Firm Files Suit Over Hyperion Building Costs

A major construction company has filed a $66-million lawsuit against the city of Los Angeles, claiming that the government first bungled plans for expanding a huge sewage treatment plant and then negotiated in bad faith over a proposed settlement with the company.

The suit, filed by Dillingham Construction Co. and formally served Friday, alleges that the city concealed problems with its plans, interfered with the contractor’s ability to finish the Hyperion Wastewater Treatment plant and failed to pay the company for costs it incurred in making changes. The company estimates those costs at $56 million and also contends that the city has yet to pay it $8 million in so-called “retention,” money that is paid when a project is formally accepted.

In addition, the suit claims that the city reneged on a settlement deal last year that would have paid Dillingham $25 million.

According to the suit, Dillingham is seeking $2 million for damages related to the breakdown of the settlement talks after a tentative deal had been struck.

The dispute at the Hyperion plant is the latest and largest to grow out of a massive, $1.6-billion expansion effort that brought Los Angeles a state-of-the-art treatment facility already working to clean up water in Santa Monica Bay. But it also wreaked havoc on many of the companies that did that work, bankrupting or harming scores of small firms and leaving several large ones claiming that they have lost millions of dollars on the project.

The Hyperion expansion was a huge undertaking for the city and one that officials have touted as a grand success. Under orders from a federal judge, the city moved rapidly on the project, which cleans sewage discharge generated by Los Angeles and dumped offshore in Santa Monica Bay. Last December, the project was essentially completed. City officials, citing the Dillingham claim and two lawsuits already filed by Kiewit Pacific Construction Co., have declined to comment in detail on the cases.

City officials have said, however, that they have faith in the engineers and others who designed the plant and drafted the blueprints for it. And they note that disputes at the end of major construction projects are common as the two sides try to sort out who should pay certain bills.

Although neither side disputes that, the magnitude and potential significance of the Hyperion disagreement do make it unusual. More than $100 million is at stake.

In addition, the disputes at Hyperion have taken a human toll. Many small companies have been forced into bankruptcy or otherwise suffered as a result of changes they say they were required to make and then not paid for. The city says the major contractors, including Dillingham and Kiewit Pacific, are responsible for any harm done to the small subcontractors. The major firms blame the city for those problems.

Ellen Stein, who chairs the city’s Board of Public Works, said she and her colleagues are looking into the disputes at the plant. She said the board is committed to seeing that anyone who is owed money is paid, but also is determined to defend the public treasury against false claims by contractors.

Stein cast a key vote against the proposed $25-million settlement when it came before the board last year. Stein has said she voted against it because she wanted more time to assess the deal.

On Friday, Dillingham’s senior counsel rejected the argument that her client was at fault for the millions of dollars in changes to the design after the company bid on the project. “Certainly, disputes in construction are not uncommon,” said Deanne Tully, senior counsel to the company. “What’s unique about this case are the . . . complexity and dollar amount.”

Tully said the city has 30 days to respond to Dillingham’s complaint, after which the matter will be set for trial.