City pays McCarthy Building Companies $1.194M; both aim to settle costs from Fann Contracting after excavation delayed work 5 months

A hole in Uptown cost the city $1.2 million, but the city hopes to settle a portion of those costs through litigation with the company that dug it.

During its Tuesday, Aug. 11, meeting, the Sedona City Council approved a $1,194,559 settlement agreement with McCarthy Building Companies Inc. and authorized city staff transfer the funds. The vote was 6-0 with Councilman Pete Furman absent.

In turn, McCarthy agreed to cooperate with the city in its litigation against Fann Contracting Inc.

The city of Sedona hired Fann to dig the hole for the 270-space Uptown Parking Garage within an 18-week window, then hired McCarthy on June 25, 2024, to build the semi-subterranean garage in the space.

The problem is that when Fann’s digging ran five months late and was three to five feet too deep, McCarthy’s contract for cost delays was with the city, not with Fann.

“The city has retained $867,000, 5% of the contract value, from its contract with Fann Contracting to offset the city’s $1.2 million delay and over-excavation costs,” according to the council packet. “Additionally, the city incurred $55,000 in redesign costs from Gabor Lorant Architects for the costs of the redesign due to the [alleged] over-excavation and other costs related to Fann incorrectly installing electrical conduit — $10,000 to acquire new easement — temporary power costs, among others.”

Fann disputes the delay and over-excavation allegation and is seeking $1,402,512 in damages in addition to 12% interest per year, for a total $1,570,000, according to a complaint against the city filed on July 17.

Damages to the city and McCarthy, according to the council packet, totals $1,233,161. Those costs include $747,868 for lost time and idle crews and equipment; $232,000 for hauling dirt Fann left on site; about $209,000 for additional concrete slurry and footing work that the over-digging made necessary; $33,724 for additional survey work; and $10,317 for site safety measures.

The settlement with McCarthy will be charged to the Uptown Parking Garage project, which the city tracks internally as Sedona in Motion Project 3A.

“While sufficient Series 24 bond proceeds remain available to fund the settlement, the project does not currently have sufficient budget authority in FY27 to cover the full amount,” the council packet reads. “A budget transfer will be processed, if necessary, to provide the required expenditure authority. There is no impact on the overall FY27 budget.”

“The settlement agreement before you today represents a negotiated reduction of about $749,000 less than McCarthy’s original demand,” Assistant City Attorney Monique Coady said.

The garage had been slated to open in June. There was no proposed new estimated opening date for the garage, which was also delayed because of an installation problem with the garage’s decorative serpentine exterior wall facade was under structural engineering review, according to Deputy City Manager Andy Dickey.

Coady said Wednesday, Aug. 12, that the city hopes to settle out of court.

Other Council Actions

• ■ Council held a closed-door executive decision Wednesday, Aug. 12, to discuss recruitment of a new city attorney following the resignation of Kurt Christianson for a private sector job in Atlanta.
• ■ Parking in Uptown is scheduled be discussed at length by council tentatively scheduled for Tuesday, Aug. 25, meeting for a possible vote or direction on Uptown employee parking, a Residential Permit Parking Program for several Uptown side streets and updating the city’s Consolidated Fee Schedule for Uptown parking fees.