Construction company hired to build Pueblo steel mill expansion sued for failing to do the work

PUEBLO, Colo. (KRDO) -- The construction company hired on to build the state-of-the-art solar-powered steel mill expansion in Pueblo is being sued in federal court for failing to do the job they agreed to do. 

A federal lawsuit was filed against Wanzek Construction Inc. based out of North Dakota on Dec. 21 for breaking their contract with Palmer North America, a subsidiary of EVRAZ North America. EVRAZ North America is the owner of the steel mills in Pueblo. 

“The full extent of Plaintiff’s damages are not known at this time and will be determined at trial,” the federal lawsuit states. “However, Plaintiff reasonably estimates that its damages as of the date of this complaint exceed $130 million.”

The federal lawsuit claims Wanzek Construction didn’t complete contractually required work, failed to hire adequate workers, didn’t meet the required work completion schedule, failed to observe safety procedures and protocols, and caused property damage and endangered personnel. 

Additionally, the suit alleges that Wanzek Construction made it impossible to meet deadlines, and delays are resulting in substantial costs and damages to EVRAZ North America's subsidiary. 

“Wanzek failed to properly staff the Project with competent personnel and workers, causing unnecessary delays and substantial additional costs to the Project,” the federal lawsuit obtained by 13 Investigates stated. 

For the claims made in a federal suit, the subsidiary of EVRAZ North America is requesting an amount for damages in excess of $130 million. 

Wanzek Construction was hired on in May of 2021 to complete work on the new Long Rail Mill at EVRAZ Rocky Mountain Steel in Pueblo. Both Wanzek and Palmer North America signed off on a contract for work on the rail mill in Pueblo. The value of the contract exceeded $302 million.

The project first broke ground back in July of 2021. The $500 million long rail mill is meant to employ around 300 people when complete and would make quarter-mile-long sections of rail. 

“Construction on the state-of-the-art, ½-mile long rail building will employ about 800 construction workers and use 7,000 tons of steel, 52,000 yards of concrete, and 5 million pounds of rebar “made here in Pueblo,” said David Ferryman, EVRAZ senior vice president for the Pueblo business unit at EVRAZ North America, told our news partners at The Pueblo Chieftain.

The rail mill will be entirely powered by solar power thanks to 1,800 solar farms constructed at EVRAZ Rocky Mountain Steel in Pueblo. 

“Everything that goes into our steel facility is either old cars or old appliances, so we are recycling over a million tons every year," EVRAZ President and CEO Skip Herald told KRDO when they initially broke ground on the project. "If you combined that with solar power to power that furnace and power the facility, you have green steel and there is nowhere else in the world that can claim that."

Back in July of 2021, the new rail mill was scheduled to open in 2023. 13 Investigates asked EVRAZ North America if that’s still the case. We are awaiting a response. 

Palmer North America said they paid Wanzek Construction the $190 million they were contractually obligated to pay out, “even though Wanzek did not do the work justifying payment in that amount.”

13 Investigates reached out to Wanzek Construction for comment on the federal lawsuit. A spokesperson for Wanzek told 13 Investigates they "vigorously deny" the claims made in the federal suit, and they believe it was filed in bad faith.

"Palmer’s suit against Wanzek is nothing more than an attempt to avoid Palmer’s improper conduct, which was laid out in Wanzek’s Notice of Default over a month ago.  Wanzek entered into this agreement with Palmer/Evraz 8 months prior to Russia's unforeseen invasion of Ukraine. 

"Rather than respond to Wanzek's November 2022 notice of default and its many material breaches, Evraz-owned Palmer has now filed a retaliatory lawsuit, clearly designed to distract attention from the realities of the situation. The reality is that no one can construct the Pueblo rail mill without the design plans Palmer promised to deliver over a year ago, and has still failed to do.  Wanzek vigorously denies the allegations by Palmer and is proud of its best-in-class safety record on this Project.  Wanzek has filed counterclaims asserting breach of contract and declaratory relief, so that it can save the over 800 jobs that this project brings to Southern Colorado.  To secure payment, Wanzek has and will continue to exercise all of its contractual and lien rights."

Spokesperson for Wanzek Construction

Two days after the federal lawsuit was filed, Wanzek Construction filed a counterclaim.

"Palmer has failed to fulfill its fundamental contractual obligations making it all but impossible for Wanzek to substantially perform its own obligations under the Contract," the counter-claim stated.

The counterclaim says the EVRAZ North America subsidiary ordered extensive additional work, never completed the design of the rail mill, and refuses to pay the construction company for increased costs.

"Under the Contract, the Project was to be complete by February 10, 2023, but due to the Owner-caused delays, disruptions, and Changes to the Work, as of December 23, 2022, the Project is just 48%
complete. Under the current conditions, Wanzek projects that the Project will not reach final completion until February 2024."

The counterclaim says the cost of the rail mill project has nearly doubled from $302 million to around $600 million.

A spokesperson for EVRAZ North America provided a statement following our requests for comment: 

“While we can’t comment on pending legal matters, we are committed to completing the new rail mill project in a safe, efficient and timely manner.”

Annie Stefanec, EVRAZ North America