University of Iowa settles Children's Hospital disputes

UI to seek hospital budget increase to $392 million

University of Iowa Stead Family Children's Hospital in Iowa City on Tuesday, Feb. 26, 2019. (Liz Martin/The Gazette)
University of Iowa Stead Family Children’s Hospital in Iowa City on Tuesday, Feb. 26, 2019. (Liz Martin/The Gazette)

IOWA CITY — The University of Iowa later this month will seek Board of Regents permission to increase its Stead Family Children’s Hospital construction budget to more than $392 million after the Iowa Court of Appeals on Wednesday ruled against the university in a long-running dispute with the contractor.

The university late Thursday released a statement confirming it will pay the nearly $18 million it owes Cedar Rapids-based Modern Piping on a $21.5 million arbitration award.

The university also has settled a dispute with Merit Construction, another contractor it was sparring with in the courts over work on the 14-story Children’s Hospital, which began treating patients in February 2017 after years of delays and cost overruns.

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The American Arbitration Association recently ordered the UI to pay Merit $9.4 million, and the university had until Wednesday to respond to a Merit request that a Johnson County District Court judge confirm that award. Instead of resisting that confirmation, as it did with the Modern Piping award, UI administrators announced Thursday they’ve settled the dispute.

“With this payment, the university will have paid Merit Construction $63.2 million,” according to the UI statement, which noted Merit was awarded $1.2 million in attorney fees and expenses.

With the total Modern Piping award of $21.4 million, the university will have paid that firm $73.9 million for its work on the Children’s Hospital and Hancher Auditorium, where the Modern Piping dispute began in 2015.

In fighting for payment on both the Hancher and hospital projects, Modern Piping asked the projects be arbitrated together — a request eventually granted despite UI resistance.

University of Iowa to Request Board of Regents’ Action to Resolve Modern Piping, Merit Lawsuits by Gazetteonline on Scribd

Modern Piping also was awarded attorney fees and expenses totaling $724,912, according to the UI statement.

The payments increase the total Children’s Hospital budget to $392.7 million — $32 million above the last-approved budget of $360.2 million. That total followed several mid-construction budget increases for the project, originally slated to cost $270.8 million and to open in 2015.

A budget the UI Hospitals and Clinics provided The Gazette in December showed expectations the project would come in under budget at $353.1 million — a projection that included contractor cost reductions of $13 million, the amount at stake in the ongoing court battles.

In the UI statement Thursday, officials reported the UI Hospitals and Clinics is a self-supporting enterprise and will pay for the Children’s Hospital cost increase — meaning the money won’t come from the university’s general education fund.

The statement didn’t elaborate on where the money would come from the UIHC budget.

UI President Bruce Harreld in September publicly stood by his institution’s decision to continue appealing the arbitration and district court rulings.

“The university is acting within its rights on these matters and will pursue its rights of appeal and await the decision of the appellate court,” he said at the time, receiving support from members of the Board of Regents.

On Thursday, the university said — in conjunction with the Board of Regents — it has “reviewed and improved its contracts, procedures, and delivery methods as it relates to construction projects.”

“The UI is pleased to have concluded these matters.”

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