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Los Osos residents will foot the bill for a $10 million sewer lawsuit settlement

A work crew installs a main sewer line on Pismo Avenue near Seventh Street in Los Osos during the installation of sewer lines in 2014.
A work crew installs a main sewer line on Pismo Avenue near Seventh Street in Los Osos during the installation of sewer lines in 2014. jjohnston@thetribunenews.com

A contractor that claimed San Luis Obispo County short-changed it for work done during installation of the Los Osos sewer will receive about $10 million in a pre-trial settlement, an amount that will ultimately be paid by Los Osos residents.

The county announced Wednesday in a news release that it will pay roughly $9.95 million to Bay Area-based ARB, Inc., one of two companies contracted to install the pipeline for the sewer system.

In the news release, County Chief Administrative Officer Wade Horton wrote that the settlement was made to avoid even more costs associated with fighting the four-year-old lawsuit in court.

“We have the best interest of Los Osos residents in mind,” Horton wrote. “Trying this case in court would take significant time and money and wouldn’t benefit the people of Los Osos.”

He added that the agreement “concludes the main construction component” of the years-long Los Osos Wastewater Project.

The $183 million project included installing 50 miles of pipeline, 21 pump stations and a wastewater recycling plant to address groundwater pollution issues. The treatment plant went online and homeowners began hooking up to the system in Spring 2016.

ARB, Inc. filed its breach of contract lawsuit in February 2014, initially seeking $15 million for failing to pay for unanticipated duties as work progressed. It alleged the county refused “change orders” that detail how the scope of work was altered and refused to investigate differing “conditions and plan errors.”

The company’s claimed damages subsequently increased to $22.9 million.

Robert Shipe, who served on the sewer project's Technical Advisory Committee, was the first Los Osos resident to connect to the new sewer system Monday, March 29, 2016.

The county countered in an April 2014 cross-complaint that ARB, Inc. failed to follow procedures laid out in its contract for notifying the county of any potential or additional claims. According to the county, the contract required “notice” that would have included information for cost and an itemized breakdown of individual costs and how each estimate was determined.

According to a county staff report, the settlement was reached in mediation last month. It will now go before the County Board of Supervisors on Tuesday for final approval.

Because the capital project construction fund does not have enough to cover the cost and the new wastewater system’s operating fund has not built up reserves to cover this cost, the settlement will be paid through a solar plant mitigation account in the general fund.

But Los Osos residents will ultimately foot the bill.

The county said in its Wednesday news release that it’s working with state and federal agencies to “explore low-interest funding options in an effort to avoid potential rate increases in Los Osos due to this settlement.”

Specifically, county staff is exploring the possibility of refinancing an existing state revolving loan or entering into a new loan from the state, the U.S. Department of Agriculture or a county general fund loan, according to the report.

According to the county, the settlement will be paid to ARB, Inc. on or before March 1.

Matt Fountain: 805-781-7909, @MattFountain1

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