The Minneapolis bridge that notoriously collapsed in 2007 was built 40 years prior and designed by a company that no longer exists – but it could make big engineering firms more cautious about expansion plans.
The Minnesota Supreme Court ruled recently that Jacobs Engineering Group Inc. could be on the hook for tens of millions in damages paid by the state even though the Pasadena company bought the bridge’s designer in 1999, more than three decades after construction was completed.
The ruling could spell trouble for Jacobs and the other large engineering firms based in Southern California – Tetra Tech Inc., Aecom and Parsons Corp. – which have grown across the nation and globe by acquiring smaller firms that have long lists of completed projects. If nothing else, it could force the big firms to do substantially more due diligence before acquisitions.
“I’ve you’ve got open-ended liability, I need a list of all the things that company has worked on for the last 50 years,” said Ronald Wanglin, chairman of Pasadena commercial insurance brokerage Bolton & Co. “I’d want to know exactly what the exposure is.”
The Interstate 35W bridge across the Mississippi River collapsed Aug. 1, 2007, killing 13 and injuring 145. The Minnesota Legislature called it a “catastrophe of historic proportions” and the state has since paid $37 million to victims and their families.
Since 2008, the state has sought reimbursement for those payments from Jacobs as well as two firms that did engineering and repaving work on the bridge. A federal investigation found a problem with the initial design was partly to blame for the collapse.
The bridge was completed in 1967, with design and construction plans prepared by Sverdrup & Parcel and Associates Inc. of St. Louis. That company became Sverdrup Corp., which merged with Jacobs in 1999.
State laws typically limit a company’s liability for construction projects after a project is completed. Minnesota’s law has gone back and forth between 10 and 15 years, meaning liability for the I-35W bridge should have lapsed in 1982 at the latest.
But Minnesota’s Legislature, after the bridge collapse, passed a law that allowed the state to pay victims and to seek reimbursement from parties responsible for the collapse – regardless of the liability limit.
Jacobs argued the state couldn’t retroactively make it liable for the bridge, but state justices upheld the law, ruling it served “a legitimate state interest.”
Dana Sherman, an attorney and associate professor in USC’s civil engineering program, said the ruling “strains basic notions of credibility.”
“What the court has basically said is … we can revive what has been dead for 20 years because it is in the best interest of the state,” Sherman said.
David Herr, a Minneapolis attorney who handled the case for Jacobs, said he could not comment. Jacobs spokeswoman Michelle Jones did not return calls.
Officials for Aecom, Parsons and Tetra Tech also declined comment.
Long-term risk
Jacobs and its rivals have grown in large part by acquiring smaller firms. Over the past two years alone, Jacobs has announced the acquisition of six large firms, two of them based in the United States: Atlanta engineering firm Jordan, Jones and Goulding Inc. and Philadelphia design-architecture firm KlingStubbins.
That means Jacobs could be liable for problems that arise now – – or decades from now – in dozens of Georgia water and wastewater projects designed by Goulding, as well as big projects such as Philadelphia’s Veterans Stadium designed by KlingStubbins and its predecessor companies.
Richard Paget, who follows Jacobs as an analyst for WJB Capital Group Inc. in New York, said engineering firms aren’t going to stop acquiring firms, but they might take a more cautious approach if other states follow Minnesota’s precedent.
“If there is this issue where you’re on the hook for the predecessor company’s liabilities, maybe that just means you have to scrub their history a bit more,” Paget said.
Jacobs, like all engineering firms, has liability insurance that Sherman said will likely cover payments made to the state.
But that kind of insurance policy could become more expensive and much harder to get if insurers believe engineering firms will be responsible for projects indefinitely, said Keith Newell, senior vice president of downtown L.A. firm Heffernan Insurance Brokers’ construction insurance practice.
Jacobs could appeal the ruling to the U.S. Supreme Court, but the high court hears only a handful of the hundreds of cases submitted each year. Still, for all the handwringing, the ruling has not fazed Wall Street.
Shares of Jacobs closed at $41.54 on Nov. 30, the day the ruling was released, and were up a week later. The stock closed at $39.75 on Dec. 14.
Andrew Wittmann, who follows Jacobs, Aecom and Tetra Tech for Robert W. Baird & Co. Inc. in Milwaukee, said investors are more interested in the contracts the companies have won.
Regardless, analyst John Rogers, who follows Jacobs at D.A. Davidson & Co. in Lake Oswego, Ore., said the firms are likely studying the ruling.
“I think this is certainly going to raise some attention,” he said.
