Education

University of Iowa paid $4 million to keep contractor off pharmacy building project

The Pentacrest on the campus of the University of Iowa including the Old Capitol Building (center), Macbride Hall (top left), Jessup Hall (bottom left), Schaeffer Hall (top right), and MacLean Hall (bottom right) in an aerial photograph. (Stephen Mally/The Gazette/file photo)
The Pentacrest on the campus of the University of Iowa including the Old Capitol Building (center), Macbride Hall (top left), Jessup Hall (bottom left), Schaeffer Hall (top right), and MacLean Hall (bottom right) in an aerial photograph. (Stephen Mally/The Gazette/file photo)

IOWA CITY — In the midst of a heated battle with contractor Modern Piping over work on its new children’s hospital, the University of Iowa in March 2017 rejected the firm as a subcontractor on its new pharmacy building and took extra measures — totaling nearly $4 million — to keep it off the project.

That total adds to millions the university has spent feuding with the Cedar Rapids-based contractor, which recently won a long-fought $21.5 million award for unpaid work on the Stead Family Children’s Hospital and new Hancher Auditorium — which the UI still has about $18 million left to pay.

But before the American Arbitration Association award in Modern Piping’s favor, confirmed by a district court judge and recently by the Iowa Court of Appeals, the UI in early 2017 chose Wisconsin-based Miron Construction to build its new $96.3 million, 296,000-square-foot College of Pharmacy building.

IOWA CITY - University of Iowa Health Care executives managing construction of the new Stead Family Children's Hospital for years delivered favorable budget projections to the Board of Regents, vowing to spend less than expected.

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Miron on March 1 of that year provided the UI with a list of its proposed subcontractors — as required by Board of Regents policy — and Modern Piping was on the list.

But UI Senior Construction Project Manager Krista Scranton in a letter to Miron the next day said the university “objects to the proposed subcontractor, Modern Piping” — which it was fighting in court at the time. According to documents obtained by The Gazette, Scranton cited a policy for the rejection that allows the UI to raise a “reasonable objection to any proposed subcontractor” — although she didn’t spell out the reasoning behind the objection.

“The university requests Miron Construction propose another subcontractor to the owner for this work,” Scranton wrote, committing to issue a project “change order” to reflect any impact the substitution might cause to the contract price or timeline.

A senior project manager for Miron on March 3 notified Modern Piping of the UI objection, reporting in a letter that his firm was investigating what the rejection would mean for the project.

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Emails provided to The Gazette show the university — in its effort to swap in Ryan and Associates Inc. of Davenport for Modern Piping — issued change orders increasing two contracts with Miron by nearly $3.9 million.

Justification for the cost increases, according to the contract documents, noted only that the university “objected to the proposed contractor, Modern Piping” and the additional cost was a result of the substitution.

Addressing the modified project cost in an email March 28 and the Board of Regents’ approval of the original budget, Miron noted the university actually maneuvered a budget decrease.

“It went down,” Miron Senior Project Manager Steve Heyne told Scranton. “Dean adjusted the insurance rate.”

Still, the university and Board of Regents didn’t immediately approve the extra spending to avoid Modern Piping, and Heyne a few days later requested an update and instructions on how to proceed.

“The deep underground plumbing needs to be drawn, approved and installed before the grade beams can go in, and we are approaching these dates to start installing,” he wrote.

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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The university in early April instructed Miron to proceed with Ryan and Associates — despite lacking official approval. And the board eventually granted informal approval to move forward with the alternate contractor, weeks before all the parties signed off on the formal change orders in early May.

On May 11, Miron notified Modern Piping about the UI change order enabling Ryan to take over the job.

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Modern Piping Chief Executive Officer Ken Brown in a statement to The Gazette said, until recent UI “leadership changes,” Modern Piping was the preferred mechanical contractor on campus — landing projects like the new art building, Kinnick Stadium press box, Carver-Hawkeye Arena HVAC replacements and others.

Disputes were addressed through discussion and negotiation, Brown said.

“Upon the change in leadership some years ago, the culture has changed significantly,” he said. “Any efforts to amiably resolve these disputes has become unsuccessful, if even allowed to be attempted.”

He cited “rumors” the UI has a list of contractors, architects and engineers “who have been blacklisted.” Modern Piping directly asked the university if it should continue bidding on work, Brown said, and the university declined to answer.

“Additionally, a University of Iowa official indicated that Modern Piping was and never has been on this list,” Brown said.

But, he noted, the university clearly refused its work on the pharmacy building, even as it has continued to work with the UI Athletics Department.

“Modern Piping has offered to help the University of Iowa become more efficient and help improve project delivery systems at no expense, and our offers have not received a response,” Brown said. “We would like nothing better than to have the University of Iowa become the construction industry’s most desirable customer.”

The end goal being cost and time efficiencies for “all stake holders including the faculty, staff, students, Board of Regents and the Iowa taxpayers.”

UI spokeswoman Anne Bassett in response to The Gazette’s questions said administrators proceeded in accordance with the contract — which allows the university to choose the lowest responsible bidder, not just the lowest bidder.

And she noted the cost of the change orders was absorbed by the building’s approved funding.

“The project is still within its approved budget,” Bassett said.

The pharmacy building is on track to be move-in ready by early 2020.

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Meanwhile — after years of insisting its Children’s Hospital would come in under its $360.2 million budget, despite pending litigation and legal losses indicating the contrary — the UI on Thursday will ask the Board of Regents to increase its hospital building budget by $32.5 million. That increase is the result of awards to both Modern Piping and another Cedar Rapids-based contractor, Merit Construction, which also accused UI of refusing to pay for its work on the Children’s Hospital.

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

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