Minneapolis will pay $3.2 million to settle a lawsuit filed by a key supplier when the city in 2009 canceled an expensive upgrade at its Fridley water-treatment plant.

The city expected to pay penalties to various contractors when it killed the $90 million project, but the Pall Corp. is the only one that took the city to court. It was to supply sophisticated ultrafiltration membranes and other equipment that could remove harmful micro-organisms from the city's Mississippi River water supply.

The city ended the project early in 2009 because an expected federal directive to filter out the material turned out not to be as stringent as expected. The city had already installed ultrafiltration equipment at its Columbia Heights water plant.

The city also paid other contractors to get out of canceled contracts.

Public Works Director Steve Kotke said the lawsuit resulted from Pall's contention that the membrane costs were more than the 10 percent restocking fee the city offered. The firm had subcontracted with a Japanese manufacturer for the actual membranes. It also was to supply pumps and blowers as part of a $17.5 million contract.

The settlement will come from the city's self-insurance fund, which is funded by city departments in accordance with their loss experience. Kotke said he doesn't expect any increase in the department's payments into the fund.

The project was to be paid by water rate increases, and its cancellation was expected to dampen those increases. However, rates in 2011 are $3.20 per 100 cubic feet, for an average monthly household charge of $25.60. A rate of $3.15 for 2011 was projected just before the cancellation.

Steve Brandt • 612-673-4438