Legal challenge of wastewater treatment upgrade contractor has been prolonged struggle for more than five years
A six-year ordeal has ended for the city of Pelican Rapids, with the out-of-court settlement with the wastewater treatment plant contractor.
As much as $1 million was potentially at stake, but a formal mediation session in November produced an agreement that prevented costly court actions.
Because of unusual aspects of the case, any court settlement was almost sure to be appealed. Very possibly, it might have eventually ended up in the state Supreme Court–with added financial risks the city council was unwilling to gamble.
The city sued contractor Gridor Construction for delays and related costs, for a sum of $728,000. Gridor, the firm that was contracted in 2013 for a $6 million sewer plant upgrade, filed a countersuit for $1.2 million.
In the end, the city settled for a net payment of about $60,000 from Gridor. The city also received $25,000 from the League of Minnesota Cities insurance trust fund, to apply toward legal costs.
“Construction trials like this one are long, labor intensive and time consuming,” said Jim Strommen, of Kennedy and Graven Law, which represented the city, along with city attorney Greg Larson. “The city acted diligently,” said Strommen.
The $6 million project was targeted for completion in December of 2014, but lingered on for another two years. Gridor was one of four bidders on the project in 2013. Based on the contract, the city contended that Gridor owed $1,000 per day for each day the project was delayed. If held to the contract, the daily “liquidated damages” penalty would have accrued more than $1 million.
In court, “liquidated damages” have been difficult to define and enforce, said attorney Strommen. Based on precedent, those damages would have been contested and appealed, said Strommen. He described the settlement as a compromise, and emphasized that the contractor also waived about $750,00o in costs the contractor claimed it incurred.
For its part, Gridor had alleged that weather and other factors contributed to the delays.
In their countersuit court documents, Gridor stated it was allowed extensions of completion dates within the contract if it was beyond the control of the construction company.
Gridor alleges the city caused several delays to the project including not being able to use the equipment they had planned, dewatering delays, weather, and the city making changes to the project, among other things. In the countersuit, Gridor contended delays beyond their control caused some $711,251 in damages. In total, Gridor counter-sued for $1.2 million.
Legal maneuvering continued for another four years, including an unsuccessful attempt at out of court mediation in 2018. The suit and countersuit were poised for the Otter Tail County court room in early 2020.
The Pelican council had been consistent in moving forward, under the assumption the city had a strong case. But the city was facing potentially another $50,000 in costs for consultants, expert witnesses and attorneys–just to prepare for the Otter Tail County court appearance.
Legal services for the city were provided by Greg Larson, locally; and the League of Minnesota Cities law firm Kennedy and Graven, which has extensive experience in municipal and contract law.
As a League member, the city qualified for legal support as a benefit.
“The League attorneys encouraged us to try to settle at the mediation level,” said Pelican city administrator Don Solga. “They told us it was time to get out…The deeper you go, the more it would cost. It was basically time to cut losses.”
Under the League’s legal services, benefit program, the city would have been covered for legal fees connected to the countersuit. But to sue the contractor, the costs would have been completely out of pocket–to Pelican Rapids taxpayers.
“We would be digging a deeper financial hole,” said Solga, adding that–if the case went to court, and through the appeal process, there would be no gaurantees of a financially favorable ruling. “We didn’t know how it would turn out in front of a jury. Rather than proceed under the cloud of further risk and cost, the League of Cities law firm encouraged the city to settle, and essentially offered the $25,000 insurance trust payment as an incentive. The question, in a nutshell, was “how much more did the city want to spend to prove a point,” said Solga.
Under terms of the mediated settlement, Gridor agreed to pay the city $130,000. In turn, the city agreed to pay Gridor a remaining $70,000 payment that the city had withheld.
The pact was labeled “a compromise of disputed claims … (that is not considered) an admission of liability by any of the parties.”
The agreement also released each party from further claims, counter claims or financial damages.
However, the agreement would not release the contractor from “defects in work performed by Gridor or its sub-contractors.”