The three joint venture design-builders for the Florida Dept. of Transportation’s 21-mile Interstate 4 Ultimate project went from forecasting, in 2018, a $255-million profit on their $2.3-billion contract to eating losses projected at more than $500 million. Now they are fighting over the cost escalation.
The project faced a setback in 2018, when an underground fissure caused a pair of drilled shafts to fail. The design needed revision, and the joint venture predicted the change would cause a 245-day delay.
A bench trial before U.S. District Judge Roy Dalton Jr. in Orlando began Oct. 16 and is expected to last 11 days. Lane Construction Corp. is accusing Skanska USA Civil Southeast Inc. of breach of fiduciary duty, and Skanska and Granite Construction Co. are seeking millions of dollars they say Lane still owes for its share of project costs, after a judge previously found Lane broke the terms of the joint venture agreement.
The I-4 Ultimate project involved reconstructing a 21-mile stretch of I-4 through Orange and Seminole counties. Work included construction of four toll lanes; the widening, replacement or construction of 140 highway bridges; reconstruction of 15 interchanges; and associated work on drainage, utilities and other infrastructure.
Lane’s case is focused on Skanska’s dual role on the project. Skanska SE is managing partner of the design-build joint venture, named SGL. A separate Skanska subsidiary, Skanska Infrastructure Development, is 50% owner of I-4 Mobility Partners, which is FDOT’s design-build-operate partner on the highway, under a 40-year concession agreement. SGL contracted with I4MP, rather than FDOT itself, to provide design and construction services.
Attorneys for Lane argue in court filings that the dual role caused a conflict of interest when the project experienced difficulties. Under the terms of the contract between SGL and I4MP, SGL had the right to ask I4MP to send a termination notice to FDOT in the event that the project was facing more than 180 days in delays. I4MP would then have the choice to send it, terminating the contracts, or give SGL “equivalent project relief,” making SGl whole for those losses while continuing work.
Attorneys for Skanska SE note in their filings that I4MP could also have disputed the termination request. During a dispute resolution, SGL would continue to incur cash losses, and even if successful, SGL would not be paid for any unrelated losses incurred during the dispute resolution procedure.
Lane began projecting a loss on the project, and its attorneys say all three firms initially agreed “with enthusiasm” to use the termination option.
However, after a change in Skanska SE’s leadership later that year, it reversed its support for termination and blocked SGL from using the option. Lane’s attorneys allege this was because Skanska viewed both pieces of its involvement with the I-4 project as a single investment, and that it was acting in its own interest, rather than that of SGL, despite a Florida law that they say requires joint venture members to act in the interest of the partnership.
Attorneys for Skanska SE argue in their own filings that termination would not have been in the joint venture’s best interest. Pursuing the option could have prompted FDOT to deem that the contractors abandoned the project. It could have initiated default proceedings and held SGL, its surety and its members’ guarantors liable for costs of hiring another contractor at a higher price.
“The consequences of an abandonment could have had devastating financial and reputational consequences to SGL, its partners and guarantors,” they wrote.
Also, Skanska SE’s attorneys have argued that Lane was aware of Skanska’s dual role on I-4 Ultimate because it was part of the initial bid- development teaming agreement the companies, including both Skanska entities, formed to prepare a proposal to FDOT for I-4.
Whatever the different firms’ motivations, Lane informed its JV partners amid the growing losses in early 2021 that it would stop contributing to capital calls for the project. Dalton already found, in favor of Skanska SE and Granite earlier this year, that Lane’s move was a violation of the joint venture agreement, but put off determining the amount of damages to the trial.
Skanska and Granite say each firm was supposed to contribute a portion of the funds based on its share in the venture—40% from Skanska SE and 30% each from Granite and Lane. To prevent a shutdown, Skanska SE and Granite covered Lane’s share through to the project’s substantial completion last year. They say Lane has contributed $52.2 million to date, but should have paid $146.2 million, and that it owes about $30.5 million plus interest to Granite and $48.9 million plus interest to Skanska SE.
Lane argues that Skanska SE should instead be held responsible for funding capital contributions because of the alleged breach of its fiduciary duty to the joint venture.