Contractors accuse University of Iowa hospitals of avoiding payments, intending harm

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)

IOWA CITY — By fighting with contractors over millions of dollars in unpaid bills for its new Stead Family Children’s Hospital, the University of Iowa is trying to avoid making payments even if it means driving the companies out of business, an attorney argued in court papers made public Friday.

Quoting a document created by the hospital project’s construction manager — Gilbane Building Co. — the attorney reported that university lawyers boasted “that as soon as the hospital is open, they can fight them for years if needed.”

Jeffrey Stone, an attorney representing Cedar Rapids-based contractor Modern Piping, argued in the motion that the court “should repudiate Iowa’s strategy of using litigation as a means to delay payment of amounts due simply to budgetary problems.”

UI Health Care officials said Friday they wouldn’t comment on matters in litigation.

The UI Stead Family Children’s Hospital began treating its first patients in February 2017 — years after its first approved iteration was supposed to open, and millions of dollars above original budgets.

The project, which garnered its first Board of Regents approvals in 2011, was supposed to cost $270.8 million and open at 371,600 square feet in September 2015.

Instead, the new hospital — including 507,000 new square feet and 56,250 square feet of renovated space — opened early last year at a price of $360.2 million.

Modern Piping is one of the contractors fighting over payments it says remain due after the project mushroomed.

The contractor won arbitration in March that determined the UI owes it $21.5 million, which includes about $3 million the company says it was due for work on a new Hancher Auditorium.

UI attorneys initially asked the court to reject that award, arguing the arbitration panel wrongly considered Modern Piping’s work on the hospital alongside the dispute over its work on Hancher. The university, days later, alerted the court it needed more time to file documents because a settlement was looming. The court granted that delay, and then another one, and another one, until Stone finally asked it to curtail the apparent stalling and set a hearing. The two sides are scheduled to argue their sides July 11.

But Stone this week filed several motions in advance of that hearing — including one asking the court to mandate a settlement conference.

A settlement spelled out in new court filings shows a remaining payout of $18.5 million — as the university already paid $1.5 million of the total, and Modern Piping was willing to provide an additional $1.5 million discount for resolution.

Records then show the university wired nearly $3 million to Modern Piping on April 5 — leaving $15.5 million remaining, including $12.1 million for the contractor’s work on the children’s hospital and $3.4 million for disputed work on Hancher.

Stone argued that, in addition to its $3 million payment, Iowa consented to the deal by telling the court in April a settlement in principle had been reached and also via email — when UI President Bruce Harreld noted his consent using a personal email account at 9:17 April 4.

But the sides haven’t signed any accord because, according to Stone, the university changed language of the agreement, representing “bad faith” bargaining.

As part of a separate request this week, Stone asked a judge to reject any UI resistance toward its motions by quoting emails from construction manager Gilbane, summarizing the thoughts of project manager Jason Miller.

“Jason has stated that he feels Modern and Merit (Construction) should be put out of business with the way they handled this project,” Gilbane senior project executive Jennifer Halstead wrote in an April 2017 email to her colleagues, which was filed in the courts. “I didn’t respond other than to say that is always a possible inevitable outcome depending on how things closeout.”

She suggested the possibility of suing Merit Construction, another contractor at odds with the UI over children’s hospital payments. The university in October 2017 did sue Merit, which countersued. It goes to arbitration this year.

Merit has four contracts associated with the project worth more than $52.7 million. Its original contract totaled $35 million, but ballooned with change orders.

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