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HomeMy WebLinkAbout7B - Developer's Security Req.PR/ STAFF AGENDA REPORT ESo AGENDA#: PREPARED BY: SUBJECT: DATE: INTRODUCTION: BACKGROUND: 7B BRUCE LONEY, ASSISTANT CITY ENGINEER CONSIDER APPROVAL OF REVISION IN DEVELOPER'S SECURITY REQUIREMENTS JANUARY 17, 1995 This item is on the Agenda at the request of the Cardinal Ridge developer, Sienna Corporation and was tabled by the Council in order for the City Attorney to review the item and to clear up verbage of the bond security. In the standard Developer's Agreement between the City and any developer, the developer is required to furnish a Letter of Credit guaranteeing the developer improvements in the amount equal to 125% of the original cost of such improvements. This Letter of Credit is in force for one (1) year following acceptance of all of the developer improvements. Once the work is accepted by the City, the Letter of Credit may be reduced to 25% of the value of the original improvements. This one (1) year period following acceptance is commonly called the Warranty Period. The City of Prior Lake began inspecting all private development improvements with its City staff and/or City consulting engineering firm in 1993. All Developer Agreements which are still active since 1992 have the provision in which 25% of the developer improvement amount is held as a Letter of Credit throughout the Warranty Period. There are several developments which are active and are affected by the consideration requested by Sienna Corporation. There are several options which the City can consider: 1. Continue to use the Letter of Credit in the amount of 25% throughout the Warranty Period as the financial Security as that is what the Developer's Agreement states and has been agreed to in the initial signing of the agreement. . . Allow the developer to provide a Performance/Warranty Bond throughout the Warranty Period in lieu of a Letter of Credit once all the improvements are accepted and approved by the City as per the Subdivision Ordinance. This would take an amendment to the Developer's Agreements or could be implemented for new Developer Agreements only. The Letter of Credit amount could be reduced to 5% of the developer improvement amount and also a Performance/Warranty Bond up to 100% of the improvement cost could be provided. This would allow the City to have a Letter 16200 Eagle Creek Ave., Prior Lake, Minnesota 553.~.2-1714 / Ph. (612) 447-4230 / Fax (612) 447-4245 AN EQUAL OPPORTUNITY EMPLOYER DISCUSSION: ISSUES: ALTERNATIVES: . of Credit amount which is more liquid in correcting or repairing any items necessary in the Warranty Period versus having to go after a Performance/Warranty Bond. The performance/Warranty Bond would be used for major warranty work beyond the 5% Letter of Credit amount. Projects have two completion dates. In general, the first completion date is for the sanitary sewer, watermain, storm sewer, and base course bituminous paving. The second completion date relates to the completion of the bituminous wearing course. The security could be released in two phases. The first time reduction to 5% would be for the work items associated with the first completion date (sewer, water and base paving) and retain 125% of the Letter of Credit for the improvements associated with the second completion date (wear course paving). The Letter of Credit amount is reduced provided that the improvements are completed and accepted by the City Engineer and a performance/Warranty Bond is provided from the developer in an amount equal to the cost of developer improvements associated with the first completion date. Once the developer improvements associated with the second completion date are completed and accepted by the City Engineer, the Letter of Credit can be reduced as stated in Option 3. If this option is utilized, the attached sheet entitled "Amendment to Developer's Agreement" provides the technical language to modify the Developer's Agreement. The City Attorney has reviewed the language of a performance/Warranty Bond form and has added language which would allow the City to recover any necessary attorney fees and administrative costs if the City needs to utilize the bond. Allowing the Developer's Agreement to be amended for this security revision will reduce the developer's Letter of Credit amount, however, the City will have a bond with a higher security amount. The bond will cover all obligations as covered in the Developer's Agreement. With a bond security, obtaining the money usually takes more time than with a Letter of Credit. If Council elects to amend the Developer's Agreements, they should do so consistently. Either the new provisions should be effective for Developer Agreements entered into by the City hereafter or the new provisions should be applicable to all existing Development Agreements. The City has active Developer Agreements beginning with Carriage Hills First Addition and Woodridge Estates First Addition in 1992 and forward, which would need the Developer Agreement amendment. The alternatives 'are as follows: 1. Direct staff to prepare an amendment to the Developer's Agreement for all agreements since 1992 that are active, or for all subsequent agreements to allow the developers to reduce their Letter of Credit amount if they provide a performance/warranty Bond throughout the Warranty Period in a manner acceptable to the City Attorney as described in Option 4. 2. Do not change the Developer's Agreement and leave the financial security provisions as stated in the Developer's Agreement. -2- RECOMMENDATION: FINANCIAL IMPACT: ACTION REQUIRED: 3. Table this item for additional information and for a specific reason. Staff recommends Alternative Number I which contains Option 4. Each Developer's Agreement will need to be amended by Council if a developer wishes to proceed with this revision. There is no impact to the budget as this item addresses the concern w, ith private developments. Make a motion directing staff to prepare an amendment to the Developer's Agreement as described in alternative number 1. Provide direction about ,er the amendment should apply to all existing Developmel~7 ~nts or only those entered into after this date. REVIEW~.~/ ~J AG0117.ENG -3- KNOWN BY ALL Bond No. PERFORMANCE/WARRANTY BOND PERSONS BY THESE PRESENTS, that we (Principal) and. firmly bound unto the City of Prior Lake (Surety) are held and (Obligee), in the amount of dollars ($ ) for payment whereof Principal and Surety jointly and severally bind themselves and their respective heirs, successors, assigns and legal representatives firmly by these presents. WHEREAS, Principal has heretofore deposited with the City of Prior Lake, Letters of Credit to guaranty the completion of payment for and maintenance of the public improvements as set forth in the Developer's Agreement dated between Principal and Obligee for the including, but not limited to, (the Public Improvements); and WHEREAS, the construction of the Public Improvements associated with the First Completion Date was completed on (the First Completion Date) and the Principal has requested the City to reduce the Letters of Credit; and WHEREAS, the Obligee is willing to reduce the Letters of Credit only if they are replaced by a Performance/Warranty Bond in the penal sum of $ to guaranty performance of Principal's obligations as set forth in the Developer's Agreement; NOW, THEREFORE, if the Principal shall for and within the period of 12 months from and after the..Einal Completion Date as described in the Developer's Agreement;_(1) maintain the Public Improvements, (2) repair any damage to the Public Improvements caused by the Principal, its agents, servants, employees, successors or assigns, or any subcontractor hired by such contractor, (3) repair or replace any defective workmanship or material in the Public Improvements, and (4) make good and protect the Obligee against the results of any defective workmanship or materials appearing to have been incorporated in any part of the Public Improvements which shall have appeared or been discovered within .._12__ months after the Final Completion Date, and cover all obligations including attorney fees and administrative costs (as covered by the Developer's Agreemert~ then this obligation shall be null and void; otherwise, to remain in full force and effect. For purposes of this Performance/Warranty Bond, Principal and Surety agree that in the event that any Public Improvements are damaged, the burden shall be on the Principal to show that such damage was not caused by Principal, its agents, servants, employees, successors or assigns or by any contractor hired by Principal, its agents, servants, employees, successors or assigns, or any subcontractor hired by such contractor; Any suit under this Bond must be instituted before the expiration date of two (2) years after the Completion Date; No right of action shall accrue under this Bond to or for the use of any person or corporation other than the Obligee, its successors or legal representatives. Any notice required hereunder shall be deemed properly served when deposited in the U.S. Mail, certified, postage prepaid, addressed to any party at its address hereinafter set forth. SIGNED, SEALED AND DATED this ~day of 19__. In the presence of: By: Principal By: Surety Attorney-in-Fact BOND.ENG AMENDMENT TO DEVELOPER'S AGREEMENT , ACCEPTANCE OF SUBDIVISION AND DEVELOPER IMPROVEMENTS City will accept the Subdivision after it has been completed in accordance with the provisions of this Agreement, the policies and ordinances of City, as City may adopt from time to time, and all local, state and federal laws and regulations. Developer shall furnish certificates of completion for the completed Subdivision certifying that the work has been completed in accordance with the terms of this Agreement and shall also furnish mylar "as-built" reproducibles for all phases of construction included in this Agreement. Prior to acceptance of the completed Subdivision by the City Engineer, Developer. must furnish to City a Letter of Credit guaranteeing satisfactory performance of the Developer Improvements in an amount equal to 25% of the original cost of the Developer Improvements. The 25% Letter of Credit guarantee amount can be.reduced upon the following condition: The Letter of Credit guaranteeing satisfactory performance of the Developer Improvements can be reduced to 5% of the original cost of the Developer Improvements to be completed by the first completion date plus 125% of the original cost of Developer Improvements to be completed by the second completion date after acceptance of all Developer Improvements to be completed by the first completion date by the City Engineer in writing and by providing the City a Performance/Warranty Bond from the Developer and its contractors in an amount equal to the cost of the Developer Improvements to be completed by the first completion date. All punch list items related to the first completion date must be completed before a reduction in security will be considered. I1. The Letter of Credit guaranteeing satisfactory performance of the Developer Improvements can be reduced to 5% of the original cost of the Developer Improvements after acceptance of all Developer Improvements by the City Engineer in writing and by providing the City a Performance/Warranty Bond from the developer and its contractors in an amount equal to the original cost of the improvements which shall be in force for one (1) year ("the Warranty Period") following acceptance of all required improvements and shall guarantee satisfactory performance of such improvements. The Warranty Period shall begin effective the date that the City Engineer accepts all of the completed improvements, in writing, including the mylar "as-built" reproducibles for all phases of construction included in this Agreement. DEVAG2.ENG