iowa Health Care executives ordered a contractor to make a change: These manual doors for the lobby library, theater, pharmacy and other areas just won't do.

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Months ago, the university appeared headed toward resolution with Modern Piping. Emails made public through court filings indicated UI President Bruce Harreld had agreed to an $18.5 million settlement. Those negotiations fell apart, however, with UI attorneys insisting the arbitration panel didn’t have jurisdiction to consider the children’s hospital project and that the arbitration panel was not impartial.

Judge Thornhill in Tuesday’s ruling rejected UI arguments, noting, “The arbitration panel made credibility determinations as to the testimony of witnesses and found some of Iowa's key witness testimony to lack in credibility.”

With UI accusations that arbitration panel members called Modern Piping attorneys by their first names and UI attorneys by their last names, indicating bias toward the contractor, Thornhill quibbled.

“Even if these allegations are true, Iowa has not objectively demonstrated such a degree of partiality by the arbitration panel that a reasonable person could assume the arbitration panel had improper motives,” he wrote.

The university has already paid some toward the original $21.5 million award since it was issued. Modern Piping attorney Jeff Stone submitted court documents showing a balance due on the original judgment of $16.9 million.

With some interest added in, that amount stands at $17.4 million — and interest continues to mount at a rate of $2,321.83 per day. Modern Piping had offered a settlement deal that would have shaved millions off the award total. UI rejected that offer.

In one of his more recent orders filed this summer, Thornhill indicated his ruling would be the final say in this prolonged conflict.

“Once the matter is submitted to the court following the July 11, 2018, hearing, the court will take this matter under advisement and issue a final ruling that resolves the pending motions,” Thornhill wrote. “The court will not entertain further requests by the parties for additional time to engage in settlement/mediation efforts.”

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