With trial set to begin next week, the Bainbridge Island School District reached a last-minute settlement Thursday with the final defendant in a lawsuit over shoddy construction at Woodward Middle School.

The settlement, by which the district will receive about $3.5 million, will be enough to repair the water-damaged building and pay for the costs of litigation, school board member Bruce Weiland said Friday.

“This is a huge win for Bainbridge Island,” Weiland said. “We realized three years ago that the building had some serious problems, and made the decision to make those responsible pay.”

When the district filed suit in 1999, it estimated that repair costs could reach $5.4 million. The settlement number is lower, Weiland said, because some problems turned out not to be as severe as originally feared, and because the economic slowdown has created a better climate for construction work.

Repairs will begin this summer, district Superintendent Steve Rowley said Friday.

“We hope to send the work out to bid in April, award the contract in May and begin in early to mid-June,” Rowley said.

He said crews will begin doing exterior work even before school lets out for the year, and hopes the job can be completed by the start of school in the fall.

Repair work will involve removing and rebuilding exterior walls in the school’s classroom wing, and replacing windows.

The school was completed in 1994 at a cost of $10.7 million, but by 1997, extensive mold growth was discovered in some walls. Investigation showed that the school’s outer “envelope” leaked badly, allowing moisture to infiltrate between outer and inner walls.

One wing where air quality posed a health hazard was closed and rebuilt in 1998 at a cost of $1.1 million. Repairs on the rest of the building were delayed until the district could recover costs from those responsible for the faulty construction.

After repeated attempts at mediation failed, the district sued Northwest Architectural Company, the project architect; Merit Construction Co., the general contractor; and URS Consultants, the project manager. Merit, in turn, sued several of its subcontractors.

The bulk of the settlement money – more than $2.5 million – will come from Merit and the insurers for Dunham Glass, a now-defunct company that installed the windows.

The exact breakdown of payments between them depends on certain final accounting calculations, Weiland said, but those will not affect the district’s total recovery.

The architect will pay some $600,000, the project manager $330,000 and a roofing company will pay just under $60,000, Weiland said.

The first settlement came in late 2001, when project manager URS agreed not only to pay a portion of the damages but to serve as a witness for the district at trial.

The architects settled in January, and Merit Construction settled last week. The holdout was Safeco Insurance, the insurers for Dunham Glass, who settled Thursday.

Rowley said the district is “confident” the money from the settlement will pay for all costs of repair and all money spent to date on repairs and on the case – and that there might be money left over.

“We might find sections that don’t need to be rebuilt,” he said.

Because of the legal separation between capital funds and operating funds, though, no surplus money could go towards any potential shortage in the district’s operating budget.

“If there are any excess dollars, it gives us more to put away into our capital reserve account, which is getting pretty low,” Weiland said.