HomeMy WebLinkAbout8C - Devel. Security Requir.STAFF AGENDA REPORT
~O
AGENDA #:
PREPARED BY:
SUBJECT:
DATE:
8C
BRUCE LONEY, ASSISTANT CITY ENGINEER
CONSIDER APPROVAL OF REVISION IN DEVELOPER'S SECURITY
REQUIREMENTS
JANUARY 3, 1995
INTRODUCTION'
BACKGROUND'
This item is on the Agenda at the request of the Cardinal Ridge
developer, Sienna Corporation. The request is for the City to reduce its
Security Requirements in Developer Agreements during the warrantee
period. The request letter is attached to the Agenda Report.
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.
Attached to this Council Report is a letter from Jim Johnston with Sienna
Corporation. Mr. Johnston is requesting consideration of revising the
25% Letter of Credit requirement for a full year after City final acceptance.
Mr. Johnston's letter states that due to the high quality engineering
review by City staff and the high quality inspection service done by MSA
Consulting Engineers for the City, the 25% Letter of Credit coverage
amount is a hardship and is in excess of the City's potential liability.
Other developers have verbally stated the same concern to City staff in
past months.
Engineering staff did a survey of surrounding communities to determine
what they are doing in the area of financial security. Almost all cities use
a Letter of Credit for financial security and all cities will reduce the Letter
of Credit at certain stages of development. Through the Warranty Period
most cities will use a Warranty Bond or Maintenance Bond in lieu of a
Letter of Credit for the financial security. Attached to this report is an
inter-office memorandum and survey.
In the Subdivision Ordinance under Section 6-7-17, a Warranty
Maintenance Bond where appropriate can be used by the subdivider in
the amount equal to the amount of the original cost of the improvements.
This bond shall be enforced for one (1) year following the acceptance of
the required improvements and shall guarantee satisfactory performance
of such improvements.
16200 Eagle Creek Ave., Prior Lake, Minnesota 553.:~.2-1714 / Ph. (612) 447-4230 / Fax (612) 447-4245
AN EQUAL OPPORTUNITY EMPLOYER
DISCUSSION:
ISSUES:
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:
.
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 Warranty or Maintenance 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 Warranty Bond up to
100% of the improvement cost could be provided. This would
allow the City to have a Letter of Credit amount which is more
liquid in correcting or repairing any items necessary in the
warranty period versus having to go after a Warranty Bond. The
Warranty Bond would be used for major warranty work beyond
the 5% Letter of Credit amount.
Staff is recommending that the Letter of Credit amount be reduced and an
amendment prepared which is attached, whereas the Letter of Credit
could be reduced to 5% of the original cost of the developers
improvements after all items have been accepted by the City Engineer, in
writing, and the developer provides the City with a Warranty or
Maintenance Bond equal to 100% of the original cost of the
improvements. This would be the financial security throughout the
warranty period.
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 Warranty Bond financial security would actually have a higher
security amount associated with it but would be less liquid for the City to
use if necessary. They are more affordable to the developer.
Staff would recommend that any Warranty Bond be reviewed by the City
attorney, and that the form be acceptable to the City attorney.
City staff feels that the quality of work and confidence level of work has
improved with the City and its consultant doing the inspection of public
improvements on private development projects. Staff recommends the
-2-
ALTERNATIVES:
RECOMMENDATION:
FINANCIAL IMPACT:
ACTION REQUIRED:
AG195.ENG
retainage of a 5% Letter of Credit and a Warranty Bond for 100% of the
improvement amount.
The alternatives are as follows:
.
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 Warranty Bond
throughout the warranty period in a manner acceptable to the
City attorney.
.
Do not change the Developer's Agreement and leave the
financial security provisions as stated in the Developer's
Agreement.
o
Table this item for additional information and for a specific
reason.
Alternative number 1.
There is no impact to the budget as this item addresses the concern with
private developments.
Make a motion directing staff to prepare an amendment to the
Developer's Agreement as described in alternative number 1. Provide
direction ab..o~ut wh)Cher the amendment should apply to all existing
De,~s, or only those entered into after this date.
-3-
CORPORATION
Suite 608- 4940 Viking Drive- Minneapolis, Minnesota 55435.6'12-835-2808
September 22, 1994
Mr. Frank Boyles, City Manager
Nix. Larry Anderson, Cit'3.' Engk~eer
City of Prior Lake
4629 Dakota Street
Prior Lake, MN 55372
Re: Subdivision Security Requirements
Gentlemen:
I am writing today to request your review of the City's current policy regarding post-
development completion security requirements in residential subdivisions. We respectfully
submit that the City's retention of a letter of credit for 25% of the cost of the improvements
for a full year after final City acceptance creates a level of quality assurance well in excess of
potential liabilities for the following reasons:
.
The level and quality of engineering review of development
plans and specifications by both City staff and consulting
engineers is extremely high and greatly reduces the amount of
potential problems once construction is underway.
.
The intense level of on-site inspection by City engineers and
consulting engineers during construction absolutely eliminates the
possibility of the developer's contractor performing work which
fails to meet City specifications. For example, the first phase of
Cardinal Ridge has generated fees for inspections and plan
review to MSA of $28,000 and $17,000 to American
Engineering for compaction inspection and materials design.
These costs are absolute evidence of the high level of inspection
and oversig/at.
o
The City performs a major re-inspection of ali development work
immediately upon completion. Items noted are corrected.
Planners · Developers · Contractors
It seems to me that upon the successful completion of #3 above, the City's comfort level must
be extremely high with the quality of the development work, a comfort level which
reasonably could be translated into a major reduction in the 25% letter of credit overage or its
replacement with a letter of credit for remaining work (eg., final lift of asphalt) and a
maintenance bond from a duly licensed insurance firm.
In today's highly regulated atmosphere of banking, the posting of a letter of credit carries
essentially the same credit requirements of borrowing the funds in cash. The current
arrangement of excessive security requirements by the City places a genuine hardship on the
development community.
Sienna Corporation has been clearly impressed by the quality level of City staff and its
consultants. It is our respectful opinion that the current policy of post development security
requirements fails to acknowledge their level of professionalism and thoroughness.
I would ~eatly appreciate your review of the current policy with a resulting proposal to the
Council to amend and reduce security requirements.
Thank you for your consideration. I would be pleased to discuss this in person with you at
your convenience.
Sincerely, ?, ,,~.'"?
cc: John Breitbach, Prior Lake State Bank
CORPORATION
Suite 608. 4940 Viking Drive. Minneapolis, Minnesota 55435. 612-835-2808
December 13, 1994
Mr. Frank Boyles
City Manager
City Prior Lake
4629 Duluth Street SE
Prior Lake, MN 55372
Re: Subdivision Security Requirements
Dear Frank:
As you may recall, I wrote you last September requesting reanalysis and reconsideration of
the City's current subdivision security policy. Since that time I've had a series of excellent
discussions with Bruce Loney regarding the options available to the City. I appreciate the
staff time pressures on more active issues. However, I'm certain the entire development
community would appreciate the redrafting of the current policy as quickly as possible for
implementation into their 1995 plans.
Sienna remains most willing to meet and discuss the issue with the staff with a goal of
bringing the redrafted policy to the Council at the earliest feasible date in January.
Thank you for your conside~J~on.
//
Sincerely,
John Breitbach, Prior Lake State Bank
Planners · Developers · Contractors
INTEROFFICE MEMORANDUM
TO:
FROM:
SUBJECT:
DATE
LARRY J. ANDERSON, DIRECTOR OF PUBLIC WORKS
BRUCE LONEY, ASSISTANT CITY ENGINEER
SUBDIVISION SECURITY REQUIREMENTS TO
DEVELOPMENTS
OCTOBER 4, 1994
PRIVATE
This memorandum is in response to a letter written on September 22, 1994, by Jim Johnston,
Project Manager of Cardinal Ridge in regards to the subdivision security requirement that the
City of Prior Lake has on its new developments. In this letter Mr. Johnston feels that the City's
retention of a Letter of Credit for 25% of the improvement cost for a full year after the City
accepts the project is excessive and harmful for financial reasons. His letter outlines some of
those reasons, and in particular the difficulty of extending a developer's financial credit with so
nmch money still being retained.
The City of Prior Lake's current policy for the financial security for private developments is to
have 125% of the public improvement cost in a Letter of Credit or a cash escrow account. The
developer can request withdrawals from the Letter of Credit amounts as the work progresses and
accepted by the City. The City can reduce the Letter of Credit amount down to 25% of the total
mnount when all the improvements have been constructed and approved by the City. The
developer agreements are structured to retain 25% of the Letter of Credit amount through the
warranty period, which starts one year after all items are done including the bituminous wear
course.
For the Cardinal Ridge 1st Addition project, which is essentially completed except for the
bituminous wear course, the 25% Letter of Credit amount is $168,000.00 on this project where
the improvement cost was $676,000.00.
A survey was conducted by Engineering staff to determine what other cities in our surrounding
area are doing in regards to financial securities for private development. The cities of Burnsville,
Eagan, Savage, Shakopee, and Lakeville were contacted. Attached to this memorandum are
those survey results which can be summarized as follows:
I,
Almost all cities use a Letter of Credit for financial security for new
developments in their city. One exception would be Shakopee which does not
allow a Letter of Credit, however, they allow a cash payment plan.
.
All cities will reduce the Letter of Credit at certain stages of development as the
work is done.
4629 Dakota St. S.E., Prior Lake, Minnesota 55372-1714 / Ph. (612) 447-4230 / Fax (612) 447-4245
AN EQUAL OPPORTUNITY EMPLOYER
e
Most of the cities will reduce the Letter of Credit done to zero (0) once all the
items have been done and accepted by the city including punch list items, and use
during the warranty period, a warranty bond or maintenance bond in lieu of a
Letter of Credit amount.
,
In the case of Lakeville, they would use a 10% retainage on the Letter of Credit
unless replaced with a warranty bond.
Se
The warranty bond amounts will vary between the cities from 60% to 100% of the
improvement cost.
o
There are different types of arrangements, however, it appears that most cities are
allowing a warranty or maintenance bond in lieu of a Letter of Credit retainage
once all the items have been completed and accepted by the city.
There are several options in which the City can proceed with financial securities for new
developments. They are:
1)
To continue as we have in the past allowing the Letter of Credit to be withdrawn
down to the 25% retainer amount and to hold that 25% through the warranty
period which is usually one (1) year after the bituminous wear course has been
placed and all punchlist items completed.
2)
Allow the developers to provide a warranty or maintenance bond through the
warranty period in lieu of a Letter of Credit amount once all the items have been
completed, accepted and approved by the City.
3)
Reduce the Letter of Credit amount to 5% or 10% of the public improvement cost
and require a warranty or maintenance bond for perhaps up to 60% or 100% of
improvement costs, whichever seems appropriate.
It appears since we are doing the inspection with our consultant or with City staff now, the
quality of work has improved and there is less chance of failures or needed corrective work. As
you will recall, the Raspberry Ridge 1st Addition needed corrective work in which City,
developer and engineer split the corrective work cost to pay for corrective work after the
performance bond had expired. The Engineering Department does have a tickler file and checks
the insurance, Letter of Credit, and warranty periods on a monthly basis for all its developments
to prevent the expiration of a financial security before the project is completed.
It does appear that the 25% retainer may be somewhat excessive when compared to other nearby
communities. I have also heard this complaint from the developers of Carriage Hills, Woodridge
Estates, Westbury Pond, and Cardinal Ridge as they feel this is an excessive financial burden
onto their developments. To reduce the Letter of Credit amount for developments in progress, an
amendment to the Developer's Agreement would be necessary and require Council action. It
might be appropriate to consider a change prior to or in conjunction with the Westbury Ponds 1st
Addition final plat approval which is scheduled for November 7, 1994, Council meeting.
This memo is in response to a letter from Jim Johnston and can be discussed with me at any time.
BMEM79.ENG
SURVEY
September 21, 1994
FEWANCIAL SECURITIES PROVIDgD BY DEVELOPERS FOR PRIVATE DEVELOPNrENTS
1.)
Does your City utilize a Letter of Credk for the financial security of the installation of sewer,
water, storm sewer, and street improvements within your City? If so, at what percentage amount:
100% ,125% ~. 150% , of the improvement cost for the Letter of Credit amount?
Yes, Letter of Credit
Reduce down to 0 at certain stages of development, how much work done -
nothing in it to say how much -no set stage:when they do this -no
percentage amount that they reduce it to.
2.)
Does your City utilize a portion of the Letter of Credit for the warranty period, financial security?
ff so, what percent amount does your community use?
No
3.)
If your community uses another financial security instrument such as a warranty bond or
maintenance bond, what is the time length utilized for the warranty period? What amount does
your City require for the warranty bond security?
Performance Bond made out to the city - 1 year - 100%
4.) Does your City utilize another financial instrument other than Letter of Credit or bond
instrument? If so, what is it and at what length of time is it utilized for the warranty period and at
what amount'?
Performance Bond -warranty 1 year - 100%
SECUI~NG
SURVEY
September 21, 1994
FINANCIAL SECURITIES PROVIDED BY DEVELOPERS FOR PRIVATE DEVELOPME_NTS
1.)
2.)
Does your City utilize a Letter of Credit for the financial security of the installation of sewer,
water, storm sewer, and street improvements within your City? If so, at what percentage amount:
100% x , 125% ,, 150% , of the improvement cost for the Letter of Credit amount?
Letter of Credit
Just a procedure no policy in writing. We reduce down periodic as things
get done, hold 20% of entire amount until completion.
Do include 30% overhead in estimate cost such as admin costs, etc.
Does your City utilize aponion of the LetterofC~dit ~rthe warran~ period, financial security?
ff so, wh~ pe~entamountdoesyourcommunity use?
Require financial guarantee for 60% of amount.
Use 1/2 of 60%
3.)
If your community uses another financial security instrument such as a warranty bond or
maintenance bond, what is the time length utilized for the warranty period? What amount does
your City require for the warranty bond security?
Warranty or Maintenance Bond for 2 years.
Use 1/2 of 60%
4.)
SECURI.£NG
Does your City utilize another financial instrument other than Letter of Credit or bond
instrument? If so, what is it and at what length of time is it utilized for the warranty period and at
what amount?
Depends: Performance Bond, cash escrow or Agreement with lender
2 years from date Council appproves it.
SURVEY
September 21, 1994
FINANCIAL SECURITIES PROVIDED BY DEVELOPERS FOR PRIVATE DEVELOPMENTS
1.)
Does your City utilize a Letter of Credit for the f'mancial security of the installation of sewer,
water, storm sewer, and street improvements within your City? If so, at what percentage amount:
I00% X, 125% ,150% , of the improvement cost for the Letter of Credit amount?
Letter of Credit
We MAY reduce the Letter of Credit but request an actual estimate paid to
contractor if do reduce it - always retain 10%. They MAY request reduction
we always keep 10%.
2.)
Does your City utilize a portion of the Letter of Credit for the warranty per/od, financial security?
If so, what percent amount does your community use?
Use 10% retainer unless replaced with 1 or 2 years warranty bond.
3.)
If your community uses another f'mancial security instrument such as a warranty bond or
maintenance bond, what is the time length utilized for the warranty period? What amount does
your City require for the warranty bond security?
Warranty Bond - 1 year 1 contractor; 2 years 2 contractors
4.) Does your City utilNe another financiM Nstrument other than Letter of Credit or bond
~strument? If so, what is it and at what length of time is it utilized Ar the warranty pehod and at
what amount?
Use Dispersment Agreements and cash - a lot of work tho.
s~mum~G Expiration date and renewal - always gets 1 year.
100%
SURVEY
September 21, 1994
FINANCIAL SECURITIES PROVIDED BY DE'V'ELOPERS FOR PRIVATE DEX~ELOPMENTS
1.)
2.)
3.)
Does your City utilize a Letter of Credit for the financial security of the installation of sewer,
water, storm sewer, and street improvements within your City? If so, at what percentage amount:
100% ,, 125%X , 150% ,, of the improvement cost for the Letter of Credit amount?
Letter of Credit
Reduce L.C. as the work is done
When all the work is done, and accepted including punchlist items,
the L.C. is reduced to 0%.
Does your City utilize a portion of the Letter of Credit for the warranty period, financial security?
If so, what percent amount does your community use?
Ask for Warranty or Maintenance Bond
1 year for entire project
100%
If your community uses another financial security instrument such as a warranty bond or
maintenance bond, what is the time length utilized for the warranty period? What amount does
your City. require for the warranty bond security?
Yes -Warranty or Maintenance Bond - lyear
100% of entire project
4.)
Does your City utilize another financial instrument other than Letter of Credit or bond
instrument? If so, what is it and at what length of time is it utilized for the warranty period and at
what amount?
No
SECURLENG
SURVEY
September 21, 1994
FINANCIAL SEC~RITIE$ PROVIDED BY DEVELOPERS FOR PRrVATE DEVELOPMENTS
1.)
Does your City utilize a Letter of Credit for the financial security of the installation of sewer,
water, storm sewer, and street improvements within your City? If so, at what percentage amount:
100% ,125% X , 150% , of the improvement cost for the Letter of Credit amount?
Letter of Credit
They do escrow and payment plan - reduce to 25%
retain for 1 year in escrow
2.)
Does your City utilize a portion of the Letter of Credit for the warranty period, financia/security?
If so, what percent amount does your community use?
Ask for warranty or maintenance bond
1 year for entire project
100%
3.)
If your community uses another f'mancial security instrument such as a warranty bond or
maintenance bond, what is the time length utilized for the warranty period? What amount does
your City require for the warranty bond security?
Yes - 1 year- warranty period starts when all items have been completed
by'developer'.and accepted by City.
100% of entire project
4.)
$£Cb'RL~NG
Does your City utilize another financial instrument other than Letter of Credit or bond
instrument'? If so, what is it and at what length of time is it utilized for the warranty period and at
what amount?
No
AMENDMENT TO DEVELOPER'S AGREEMENT
e
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 a 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
Warranty/Maintenance 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 any
required improvements and shall guarantee satisfactory performance of
such improvements. The Warranty Period shall begin effective the date
that the City Engineer: accepts the completed improvements, in writing.
DEVAG1.ENG