Seyfarth Construction and Government Contracts Teams Win Big for Municipality

CHALLENGE

The Port of Anchorage Intermodal Expansion Project was envisioned to be a $1 billion project that would replace outdated infrastructure at the Port of Alaska, but defective management, design, and construction derailed the Project. Seyfarth was tasked with prosecuting claims and recovering money spent by the Department of Transportation Maritime Administration (MARAD) for the defective design and construction work as well as the costs to remove and replace defective work. The task was complicated by the agreements between the Municipality of Anchorage and MARAD, which were memorialized in a 2003 Memorandum of Understanding (MOU) and a subsequent 2011 Memorandum of Agreement (MOA). While the MOU and MOA spelled out the respective duties of the parties, assigning, among other things, design and construction oversight and management to MARAD, the United States refused to acknowledge that these were binding contracts. Seyfarth attorneys were required to prove the existence of valid and binding contracts through motions practice, a 2-day mini-trial, and a 9-day bench trial. Seyfarth attorneys also had to develop a method for calculating the damages sustained by the Municipality of Anchorage for the defective work procured by MARAD, which was complicated by the number of individual task orders issued by MARAD for various components of the project. 

The importance of this challenge cannot be overstated, as the Port of Alaska is a critical national seaport—90% of all goods for 85% of Alaska’s population crosses its docks as does fuel for the adjacent joint military base and the Ted Stevens International Airport. The Port also serves the nation as Alaska’s only Department of Defense-designated strategic seaport and deploys equipment and supplies internationally to and from five military installations in Alaska. It is one of only 23 strategic seaports nationwide.

SOLUTION

Seyfarth attorneys quickly developed a litigation strategy to establish the existence of binding and enforceable contracts between the Municipality of Anchorage and MARAD. Using contemporaneous records and admissions by MARAD and its contractors, Seyfarth attorneys proved to the court that both the MOU and MOA were valid contracts and binding on the United States. Seyfarth attorneys also proved that MARAD took responsibility for design and construction oversight and management under both the MOU and MOA and that MARAD was responsible for delivering to the Municipality of Anchorage a completed Port that was free of defects. Working with trusted experts, Seyfarth attorneys developed a method for quantifying the damages incurred by the Municipality of Anchorage using an impairment methodology that was ultimately adopted by the United States Court of Federal Claims.

RESULTS

After a lengthy trial and nearly eight years of litigation, Seyfarth attorneys secured a complete victory on behalf of the Municipality of Anchorage. The United States Court of Federal Claims entered a judgment on behalf of the Municipality of Anchorage and against the United States for more than $367.4 million, awarding every dollar sought by the Municipality of Anchorage at trial. The result is one of the largest monetary judgments ever entered against the United States.

The case is also likely to have major implications for how the United States manages its future infrastructure projects under the Infrastructure Investment and Jobs Act. The decision reinforces the fact that the United States can be held liable for the damages caused by its third-party designers and contractors. In the future, federal agencies will likely look to cooperative agreements and direct grants as means to limit the United States’ exposure for possible design and construction failures on major projects for state and local governments. 

The case also reinforces the need for proper risk mitigation on major infrastructure projects through appropriate bonding and insurance requirements for design professionals and contractors. While nobody wants to anticipate a failed project, providing proper protection against the risk of failure is of paramount importance.