Appeals court reverses $367M award initially granted to Anchorage over faulty port work

ANCHORAGE, Alaska (KTUU) – A panel of federal judges on Monday partially pulled damage awards from a 2021 ruling centered on a Municipality of Anchorage lawsuit against the federal government surrounding faulty construction work at the Don Young Port of Alaska.

The U.S. Court of Appeals for the Federal Circuit opinion, published on Dec. 16, slashes the Municipality of Anchorage’s initially-awarded $367.4 million to a little more than $11 million, more than three years after the court first issued a decision over the suit that sought to prove the United States breached two contracts with the municipality for port improvements.

“This is a disappointment,” said Anchorage Mayor Suzanne LaFrance, who spoke briefly on the published opinion at the most recent meeting of the Anchorage Assembly, calling the decision “unexpected news” on Tuesday night.

“We are continuing to consider appropriate next steps,” she said, adding that the municipal manager “will brief members later this week.”

The court opinion largely vacates the 2021 U.S. Court of Federal Claims decision but hinges in large part on action from two decades prior, in which the Municipality of Anchorage and the federal government agreed to upgrades and expansions at the aging Port of Alaska.

As referred to in court documents, the municipality and federal government entered into a 2003 Memorandum of Understanding and, later, a supplementary 2011 Memorandum of Agreement, for those improvements to the port. The same documents show the Maritime Administration (MARAD) contracted with Integrated Concepts and Research Corporation (ICRC) in 2003, which in turn subcontracted with others, to complete the project.

“Problems with the project were discovered during a third-party inspection in 2010, when ‘large-scale damage was found in the installed sheet piles,’” according to court documents, “which protect an excavated area from earth and groundwater.

“While ICRC and its subcontractors performed the work, Anchorage ultimately blamed the project issues on MARAD, alleging that MARAD failed to ‘develop project management or inspection protocols,’” according to the opinion, “and ‘abdicated its responsibilities’ to oversee the project.”

These issues precipitated the 2011 agreement, which was designed in part to redefine responsibilities for the project as a whole, with adjustments to oversight including the development of the Port Oversight and Management Organization.

That same year, however, a subcontractor of the ICRC alleged its work was not being appropriately reimbursed. Without consulting the municipality first, MARAD eventually settled, paying ICRC $11,279,059, court documents show.

In March 2013, the municipality filed its lawsuit against multiple parties – among them, the ICRC and subcontractors – over the “deficient work” at the port, which was settled. The next year, Anchorage filed suit against the federal government in the Court of Federal Claims, claiming MARAD had breached both the 2003 and 2011 memorandums.

On Dec. 9, 2021, the court eventually sided with Anchorage and against MARAD. It also found that the municipality proved its entitlement to claim damages in full, totaling $367,446,809, the following February.

The Court of Appeals, in its opinion this week, affirmed the U.S. Court of Federal Claims determination that the 2011 agreement was breached, given the $11.3 million in subcontractor claims were settled without the municipality’s approval.

However, the appeals court said a “defect-free port” was never required as part of the agreement from 2003, and vacated that portion of the federal claims court’s decision. This cut the damages awarded to Anchorage by more than $169.5 million, as part of the value of the structure the municipality “expected but did not receive”; and nixed an additional $186,607,000, as part of anticipatory costs associated with fixing defects in the existing structure at the time.

The overturning of this decision pulls a large portion of the funding dedicated for port upgrades, marking the latest in the saga of the years-long modernization project for the port.

According to the port’s website, the Port of Alaska Modernization Project, created in 2014, is meant to support the port continuing to serve as the state’s key inbound cargo gateway, an operation site for national defense infrastructure, and a supporter of consumer goods and emergency needs. Recent data from the port shows imported cargo that moves through the port reaches about 85 percent of all Alaskans.

The next phase of the modernization project is expected to cost up to $2 billion.

Read the full opinion from the Court of Appeals here.

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