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State of Massachusetts Settles Ceiling Collapse for $26 million with Big Dig Contractor and Supplier of Epoxy

On November 21, 2008, Modern Continental Construction Co. (“Modern”) and Modern’s sureties entered into a comprehensive settlement agreement with the Massachusetts Attorney General’s Office (MAGO) that will compensate the State of Massachusetts $21 million for damages resulting from the I–90 connector tunnel ceiling collapse on July 10, 2006. Under the terms of the settlement agreement, Modern will not perform any further work on the Central Artery Tunnel Project, known as the Big Dig. If approved by the U.S. Bankruptcy Court, the settlement will also resolve tens of millions of dollars in claims that Modern and the Massachusetts Turnpike Authority (MTA) have against each other arising out of Modern’s 14 remaining Big Dig construction contracts and will close out those contracts. The claims include various construction contract claims by Modern as well as back charges and claims by the MTA for the cost to repair leaks and the reconciliation of contract payment issues. Under the settlement agreement, Modern and the MTA’s claims and counterclaims are resolved in large part through an offset. In addition, approximately $2 billion in performance bonds on the Modern contracts will be extended for six years to pay for costs that the MTA might incur as a result of latent defects in Modern’s work. In a related agreement, the MAGO also entered into a settlement agreement with Newman Associates, Inc. (“Newman”), and their related companies, to resolve a further claim relative to the tunnel ceiling collapse. Newman Associates purchased the epoxy that failed in the ceiling panel support system from Powers and sold it to Modern. Under the agreement, Newman has agreed to pay $5 million in damages resulting from the ceiling collapse. These funds will be used to reimburse Travelers Insurance, one of Modern’s sureties, for expenses incurred for work performed on the Big Dig by Modern’s subcontractors.