The contractor building a new Veterans Affairs hospital in Aurora said it will walk away from the troubled project after a federal board of appeals decision Tuesday that the VA breached its contract.

“Kiewit-Turner must cease all work on the project,” Kiewit Corp. executive vice president Scott Cassels said in a letter to VA Secretary Robert McDonald and Deputy Secretary Sloan Gibson.

“We will take all reasonable actions to preserve and protect work currently in place and materials on-site as we begin a safe and orderly demobilization from the project,” Cassels wrote.

The U.S. Civilian Board of Contract Appeals agreed with Kiewit-Turner that the VA failed to meet its contractual obligation to manage the Denver VA Medical Replacement Project.

The VA did not produce a design that could be built for $604 million but instead has designed a project that would cost more than $1 billion, the board determined.

The board also found that the VA “does not have sufficient funds to pay for construction of the entire project as currently designed and has no plans to ask for money.”

Kiewit-Turner has the right to stop performance, the board ruled.

In spite of the stark language, members of Colorado’s congressional delegation said they hoped Kiewit-Turner’s reaction was only the start of new negotiations in the event the VA secures more money for the beleaguered project.

“The VA should use this ruling to take steps to unlock reserve funds to complete this project in the most efficient and responsible manner possible,” U.S. Sen. Michael Bennet said in a statement. “Our veterans have waited far too long for this hospital to be built.“

U.S. Rep. Mike Coffman, R-Aurora, who has battled the VA over construction delays and cost overruns, said he would call a meeting of the Colorado congressional delegation and VA officials to “find a path forward.”

“We have an obligation to our veterans to get this hospital built, and we have an obligation to the taxpayers to do everything we can to bring down the cost,” he said.

Democratic Rep. Ed Perlmutter of Golden agreed.

“I’m very disappointed the VA could not work out an agreement with Kiewit-Turner and the result has been a ruling against the VA on all counts,” he said.

VA officials released a statement saying the agency is committed to building a replacement hospital.

“The department learned (Tuesday night) that the Civilian Board of Contract Appeals had ruled in favor of contractor Kiewit-Turner on the contract interpretation for the Denver Replacement Facility, allowing them to discontinue work,” the statement said. “VA has also received notification from K-T that they are canceling the contract and that they are stopping production on the site immediately. VA is currently exploring alternatives and will provide additional information as it becomes available.”

Cassels said in his letter to the VA that Kiewit-Turner must be paid all past costs. The Kiewit-Turner joint venture went to “extraordinary efforts” to work with the VA, spending $100 million of its funds to keep the project moving forward, he said.

The board decision confirms the contract is broken, legally and practically, Cassels said in the letter.

“We find the behavior of the VA has not comported with standards of good faith and fair dealing required by the law,” the board decision said. “The agency failed to provide a design that could be constructed within the estimated construction cost at award because it did not control its designer.”

The design team, which had been at work since 2007, was a joint venture of Skidmore Owings & Merrill, S.A. Miro, Cator Ruma and H+L Architects.

Kiewit-Turner said the U.S. Corps of Engineers should assume responsibility from the VA for management of the project.

The VA’s head of construction, Glenn Haggstrom, had said at a House subcommittee hearing held in Denver by Coffman in April that the new hospital would be completed by May 2015. At the time, Kiewit-Turner said it probably wouldn’t be ready for patients until early 2017.

“Finally, the VA is being held accountable,” Bennet said. “Now we should move forward to provide Colorado’s veterans with better access to health care services and build them the facility they deserve.

Electa Draper: 303-954-1276, edraper@denverpost.com or twitter.com/electadraper