Agreements and Securities

AGREEMENTS

WHAT AGREEMENTS ARE WE TALKING ABOUT?

There are two types of Agreements we are concerned with: Subdivision Agreements and Street Improvement Agreements. They are, in essence, a contract between a sub divider or developer and the City, which specifies certain actions which are to be taken by the sub dividers or developer. Also spelled out in the agreement are the amounts of the various types of security the sub divider or developer must provide to guarantee installation of required improvements.

WHEN ARE THESE AGREEMENTS REQUIRED?

Agreements are required for all subdivisions and for other development applications where the dollar value of the public improvements to be installed is significant. The determination as to whether an agreement is necessary on other than subdivision-type applications is one made by the staff of the Engineering Division of the Department of Community Development and depends upon the circumstances unique to the application under consideration.

Where an agreement is required, it must be drawn up (by City staff), signed by the sub divider or developer, and approved by the City Engineer immediately after the approval of the Public Improvement Plans and where a subdivision is involved, prior to City Council approval of the Final map or Parcel Map. Agreements cannot be drafted until after the Public Improvement Plans are approved, because until that time it is not certain what the costs of the improvements will be, and the Security amounts cannot be established.

SECURITY

WHAT DO WE MEAN BY SECURITY?

Security is a means of guaranteeing that certain required actions take place. In the case of installation of required public improvements, security guarantees the installation of the improvements, the payment of all sub-contractors, and the maintenance of the improvements for a time period after their installation. If all the actions are faithfully performed by the sub divider or developer, the security is returned (or “released”). If not, the City makes a claim against the security and uses it to perform the actions not performed by the sub divider or developer.

Security may take the form of cash, a letter of credit, and bonds. Usually they take the form of bonds. And usually three different bonds are provided: a Performance Bond equal in amount to the verified Engineer’s Estimate of costs of installing the required improvements (plus a 5% contingency amount), a Labor and Materials Bond equal in amount to that of the Performance Bond, and a Maintenance Bond equal in amount to 10% of the amount of the Performance Bond.

In addition to bonds, which must be furnished in exactly the form required by the State Subdivision Map Act, and the City of Waterford, evidence of workers’ compensation coverage and a Certificate of Insurance, again meeting very specific requirements, must be submitted and approved. The certificate demonstrates that the sub divider or developer has the required insurance (as specified in the subdivision agreement or street improvement agreement) to protect the City during the construction and warranty period of the life of the project. The certificate must name the City of Waterford, its officers, agents, and employees as additionally insured.

WHEN DO WE NEED THE SECURITY?

Posting of Security is required as part of the approval process of any subdivision and for certain other development applications where the dollar value of the public improvements to be installed is significant. The Security, evidence of workers’ compensation, and the Certificate of Insurance must be reviewed and approved by City staff (including the City’s legal staff) prior to approval of a final or parcel map by the City Council (if a subdivision is involved; otherwise, the approval must take place prior to the release of the approved public improvement plans). In fact, it must be reviewed and approved by City staff prior to scheduling the item before City Council. Scheduling of items before City Council involves at least a 3-4 week lead time.

WHEN DO WE RELEASE THE SECURITY?

A subdivision or street improvement agreement usually contains an 18-month performance clause, meaning that the required improvements must be installed within 18 months of when the City Council approves the final or parcel map (for subdivisions) or the City Engineer signs the street improvement agreement. If the work is performed, the sub divider or developer then requests inspection of the work by the City and at the same time files a Notice of Completion with the County Recorder. Filing the notice begins a 60 day period during which any sub-contractor or materials supplier may file a claim with the County for unpaid bills or uncompensated goods or services. A the end of the period, if no claim has been filed, the City is free to release the Labor and Materials Bond (assuming the inspection by the City of the installed improvements has gone well).

Typically, inspection of installed improvements by the City results in what is known as a “punch list”, or a list of items still to be completed. Once the punch list items are satisfactorily addressed, acceptance by the City of the improvements follows. At this point, the Performance Bond is released. 60 days later, the Labor and Materials Bond is released.

If, after a year after the improvements are accepted by the City, no deterioration of the improvements necessitating maintenance has taken place, the Maintenance Bond is also released.

Note: Only Bonds have been covered in this discussion of Security. If other forms of Security are to be used, the State Subdivision Map Act and the City Code should be consulted. The City Engineer is also available to answer any of your questions.