CITY OF PACIFICA
COUNCIL AGENDA SUMMARY REPORT
10/10/2022
1 SUBJECT:
Consideration of Adoption of a Resolution Approving Execution of Settlement Agreement among the City of Pacifica, Sierra Mountain Construction, Inc. (“SMCI”) Walter C. Smith Company, Inc. (“W.C. Smith”), Blocka Construction, Inc. (“Blocka”), Travelers Property Casualty Company of America (“Travelers”), Scottsdale Insurance Company (“Scottsdale”), Hartford Fire Insurance Company (“Hartford”), and First Specialty Insurance Corporation (“First Specialty”) arising out of the Wet Weather Equalization Basin Project (“Project”), CIP # C030.
RECOMMENDED ACTION:
Move to adopt the resolution approving execution of Settlement Agreement among the City, SMCI, W.C. Smith, Blocka, Travelers, Scottsdale, Hartford, and First Specialty arising out of the Project.
STAFF CONTACT:
Michelle Marchetta Kenyon, City Attorney
(510) 273-8780
[email protected]
Kevin Woodhouse, City Manager
(650) 738-7409
[email protected]
BACKGROUND/DISCUSSION:
The Project Disputes
The City undertook the construction of the Project beginning in 2017 for the purpose of complying with Regional Water Quality Control Board requirements to mitigate sanitary sewer overflow issues in the Linda Mar area. SMCI was the prime contractor for the Project. Over the course of the Project, disputes arose between the City and SMCI regarding the cost of construction, delays to Project completion, and claims for damages (collectively the “Disputes”).
The Project was completed on Dec. 6, 2019. The equalization basin and associated systems have successfully functioned as intended since that time.
The Project Disputes included claims from SMCI of design deficiencies, changed work, and differing soil conditions that SMCI alleges caused SMCI to incur many millions of dollars in extra work costs. The City’s claims against SMCI included claims for late performance, damages to public streets, and costs for corrective work.
SMCI’s contract for the work, including approved change orders, was for $19,010,571.80. The City has paid SMCI $16,157,802.71 to date on the contract. As part of the Disputes the City withheld $2,852,769.09 of the contract amounts from SMCI.
Mediation of the Disputes
Pacifica City Council 2
October 10, 2022
The contract between the City and SMCI allows the parties to attempt to mediate any disputes and resolve issues prior to formal litigation. The City and SMCI began mediation in 2020, and eventually included certain subcontractors of SMCI, Walter C. Smith Company, Inc. (“W.C.
Smith”), Blocka Construction, Inc. (“Blocka”), and insurance carriers, Travelers Property Casualty Company of America (“Travelers”), Scottsdale Insurance Company (“Scottsdale”), Hartford Fire Insurance Company (“Hartford”), and First Specialty Insurance Corporation (“First Specialty”), collectively referred to as the Parties.
The Settlement
The Parties reached a mutual agreement for a settlement in principle on March 28, 2022. The City's obligation in the final agreed-upon settlement is less than the contract sums withheld by the City under its contract with SMCI and favorably concludes the ongoing risk to the City of future litigation that could be far more costly than the settlement amount. The Settlement Agreement reflecting the terms of the mediation settlement in principle (Agreement effective date of March 21, 2022) provides for the payment into a settlement fund by the City and the insurance carriers for SMCI, Blocka and W.C. Smith, as well as the disbursement of those settlement funds to SMCI, Blocka and W.C. Smith, respectively. The negotiated proposed Settlement Agreement provides, among other things, that the City will pay the sum of $2,000,000 into the settlement fund within 30 business days of the date the Settlement Agreement is fully executed by the City. The insurance carriers for SMCI, Blocka and W.C.
Smith will contribute an additional $1,850,000 into the settlement fund.
The Council is being asked to approve the terms of the proposed settlement as set forth in the Settlement Agreement included as Attachment A to the attached Resolution. The Settlement Agreement has been fully executed by all of the other parties to the Settlement Agreement.
ALTERNATIVE ACTION:
The Council could reject the Settlement Agreement which would result in SMCI filing suit for damages which could expose the City to incur significant attorneys’ fees, litigation expenses and potentially an award of damages against the City.
FISCAL IMPACT:
The monetary settlement amount to be paid by the City is $2,000,000. Therefore the City will retain $852,769.08 withheld from SMCI’s contract. Furthermore, remaining bond amounts earmarked for the Project in the amount of $352,495.00 will also be retained by the City leaving a total of $1,204,291.08 that will go back into the Wastewater Capital Improvement Fund and allowing the project to be completed within the project budget. If the settlement is not approved, the amount of attorneys’ fees and litigation expenses to be expended and any damages awarded in litigation may significantly surpass the settlement amount.
ORIGINATED BY:
City Attorney's Office
City Manager's Office
ATTACHMENT LIST:
Attachment A: Settlement Agreement (PDF)
Pacifica City Council 3
October 10, 2022
RESOLUTION NO. ________
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PACIFICA APPROVING
EXECUTION OF A SETTLEMENT AGREEMENT BETWEEN THE CITY OF PACIFICA AND SIERRA MOUNTAIN CONSTRUCTION, INC., WALTER C. SMITH COMPANY, BLOCKA CONSTRUCTION, INC., TRAVELERS PROPERTY CASUALTY COMPANY, SCOTTSDALE
INSURANCE COMPANY, HARTFORD FIRE INSURANCE COMPANY, AND FIRST
SPECIALTY INSURANCE CORPORTATION
WHEREAS, the City undertook the construction of the Wet Weather Equalization Basin Project (“Project”), CIP # C030, beginning in 2017 with Sierra Mountain Construction, Inc., (“SMCI”) as the prime contractor. Over the course of the Project work, disputes arose between the City of Pacifica and SMCI regarding the cost of construction, delays to Project completion, and claims for damages (collectively “Disputes”); and
WHEREAS, The Project was completed on Dec. 6, 2019, and the City of Pacifica and SMCI agreed to mediate the Project Disputes prior to the filing of any formal court action regarding the Disputes; and
WHEREAS, the mediation between the City of Pacifica and SMCI also included certain subcontractors of SMCI, Walter C. Smith Company, Inc. (“W.C. Smith”), Blocka Construction, Inc. (“Blocka”), and insurance carriers, Travelers Property Casualty Company of America (“Travelers”), Scottsdale Insurance Company (“Scottsdale”), Hartford Fire Insurance Company (“Hartford”), and First Specialty Insurance Corporation (“First Specialty”), collectively referred to as the Parties; and
WHEREAS, the Parties mediated in good faith beginning in 2020 and over the course of multiple mediation session reached a mutual agreement for a settlement in principle on March 28, 2022. Thereafter, the Parties, through their counsel, negotiated a Settlement Agreement reflecting the terms of the mediation settlement; and
WHEREAS, the Settlement Agreement (effective date of agreement March 21, 2022) provides for the payment into a settlement fund by the City of Pacifica, the insurance carriers for SMCI, Blocka and W.C. Smith and the disbursement of those settlement funds to SMCI, Blocka and W.C. Smith; and
WHEREAS, the Parties desire to enter into the Settlement Agreement attached hereto as Exhibit A to completely and finally resolve the Disputes arising out of the Project.
NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of Pacifica hereby approves the Settlement Agreement attached hereto as Exhibit A and authorizes the City Manager to execute the Settlement Agreement in the form attached hereto as Exhibit A. • • • •
PASSED AND ADOPTED at a regular meeting of the City Council of the City of Pacifica, California, held on the 11th day of October, 2022, by the following vote:
AYES, Councilmembers:
NOES, Councilmembers:
ABSENT, Councilmembers:
ABSTAIN, Councilmembers:
Pacifica City Council 4
October 10, 2022
Mary Bier, Mayor
ATTEST: APPROVED AS TO FORM:
______________________________ ______________________________ Sarah Coffey, City Clerk Michelle Kenyon, City Attorney