Floyd County board to discuss courthouse/LEC lawsuit settlement

By Bob Steenson, bsteenson@charlescitypress.com

On the day –  Tuesday – that a trial in federal court was scheduled to begin on the matter, a settlement agreement between Floyd County and the architect for the Law Enforcement Center and courthouse update project is on the agenda to be approved by the county Board of Supervisors.

The agreement would settle a lawsuit that Floyd County filed against Prochaska Associates of Omaha, Nebraska, in July 2021, over the cost of the new county Law Enforcement Center and courthouse update project and how much Prochaska should be paid for it, and a counterclaim by Prochaska demanding full payment.

The agreement calls for Prochaska’s insurance company to pay the county $67,500 and for the county to pay Prochaska $230,000, or a little less than half of the additional amount Prochaska was seeking.

Subtracting the $67,500 the county will get from the insurance company, Floyd County would be paying Prochaska an additional $162,500 on its contract if the supervisors approve the agreement. Each party will be responsible for its own legal costs.

The agreement would not prevent future action by the county for any claims regarding Prochaska’s work that are discovered after the date of the agreement. Prochaska would also be able to bill the county about $8,719 for construction administration fees that have not been paid.

“Prochaska and Floyd County both deny liability of the matter recited above and both agree that this agreement should not be construed as an admission of any wrongdoing, breach, error or omission,” the agreement states.

Prochaska was hired by the county in 2017 to develop options for a project to build a new law enforcement center with a county jail, sheriff’s office and dispatch center and do updates on the courthouse, including moving some offices, all new windows, new restrooms and elevators in an atrium connecting the courthouse to the law enforcement center and a new heating and cooling system that would provide heat and air-conditioning to both buildings.

Based on Prochaska’s construction cost estimate of almost $11 million dollars, the county held a referendum to allow it to sell up to $13.5 million in general obligation bonds to finance the construction costs, design fees and other expenses. Floyd County voters passed the referendum by an almost 70% majority in May 2018.

With the successful referendum, the county and Prochaska signed an agreement for Prochaska to do the formal design work for the project. But when the project was bid in 2019, the construction costs were almost $16½ million.

Prochaska made some design changes, including a much smaller atrium connecting the buildings, and the construction management company, The Samuels Group, made some value engineering suggestions and the total construction package was awarded at about $16 million – still about $5 million over the original estimate.

Prochaska’s design contract with the county says that its fee would be based on 10% of the hard construction costs. At the original estimate of about $11 million, that would be $1.1 million. But Prochaska argued that the actual construction cost was $16 million, so it was owed an additional $500,000 for the extra $5 million in construction costs.

Floyd County filed its July 2021 lawsuit in Floyd County District Court arguing that Prochaska breached its contract by failing to design a project for the $11 million figure it had provided. It also argued that dozens of change orders required because of errors or omissions in the project design were evidence of professional negligence on Prochaska’s part.

Prochaska successfully moved to have the lawsuit transferred to U.S. District Court, because the two parties were from different states, and it filed a counterclaim to be paid in full, arguing that the $11 million figure in the contract was an estimate, and that the county had decided to proceed with the higher costs.

“The parties dispute the price for the design services that Prochaska provided prior to the construction phase of the project,” the proposed settlement agreement says. “The parties dispute the conformance to the standard of care of those Prochaska designs that Floyd County altered by change order after construction contracts were awarded to contractors,” and “the parties dispute whether Prochaska should be liable for the amount that construction costs exceeded Floyd County’s budget.

In August 2022, Prochaska had filed a motion for summary judgment in the lawsuit and counterclaims, asking U.S. District Court Judge C.J. Williams to order the county to pay the additional architectural fees and to dismiss the professional negligence claims against the company.

The county then filed its own motion for summary judgment, asking the court to declare that the county does not owe Prochaska the additional fees.

On Nov. 30, Williams issued an order denying the county’s motion for summary judgment and denying part of Prochaska’s motion for summary judgment but granting part of the motion.

As part of his decision, Williams ruled that the “not to exceed” budget figure of $10,898,700 “was adjustable and not a guaranteed maximum price.”

The county had argued that even though it had agreed to continue the projects at the higher price, Prochaska’s fee should still be bound by the original cost estimate. Williams rejected that argument.

But Williams also noted that Prochaska had agreed that the county had never given written approval to proceed with the greater costs, as required in the contract.

“With this record, a reasonable jury could find that plaintiff never provided written approval to increase the construction budget figure past $10,898,700,” Williams wrote. “And in fact, the record indicates that (the county) moved forward by obtaining additional funds, accepting bids subject to negotiations, and applying Change Orders, not by changing the budget by written approval.”

Because of that, he wrote, “a reasonable jury could find that (Prochaska) breached its promise to (the county) to design a project that could be built for less than $10,898,700.”

After the judge issued his ruling on the motions for summary judgment, the county and Prochaska entered mediation with a retired federal judge.

On Friday, Dec. 30, the last regular business day they would still be in office, the previous members of the Board of Supervisors held a special meeting and gave informal approval to settling the case.

The actual settlement documents are now before the new Board of Supervisors, which took office on Jan. 2.

U.S. District Court Judge Williams canceled a pretrial conference scheduled for earlier this month and canceled the trial that had been set to begin today in U.S. District Court for the Northern District of Iowa in Cedar Rapids. He directed both parties to file closing documents to dismiss the case by Feb. 2, or he would dismiss the case on his own.