Honeywell International Inc. has agreed to pay $4 million to a settle a contract dispute involving an energy savings program with the City of Quincy, the office of Massachusetts Attorney General Martha Coakley said Tuesday.

Mayor Thomas Koch of Quincy. Photo taken from the mayor’s home page.

The 2007 contract was issued under a state law, and according to Honeywell, part of the dispute turned on whether the installation of water meters falls within the state’s definition of an energy-conservation measure.

Coakley argued that water meters are not covered by that definition. Honeywell claims that they are. Coakley agreed to look into the matter after Mayor Thomas Koch of Quincy claimed that Honeywell had inflated the value of the work that it performed under the contract, including the installation of the water meters.

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In any case, Honeywell has now agreed to a settlement.

“Strict compliance with this statute is important not only to conserve energy and protect the environment, but also to ensure that taxpayer money is well spent,” Coakley said in a statement. “This settlement brings millions of dollars back to the City of Quincy.”

In a statement, Tom Hamilton, general manager of Honeywell’s Building Solutions unit, gave the company’s side of the story about a $32.8 million program that included upgrades to a number of municipal facilities and schools in Quincy.

“We believe that the Massachusetts statute does not prohibit the use of water meters in an energy program, although we had a disagreement with the attorney general’s office on this point, resulting in this settlement,” Hamilton said. “We feel strongly that the energy efficiency improvements and new water meters are delivering energy and operational savings to the city, as well as a significant boost in revenue. The guaranteed savings would have been met if the city had proceeded with the maintenance portion of the contract, but we agreed to settle with the attorney general to avoid spending more time and legal expenses on the matter.”

As part of the agreement, Honeywell and the City of Quincy will terminate a multi-year maintenance contract, said Coakley’s office, which added that Honeywell cooperated with its investigation.

“Our work from the outset of this investigation was guided by a single principle: protect the interests of our taxpayers,” Koch, the Quincy mayor, said in a statement.