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1999-0921_BOYS & GIRLS CLUBS OF CAPISTRANO VALLEY_H2a_Agenda Report Resubmitted 9/21/99 AGENDA ITEM September 7, 1999 TO: George Scarborough, City Manager FROM: John R. Shaw, City Attorney SUBJECT: Boys & Girls Club Lease Agreement -- Waiver of Bonding Requirements RECOMMENDATION: 1. By motion, waive the provisions under section 8 of the Lease Agreement between the City and the Boys & Girls Club of Capistrano Valley (the "Club") requiring bonding of the Club's contractor; 2. Ratify the attached letter agreement dated August 17, 1999. PURPOSE: Consider written request of Club to waive bonding requirements imposed through the Lease Agreement on the Club and the Club's Contractor, subject to letter agreement conditions. BACKGROUND: By letter dated August 11, 1999 from Ken Friess, the Club has requested that the provisions in the Lease Agreement, requiring the Club's contractor to secure bonds to ensure completion of the Club facility, be waived. More specifically, section 8(a) of the Lease Agreement provides that the Club's contractor shall provide faithful performance and labor and materials bonds equal to 100% of the cost of the project. This is a normal requirement of any construction activity and was made a part of the Lease Agreement to ensure final completion of the project. In Mr. Friess's letter of August 11, 1999 (attached), it is requested that the Club be released from this requirement because of the substantial premium cost of the bonds (i.e, $33,000). Significant reasons are given to justify the waiving of the bond requirements. The key reasons offered are: 1. Most of the work is to be done by subcontractors and suppliers with the result that the prime contractor is acting more in a general supervisory capacity. Further, the subcontractors and suppliers are being paid directly by Club resources with only two-party checks; n FOR CITY COUNCIL AGE �I �,( - i • Resubmitted September 21. 1999 Agenda Item -2- September 7, 1999 2. No work is paid for until after it is completed and advance deposits are kept to a bare minimum; 3. The Club now has $600,000 cash on hand, whereas the Club construction is already 13% done. The City Manager and I have reviewed the entire situation. We have suggested to the Club that a waiver of the bonds is reasonable under these circumstances but that we would also want the added protection of requiring prior approval of any actual release of the American Sterling Bank loan proceeds to the Club for construction purposes. Under this approach, the Club will necessarily be required to first invest its on-hand cash into the project before the bank loan is drawn upon. The Club has agreed to that approach. The attached letter agreement, when ratified by the City Council, will implement this approach. In conclusion, the City Manager and my office are prepared to recommend to the Council that the bonding requirements be waived based upon the above-stated protections. FINANCIAL CONSIDERATIONS: None. NOTIFICATION: None. RECOMMENDATION: 1. By motion, waive the lease provisions under section 8 requiring bonding of the Club's contractor; 2. Ratify the attached letter agreement dated August 17, 1999. Respectfully submitted, JOH SHAW City A orney Attachment: Letter from Ken Friess dated 8111199 Letter Agreement FR_IESS • 11y(. Lic.706656 CSE\I:R,AL CUNT RACII�Ci COMPANY BUILDERS. INC. August 11, 1999 Mr. George Scarborough City Manager City of San Juan Capistrano 32400 Paseo Adelanto San Juan Capistrano, California 92675 RE: Boys and Girls Club Construction Bond Dear George, Al King has brought-to our attention a requirement of the lease agreement with the City that the Boys and Girls Club of Capistrano Valley provide a performance and completion bond for the youth facility project. Frankly, this fell through the cracks. It was not a requirement of Sterling National Bank who is guaranteeing the financing beyond funds raised locally, and we made the assumption that the City would not require a bond because of the bank's involvement. I am writing to request a waiver from the City for the bond. The bond will cost the Boys and Girls Club $33,000.00. As you all know, all of the funds for the project must be raised through donations, and the cost of the bond would be a substantial burden. I believe I can make a case that the bond is unnecessary: 1. The contractor, Varkel Construction, Inc. has a good record with the City on the Gymnasium project. In addition they are a well-established company that has been in business in Orange County for a long time. Much of the actual work and materials for the project is being donated. 2. My company has volunteered its services as construction managers to oversee quality control and payment approval. We are monitoring all work progress and lien release documentation. No work is paid for until after it is completed and advance deposits are kept to a bare minimum. 3. All subcontractors and suppliers are being paid directly with two party checks. Varkel certifies payment to subcontractors and suppliers but payment is issued directly by our funds control company to them. Varkel docs not handle the money. 4. In addition to Friess Company monitoring of the process the actual Payments are made by California Fund control our funds control agency who cross checks our efforts. 31658 Rancho Viejo Road, Ste. B, San Juan Capistrano, CA 92675 Tel (949) 487-9700 Fax (949) 248-8433 www.triessco.com We followed a similar system in the recently completed Fluidmaster project and saved over $400,000 in bond costs. The use of bonds is generally necessary for low bid and marginal contracts. We have carefully negotiated this relationship and feel confident there are sufficient safeguards in place so as to make bonding unnecessary. 5. As of this letter the project is about 13% completed. Of the remaining labor and materials about 20% is being donated. 6. The real expected cost of the project is $1.1 million. The Club currently has $600,000 on hand, a loan for $1.3 million, and $500,000 grant waiting to fund, and an additional $800,000 in pledges due in over the next 12 months. Obviously their funding is well in excess of the project. I respectfully request that the City work with us in this regard. I am enclosing copies of the Varkel contract, and our management agreement for your consideration. Sincerely, Ken Friess Au - 1 / 99 02 : 3911 V 121 (=SS C0 BU I ( Ur RS • Jww, "L4011 PA5EY ADBLANTO e�k �'(� u[m."' q nY Jnr CVJN1. SAN JVAN CAVISTHANO, GA 91675 = u CCn[Vf CAMFP. (949;453-1 171 �y WVAR�H AKn nM11ft1 19491 [93-1053 tFAxl nurvlnl ItIiI +M AME. trn neVlc,.,.,wnmf,. - fry'FMf•OFN n['Jn L August 17. 1999 Mr Jim Williams, Executive Director Boys and Girls Club of Capistrano Valley 31371 EI Camino Real San Juan Capistrano, CA 92675 Re: tetter Agreement/Waiving of bond Requirements Under City/Club Lease Agreement Dear Mr. Williams. This letter agreement addresses the request of the Boys and Girls Club of Capistrano Valley(the "Club")that the City Council waive the bonding requirements of section 8 of the lease agreement dated June 1. 1999, between the City and the Club(the "Agreement") The City agrees to waive the bonding requirements of section 8 of the Agreement providing that the Club agrees in its implementation of section 3 of the Agreement to first obtain written approval of the City Manager, George Scarborough, before proceeding to draw down on any of the Club's previously approved loan from American Sterling Bank (aka National Sterling Bank.) This commitment 7s further subject to the City Council's ratification of this letter agreement. Accordingly, please have your legally authorized representative execute the below-stated acknowledgment. Vyo s. JFAr Cney as legally authorized representative of the 13oys and Girls Club of Capistrano Valley (the "Club') hereby, on behalf of the Club, agree that the Club shall fir$t obtain the written authorization of the City before drawing down on any of the loan funds committed to the Club by the American Sterling Bank. Dated,— -:L// 7_� By/X� .Sun lufin Capi.sti-aim- Preserving the j'u.vt to Frihunce Ific f•iitterr