Anchorage files suit against MARAD over port management


Published:

The Municipality of Anchorage is broadening the reach of litigation to include the federal government among the defendants in the ongoing port expansion drama.

During a March 3 press conference, Anchorage Mayor Dan Sullivan discussed his administration’s decision to file a lawsuit Feb. 28 against the U.S. Maritime Administration, or MARAD, in the U.S. Court of Federal Claims.

The U.S. Department of Transportation agency was in charge of managing the construction project at the city’s port when cost overruns and questions about construction and design techniques brought the critical infrastructure project started in 2003 to a halt in 2010. No significant work has been done on the port in nearly four years.

The latest legal action by the municipality brings the total number of defendants involved in the port work to four in two cases.

The municipality sued PND Engineers, CH2M Hill, owner of former port design consultant VECO Corp., and Integrated Concepts and Research Corp. on March 8, 2013, in state Superior Court. That case has since been moved, despite protest by municipal counsel, to federal Alaska District Court in Anchorage.

The Court of Federal Claims in Washington, D.C., where the municipality has sued MARAD has jurisdiction over contract disputes with the federal government.

The business relationship between the municipality and MARAD ended unceremoniously in 2012 when the agency was “kicked out” of the port project, Sullivan has said. The municipality now has oversight responsibility of the port expansion.

“As we all know the management of (MARAD’s contract) was not handled competently and we’re seeking damages as a result of that,” he said.

Damages in excess of $10,000, but ultimately to be determined by the court, are being sought on two counts of breach of contract and one count of “breach of the implied covenant of good faith and fair dealing,” according to the municipality complaint.

MARAD signed memorandums of agreement with the municipality in 2003 and 2011 detailing its responsibilities at the port. MARAD also signed contracts in 2003 and 2008 with Integrated Concepts and Research Corp., the firm it hired as a management partner under the Small Business Administration’s 8(a) program, which has special provisions for Alaska Native corporations.

ICRC was owned by Koniag Inc., the Alaska Native Regional corporation for Kodiak, at the time of the first contract, but was sold to a Virginia company prior to the 2008 contract.

Improper application of the preferential 8(a) rule by MARAD in 2008 was one of several issues raised in a scathing Inspector General audit released in August 2013, reviewing the agency’s involvement in port projects in Guam, Hawaii and Anchorage.

According to the complaint, MARAD agreed to pay ICRC $11.3 million in September 2012 as part of a negotiated contract adjustment agreement without the municipality’s knowledge.

“At the same time MARAD was secretly negotiating a settlement with ICRC, MARAD was pretending to work with (the municipality) to reject the ICRC claim and to prepare a counterclaim with (the municipality’s) assistance,” the complaint alleges.

The settlement released MARAD and ICRC from liability and recourse against each other regarding contract work at the Port of Anchorage, the municipality claims.

Per the agreements between MARAD and the municipality, the federal agency took 3 percent of the $302 million appropriated for the project as fees for its work, amounting to just more than $9 million since 2003.

On Feb. 25, the Anchorage Assembly approved CH2M Hill as a project manager for the port on an initial five-year, $30 million fee-for-service contract.

CH2M Hill prepared the 2013 study that deemed PND Engineer’s patented Open Cell Sheet Pile design unsuitable for seismic and design-life criteria at the port. That study was cited extensively in the first lawsuit. PND has claimed from the outset that faulty sheet pile installation was to blame for the project’s challenges.

Over the next few weeks, a project management plan will be drafted and Sullivan said he hopes to have a new design approved within a year. First, some of the projects expired permits must be re-acquired.

“We’ve got this project back on track, but it’s important that any and all entities that were responsible for previous mismanagement or mishaps in construction are held accountable,” he said.

The general statute of limitations on disputes in Federal Claims court is six years; Sullivan said the case falls within that time frame.

He said the municipality is standing up for the people of the state that depend on the Port of Anchorage. Outside of Southeast, roughly 90 percent of all the goods that enter the state go through the Anchorage port.

So far, the Anchorage Assembly has approved $1.75 million for legal proceedings dealing with the port project, he said.

Overall, $439 million in combined funding has been appropriated to the project that started with an estimated cost of less than $300 million in 2003. Of that, $138.6 million was federal money appropriated through various channels over nine years.

During his Feb. 18 report to the Legislature, the Anchorage mayor said it would probably need another $250 million to $300 million in addition to the roughly $130 million the municipality has set aside for work now.

The money available now will last for some time, Sullivan said, as his plan has scaled back the scope of the project. A brand new $280 million “north berth” dock has been taken off the table and future work will focus on traditional, pile-supported structures to mainly replace what is at the port now, he has said several times.

As the 50th anniversary of the 1964 earthquake approaches, port officials have said the aging structure that withstood that disaster likely wouldn’t fare so well if a similar quake were to happen now as corrosion and general age have taken their toll.

Sullivan told state lawmakers that he thought that the likelihood of the project receiving federal funding similar to past levels going forward — $138.6 million over nine years — is “very slim,” he said.

Because the Defense Department has deemed the Port of Anchorage is a strategic port, $60.4 million of the federal funds the construction project has received to date came from the department, which requires dredging to a mean depth of 45 feet at such ports. The port is currently dredged to about 35 feet at the dock face.

That might make the project available for some Defense and federal grant dollars, but he added that he plans to meet with the Gov. Sean Parnell and officials with the Alaska Industrial Development and Export Authority and the Alaska Housing Finance Corp. in the coming months about alternative funding. He said the municipality will prepare its plans for next legislative session and the port would almost certainly be its largest single request to the state in 2015.

“We need to really strategize on what are the best sources of money that may again include some additional local debt,” Sullivan said at his press conference.

The city has contributed $80.3 million to port construction.

Sullivan also may have hinted to the Legislature that action against MARAD was being planned.

“We are not going to go quietly into that good night when it comes to legal options with MARAD,” he said at the time.

Elwood Brehmer can be reached at elwood.brehmer@alaskajournal.com.

Add your comment: