WASHINGTON D.C. — The federal government is asking the U.S. Federal Claims Court to dismiss a $7.8 million lawsuit brought against it by an investment group, which has alleged the U.S. Department of Veterans Affairs wrongfully canceled its agreement to have a contractor build a new health care center in Butler Township.

AmeriServ Trust and Financial Services of Johnstown, Cambria County, filed the suit Dec. 2, acting as the trustee for the Employee Real Estate Construction Trust Fund, known as the ERECT Fund.

The lawsuit said the ERECT Fund provided a $7.5 million loan to finance part of the cost of building the proposed $67.2 million health care center that was set to be built on 21 acres along Route 68, adjacent to the VA campus on New Castle Road.

The VA ended its agreement with Westar Development, the contractor of the project at the time, in August 2013 after Robert Berryhill, a senior vice president of Westar, was indicted on construction related fraud charges in U.S. District Court in Cleveland. Those charges were not related to the Butler Township project.

ERECT Fund said in the lawsuit the government knew of the federal investigation involving Berryhill before the trust entered into an agreement with Westar.

The lawsuit said had the VA shared that information then “the ERECT Fund would not have made a loan of $7.5 million to the borrower to construct the (health center).”

The government, in its response filed Friday, admitted another bidder of the project at the time filed a protest against Westar in 2012 and raised questions as to the integrity of Berryhill. It also admitted the contracting officer for the VA communicated with the Federal Bureau of Investigations about Berryhill, but denied the group’s allegations it had complete knowledge of Berryhill dating back to 2012.

The government denied each of the counts filed against it by the investment group, denying “that the government made any representation and warranties to the ERECT Fund.”

Westar received a mortgage loan of $57.5 million through Fifth Third Bank, which required the developer to get a second construction loan of $7.5 million. In January 2013, Westar applied for that loan through the ERECT Fund.

Both loans were closed April 2.

The day after the disbursement of the ERECT Fund loans, charges were filed against Berryhill for alleged mail fraud, wire fraud, impersonation of a federal employee and aggravated identity theft in connection with previous projects.

A groundbreaking for the facility occurred two days later.

The initial construction phase continued through part of June 2013, with the funds from the ERECT Fund paying for acquisition of property, premiums on construction and performance bonds, architectural and engineering expenses and closing fees.

On June 13, the VA Office of the Inspector General issued an advisory regarding false and misleading statements made by Westar during its proposal for the center.

The government asked Westar to cease work in a letter dated June 21, 2013, citing the Inspector General’s investigation into the companies. The VA sent a lease termination letter to the developer on Aug. 9, 2013.

The trust then told the government of the breach in contract and attempted to negotiate to resolve the issue, but was not successful, the lawsuit said.

ERECT Fund also claims the federal government agreed in writing there would be no defaults under the lease and the government would not terminate its lease with the developer of the project without 180 days notice and an opportunity to fix the issue, the lawsuit said.

The VA announced Jan. 2 plans to build a new health care center along North Duffy Road in Center Township, although that project is on hold due to a protest filed by a failed bidder.

The VA expects to have a 20-year lease with Cambridge Healthcare Solutions PA of Vienna, Va., paying it about $8.4 million per year following an initial abatement period.

The 168,000-square-foot center will expand VA Butler Healthcare’s outpatient services to meet increasing demand and will include primary care, specialty care, dental, lab, pathology, radiology, mental health and ancillary and diagnostic services.

The 60-bed Community Living Center, 56-bed domiciliary, fire station, engineering, police support buildings and services will remain at the VA campus on New Castle Road.