Education

What we know about the UI Children's Hospital disputes

Millions at stake in court battles over campus projects

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)

By Vanessa Miller, The Gazette

Judges or arbitrators this year have affirmed nearly $31.5 million in disputed costs on behalf of contractors hired to help build the University of Iowa’s Stead Family Children’s Hospital and its new Hancher Auditorium.

UI attorneys have steadfastly fought the contractor claims, refusing to arbitrate, appealing forced arbitration, requesting a new trial, appealing District Court rulings and decisions — even asking the Iowa Supreme Court to weigh in, which it so far has declined to do.

The battles have ballooned the project budgets and continue to — as interest accrues on the millions owed.

How did we get here?

The UI began building a new $176 million Hancher Auditorium along Park Road in May 2013 after 2008 floods inundated the former performing arts venue.

The university debuted original designs for a new Children’s Hospital in April 2011, which started as a rather rectangular structure but shifted to its final elliptical design in June 2012. An timeline and budget for the hospital predicted it would cost $270.8 million and debut in 2015.

Instead, amid rampant design changes and cost overruns, crews didn’t start work until April 2013 and the design period stretched nearly five times as long as expected — through May 2015. The Board of Regents approved budget increases and schedule extensions, and a revised $360.2 million hospital was scheduled to open in December 2016.

But it didn’t, with project managers feuding behind the scenes about design changes — among other things, according to a Gazette investigation. The hospital began treating some patients in February 2017, and Hancher debuted in 2016 — well after the first lawsuits on the two projects were filed.

Biggest disputes

A handful of contractors have sued the UI for payment on both the Hancher and Children’s Hospital projects, but the most consequential involve the Cedar Rapids-based firms of Modern Piping and Merit Construction.

Modern Piping in March 2015 filed a petition asking a Johnson County judge to compel arbitration over payment for work on Hancher — later asking to arbitrate disputes on the Children’s Hospital at the same time.

A judge granted those requests, and the university appealed — sending letters directly to the American Arbitration Association asking it not proceed.

The Iowa Supreme Court declined to weigh in on the fight, essentially affirming the District Court’s decision and allowing arbitration to proceed. The university responded by requesting and receiving a temporary injunction, which was dissolved months later in early 2017.

The UI appealed, but a judge sided with Modern Piping, assessing the university costs for the litigation. The university responded by asking for a new trial, a request that was denied, and then appealed again.

An appellate court panel earlier this year ruled unanimously against the UI contention that the arbitration panel should not have considered the Hancher and hospital complaints together.

As to the crux of Modern Piping’s complaints against the UI for its work on Hancher and the Children’s Hospital, the arbitration panel in March 2018 awarded the contractor $21.5 million. A Johnson County District Court judge confirmed that award in August and the university appealed.

Wednesday, the Iowa Court of Appeals rejected the appeal arguments and affirmed the District Court’s judge affirming the award.

That decision comes just a month after an arbitration panel awarded nearly $10 million to Merit Construction in a similar dispute involving the Children’s Hospital.

The UI kicked off that case in October 2017 with a lawsuit blaming Merit for breach of contract. But Merit countersued and took the case to arbitration, despite UI’s resistance.

Merit has asked a judge to confirm the $10 million award, and the university had until Wednesday to respond. It hadn’t as of 5 p.m. the court system’s online database showed.

Now what for the UI?

If the university continues to lose its appeals and motions of resistance, it will have to go back to the Board of Regents to request budget increases on both the Children’s Hospital and Hancher projects.

Of the $21.5 million awarded for Modern Piping, $4.7 million related to Hancher and $16.3 million to the Children’s Hospital. All $9.7 million of the award to Merit relates to the Children’s Hospital — but none of those totals include interest.

What does the UI say?

In a public comment about the dispute, UI President Bruce Harreld in September told the regents the university had a legitimate dispute with the contractors and was well within its rights to appeal.

“The notion that we’re not good for the money is ludicrous,” he said at the time. “We’re not paying what we don’t think we owe them.”

The UI did not respond Wednesday to a request for comments.

What does Modern Piping have to say?

Modern Piping CEO Ken Brown provided the following comment:

“Modern Piping is pleased with today’s ruling, has won every issue before the arbitration panel and Iowa courts, and looks forward to the University of Iowa’s honoring Bruce Harreld’s promise to pay the nearly $18 million that has been due since 2017.”

What’s next?

In addition to asking for Board of Regents approval to increase its budgets to pay the contractor awards, the UI faces new counterclaims from Modern Piping for “wrongful injunction.”

Due to the UI resistance during the case, Modern Piping is seeking damages from the delays, including attorney fees and related costs.

Modern Piping is seeking a jury trial, according to court documents filed March 26.

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