I would assume Graham takes their subcontractor to court and it goes from there. I find it odd that Graham would even mention the City for anything that their sub is responsible for. I'm guessing they're just trying to leverage an uneducated public into pressuring the City, or some sort of nonsense.
I just find this bit very strange:
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However, I think it is quite obvious to see that Augescon was and is capable of doing the work well, and fully worthy of being prequalified.
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What part of that is obvious? They did a terrible job. The only thing I find obvious is that they underbid the project, performed shoddy work and burned Graham in the process. Maybe they are a competent contractor, but they sure didn't make their case very obvious with this project.
In the end, Graham picked the low bid and it burned them. It's their own fault. A little bit of common sense could've saved them here.