The Associated Press

EUGENE — The state reached a deal and cut loose the contractor on what had become the most expensive highway project in Oregon since the days of interstate construction.

Under the deal, a subsidiary of Granite Construction Inc. returns $15 million of the $173 million the state has paid for work to straighten a 10-mile stretch of Highway 20 through the Coast Range where landslides have knocked four bridges out of alignment.

The work was halted in 2010, and the Department of Transportation is taking over the project, the Eugene Register-Guard reported Friday.

State officials said settling the dispute was better than fighting in court.

“When you look at how much it would have cost to contest the dispute, the time it would have taken, the thought of terminating the contract, accepting $15 million, taking control and resuming construction this year is really attractive,” said department spokesman Rick Little.

The stretch of U.S. 20 links Newport on the coast with the Willamette Valley. The road is twisty and cuts through terrain that can get 100 inches of rain in a winter, contributing to landslides.

Completing the work, which includes 11 bridges, is expected to cost $290 million to $310 million, the newspaper said. The original bid for the work was $129 million.

The latest costs arise from the state’s plan to demolish four new bridges discovered to be out of plumb and replace them with culverts.

The contract being terminated involved an innovative process in which the contractor would do both design and construction.

The state and the contractor got into a dispute in 2007, when the contractor asked for $61 million and two more years to finish the work as a result of unforeseen landslide problems.

After that dispute was resolved, another arose in 2010 when the contractor reported landslides had knocked the four bridges askew.

In March, the state agency issued a notice of default, saying the contractor had effectively abandoned the project.

As part of the deal, the state will rescind that notice. It also returns more than $4 million it had been holding in a fund to assure completion of the work.

“We are pleased to have reached a resolution to what has been an extremely challenging project for all parties concerned,” said a statement from James Roberts, president and CEO of Granite Construction Inc. of Watsonville, Calif. A subsidiary, Yaquina River Constructors, had the contract.

Little said work could resume as soon as July. The state is taking bids on $10 million to $20 million worth of erosion control work and will look for a contractor.

The new target date for completion is 2015, six years behind schedule.