MID, Modesto settle $9 million dispute over botched water plant

The Modesto Irrigation District building in downtown Modesto is seen here in 2011.
The Modesto Irrigation District building in downtown Modesto is seen here in 2011. Modesto Bee

The Modesto Irrigation District has prevailed in its legal dispute with Modesto over responsibility for $9 million in additional costs for the botched expansion of the MID’s Modesto Regional Water Treatment Plant, which supplies the city with drinking water.

The MID sued Modesto in August 2013, and Modesto in December 2013 put $9 million into an escrow account so MID could complete the plant upgrade pending a legal resolution.

The dispute ended Tuesday when MID and Modesto announced a settlement, which states Modesto will not seek reimbursement for the $9 million.

The agencies had agreed in 2005 to double the plant’s capacity, with Modesto paying for the work. The expansion was expected to be completed in 2009 at a cost of about $63 million, but delays related to construction errors pushed the price to $106 million, and the work finished last month.

Councilman Bill Zoslocki said settling made sense for Modesto, especially in light of a judge’s July 2015 ruling in favor of MID in phase one of the trial. Zoslocki said after phase one, City Attorney Adam Lindgren brought in expert attorneys to review the case, and they concluded it would not be easy for Modesto to win. Zoslocki said Lindgren was not with the city when the dispute started.

Zoslocki added Modesto could be responsible for MID’s legal fees had Modesto pursued the case and lost.

“I think Modesto had to make a business decision and avoid the risk of the potential of bigger losses,” he said. Zoslocki added the agreement lays the foundation for the irrigation district and city to work together on projects that benefit both of them.

Modesto and MID put the legal dispute on hold in September after spending about $4.5 million between them on legal costs, and agreed to try to resolve the dispute between themselves and without incurring more steep legal costs. The agreement avoided roughly $2 million in legal costs by not pursuing the dispute to the trial’s second phase, according to the news release and MID spokeswoman Melissa Williams.

Tuesday’s settlement was approved by MID board members and the City Council. The settlement says neither side admits liability or wrongdoing and each is responsible for its own legal costs.

Although a news release issued by both agencies was full of optimism, the city and irrigation district have other big issues to resolve.

For instance, MID and Modesto are looking amend or craft a new agreement for the water treatment plant. A key issue is how much water MID can provide the plant because of the drought and state-mandated reductions. MID also is worried state water officials will dramatically cut the district’s water rights to benefit fish.

“The world has changed since (the agreement) was signed in 2005,” MID board member John Mensinger said.

The upgrade allows the plant at Modesto Reservoir to produce as much as 60 million gallons a day of drinking water but is running at half capacity. Modesto Utilities Director Larry Parlin reiterated Mensinger’s point and added the expansion was based on growth projections that have not materialized. But he said Modesto will eventually grow into the plant’s capacity.

Also, Modesto streets for many decades have relied on MID canals to drain away rainwater after storms. The district now wants the city to pay for that service. Zoslocki said the two governments also may talk about storing stormwater and having it recharge underground aquifers, rather then send it to MID canals.

Both points appear in Tuesday’s settlement agreement, and negotiations are ongoing, both sides confirmed.

Turnover on the City Council and MID board has helped spur talks, MID leaders said.

“We have new people in place on both sides of the aisle, which has expedited this process,” said Larry Byrd, MID board chairman. “Resolving this litigation means everyone wins now, all the customers. I’m happy that we can direct our full attention to working through refining the agreement outlining future joint operations to benefit everyone.”

Mayor Ted Brandvold repeated that point in the news release: “This collaboration to resolve the construction litigation allows the city and MID to focus our efforts on efficiently providing essential water.”

The MID fired project designer and construction manager Black & Veatch in September 2010 after finding more than 100 deficiencies in the plant upgrade work. The district and Modesto eventually recovered millions of dollars from Black & Veatch and other firms involved in the project for the additional costs to finish the work. But that left a $9 million shortfall and led to the dispute between MID and Modesto.

Kevin Valine: 209-578-2316 Garth Stapley: 209-578-2390