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Contractor sues Colorado Springs Utilities, claiming flaws in Neumann emission controls

November 18, 2016 Updated: November 18, 2016 at 6:49 pm
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photo - Workers at the Martin Drake Power Plant install scrubbers on Unit 6, center and Unit 7, right, Monday March 9, 2015. The scrubbers, developed by the Neumann Systems Group, a Colorado Springs-based business, cut down on the sulfur dioxide emissions. The downtown plant must by meet all Environmental Protection Agency air quality standards by 2017.
CAROL LAWRENCE/THE GAZETTE
Workers at the Martin Drake Power Plant install scrubbers on Unit 6, center and Unit 7, right, Monday March 9, 2015. The scrubbers, developed by the Neumann Systems Group, a Colorado Springs-based business, cut down on the sulfur dioxide emissions. The downtown plant must by meet all Environmental Protection Agency air quality standards by 2017. CAROL LAWRENCE/THE GAZETTE 

A new lawsuit accuses Colorado Springs Utilities of wrongly penalizing a contractor, who cites design defects in emissions controls developed by Neumann Systems Group Inc.

Pueblo-based Industrial Constructors/Managers Inc. was hired to incorporate those controls into the coal-fired Martin Drake Power Plant's Unit 7, one of two units still operating at Drake.

ICM cites design flaws and claims that Utilities "hindered, disrupted, impacted and delayed" furnishing the contractor with needed materials and equipment.

Utilities officials typically won't comment on pending litigation.

"It's not in our ratepayers' best interest to comment further on the litigation at this time," Communications Manager Mark Murphy said Friday by email.

Said physicist David Neumann, who designed the emissions controls, "There were absolutely no design flaws. The system has been up and operating. One commercial part of the system that came in was defective and wound up shutting it down for a month or two. This was a shaft with a defect in it. Nothing to do with our design."

Controls of sulfur dioxide emissions are critical at Drake, where Utilities has spent more than $175 million on a Neumann contract that was estimated to cost $111.8 million when signed in 2011.

The controversial contract was based on no bids and a sole source, and it set no cost limits.

Utilities has said tests show that the NeuStream scrubber system has removed 97 percent or more of SO2 emissions, as promised by Neumann.

But ICM says design defects slowed and complicated its work on two contracts to incorporate the controls into the plant.

ICM won contracts for three of the project's four phases. The contractor resolved its issues with Utilities on Phase IV but disputes the assessment of liquidated damages for Phases II and III, said plaintiff's attorney Karl A. Berg Jr., of Mulliken Weiner Berg & Jolivet P.C.

The Phase II contract was signed in March 2014 for $14 million, and Phase III was signed that November for $7.8 million. Both phases were completed in late 2015.

"ICM's position is it's entitled to additional compensation," Berg said. "But to add insult to injury, you have CSU trying to impose additional damages to ICM. If it hadn't been for ICM, the project wouldn't have been completed."

Utilities is seeking $500,000 in liquidated damages from the two contracts, Berg said.

"If I delayed the project without excuse, they could charge the amount. But the ICM milestone liquidated damages in the contract are unenforceable," he said.

"CSU wouldn't suffer any damages if the milestone wasn't met," Berg said, so a court would invalidate the penalties.

Further, he said, the problems were caused chiefly by "numerous design problems and delays in owner supplies and equipment."

"There were so many (design flaws) my client encountered. It was requiring constant modifications, constant design changes throughout the project."

A federal decree last year ordered the state to review SO2 levels in the Pikes Peak Region, but the level from Drake was deemed "unclassifiable" last summer by the state's Air Quality Control Commission.

Utilities' monitor showed SO2 levels to be in compliance, but modeled analyses by two professional firms showed violations of the S02 standards.

The plant is supposed to comply by December 2017 with the federal Clean Power Plan's complex SO2 standards, which hinge on a plant's type, age, modifications and other factors. The standards essentially call for eliminating by 2030 at least 90 percent of the SO2 emitted in 2005.

"The scrubber technology is performing better than anticipated and we're on schedule to meet new regulatory limits for SO2 emissions that will become effective in 2017," Murphy wrote Friday.

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