WASHINGTON D.C. — An investment group is suing the federal government for $7.8 million, citing allegations the U.S. Department of Veterans Affairs wrongfully canceled its agreement to have a contractor build a new health care center in Butler Township.

The AmeriServ Trust and Financial Services Co. of Johnstown, Cambria County, filed the suit Dec. 2 in Federal Claims Court, 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, 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).”

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 government awarded the lease to build the center to Westar on May 31, 2012.

Less than two weeks later, another bidder on the project filed a bid protest asserting the project should not have been awarded to Westar, raising questions about the integrity of Berryhill, Westar’s proposed property manager for the project.

The protest included an outline of a federal criminal investigation of Berryhill in connection with the development of other governmental properties.

The government denied the protest in July 2012, saying there was no indictment or conviction of Berryhill nor was he debarred or suspended.

However, the denial included a request that Westar submit a contingency plan if Berryhill would not be able to participate in the development.

The lawsuit said the VA’s contracting officer communicated directly with the Federal Bureau of Investigation about its investigation of Berryhill.

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.

The lawsuit is seeking the $7.5 million for repayment of the loan, as well as costs for unpaid interest and other fees.

Chris Sheedy, senior vice president of the Specialty Real Estate Division of the ERECT Fund, said the trust is not commenting on the suit on the advice of its attorneys, adding the government is allowed 60 days to respond to the suit.

Genevieve Billia, a spokesman for the VA, said the department cannot comment on the pending litigation.

The VA announced Jan. 2 plans to build a new health care center along North Duffy Road in Center Township.

The VA will have a 20-year lease with Cambridge Healthcare Solutions PA LP 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.