01-0416R

RESOLUTION AUTHORIZING PAYMENT OF $20,000 IN SETTLEMENT OF ALL CLAIMS OF NORTHLAND CONSTRUCTORS OF DULUTH, INC., ARISING OUT OF PAYMENTS UNDER MN/DOT CONTRACT NO. L96277 PURSUANT TO M.S. §471.425.

BY COUNCILOR ECKENBERG:

        BE IT RESOLVED, that the proper city officials are authorized to pay $20,000 to Northland Constructors of Duluth, Inc., in settlement of all claims arising out of failure of the city to timely authorize payment to Northland for work done under Mn/DOT Contract No. L96277 as required under Minnesota Statutes Section 471.425; payment to be made from _____________.



STATEMENT OF PURPOSE:  The purpose of this resolution is to authorize payment to Northland Constructors of Duluth, Inc., for interest due to them on contract payments which did not meet statutory deadlines on a federal aid street construction project.

In July of 1996, Northland signed a contract in the amount of $925,409.80 with Mn/DOT, acting as agent for the city, for the reconstruction of several streets in the city with the use of federal funds. Because of a number of unanticipated conditions, additional work had to be authorized which raised the contract price to $1,015,173.71. Before the state would allow the city to pay the contractor any amount over the original contract price, it was necessary for the city to request Mn/DOT encumber additional federal funds and provide extensive documentation to support the additional funds requested. Construction work on the project was substantially completed in October of 1977 but, because of the complexity of the documentation process, the availability of manpower and the intervention of the next construction season, the request for additional encumbrance was not sent to the state until January of 1999, and the contractor was not paid off until April of that year.

Minnesota Statutes Section 471.425 requires that the city pay its contractors within 35 days of receipt of the goods and services contracted for or receipt of the contractor's invoice. In this case, the Mn/DOT contract form used for this type of federally-aided contract did not provide for the contractor to submit invoices but required the city to develop and submit invoices on a monthly basis. If the city fails to meet the requirements of the statute, the contractor is entitled to interest on the unpaid balance, in this case, $116,067.71, from about December, 1997 to the date he actually got paid which was April 7, 1999.

On September 21, 2000, Northland sued the city for $24,905.09 plus interest; in addition, they claimed the right to recover costs and disbursements including attorney's fees as is allowed under some circumstances under the statute.

After extensive discovery and review of the factual and legal issues involved in this case, staff has agreed to recommend that the case be settled for the sum of $20,000. The department of public works and utilities concurs with this recommendation.