Editor's note: This story was edited after publication to clarify the details of the settlement amount.

The city of Brainerd will pay $125,000 of retainage fees to Tom’s Backhoe Service, according to a settlement agreement approved Tuesday, Feb. 16, ending a yearslong legal battle between the two parties.

The issue arose after repairs were needed to portions of the utilities expansion project the city hired Tom’s Backhoe to perform at Brainerd Lakes Regional Airport in 2016.

The repairs have since been made, but the two parties disagreed over who should foot the bill.

Tom’s Backhoe originally requested more than $800,000 from the city for the repair project and other costs, while the city alleged Tom’s Backhoe was to blame for the leaks in the first place and asked for $126,000 from the contractor for liquidated damages, as the project was not completed on time.

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Under the project contract, Tom’s Backhoe worked to bring Brainerd Public Utilities water and sewer service from the city of Brainerd to the airport property boundary. Work began in April 2016.

In a civil complaint filed in Crow Wing County District Court in March 2018, Tom’s Backhoe said the project was shut down for the winter in the late fall of 2016 and at that time was considered to be “substantially complete,” with the new water and sewer systems operational as of December 2016. Prior to work restarting in spring 2017, the complaint said a number of leaks were found in areas of the water system completed in 2016.

Tom’s Backhoe alleged that between the time the project was shut down in the fall and started up again in the spring, the city — or others with the city’s consent — took control of a booster station and operated in such a way as to damage portions of the water system done by Tom’s Backhoe.

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Brainerd denied these claims in its counterclaim, alleging the damages were caused by Tom’s Backhoe’s own acts or omissions, or acts or omissions of others the city had no control over. Therefore, the city said it was not liable for damage costs.

Under the settlement agreement — which the city council approved after a closed session Tuesday night and Tom’s Backhoe also agreed to according to attorney Mark Western — both parties deny all liability and any breach of contract or violations of law.

“The Parties wish to avoid the cost of litigation and have reached an Agreement that constitutes a full and final settlement of all possible or potential claims between the Parties,” the agreement states.

Both the city and Tom’s Backhoe are released from their respective contractual obligations to each other, including any warranty provisions, and mutually discharge each other from any and all claims, actions and causes of action that they have or may have related to the project in question.

The city is obligated to pay $125,000 to Tom’s Backhoe within seven calendar days following the execution of the agreement or the receipt of a copy of all contractor affidavits from Tom’s Backhoe for the project. That sum is half of the final payment -- or retainage fee -- originally set aside for the project. Typically with public contracts, 5% of the total cost is withheld for the final payment once the project is completed. In this case, that amount was $250,000 for the repair project.

The parties will each be responsible for their own legal costs and attorney fees related to the case.

City Attorney Joe Langel was not available for comment Wednesday, Feb. 17.

“I can tell you that Tom’s Backhoe is looking forward to continuing to serve the Brainerd lakes community and that it looks forward to continuing to have a business relationship with the city of Brainerd,” Western said Wednesday.

Background with Tom’s Backhoe

This lawsuit is not the first dispute Brainerd has had with Tom’s Backhoe Service.

In May 2015, the city chose not to pursue legal action to recover a $7,000 overpayment to Tom's Backhoe Service.

The accidental overpayment was part of a mediated settlement with the company following work on a 2012 Southeast 19th Street project. The city communicated with the contractor on the oversight and requested the overpayment be returned, although the contractor did not agree to do so.

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Also in 2012, the city assessed $11,000 in damages against the company after it missed a deadline to complete a South Seventh Street project on time.

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THERESA BOURKE may be reached at theresa.bourke@brainerddispatch.com or 218-855-5860. Follow her on Twitter at www.twitter.com/DispatchTheresa .