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 $800,000 in pledges due in over the next 12 months. Obviously their
funding is well in excess of the project.
I respectfully request that the City work with us in this regard. I am enclosing copies of the
Varkel contract, and our management agreement for your consideration.
Sincerely,
Ken Friess
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August 17. 1999
Mr Jim Williams, Executive Director
Boys and Girls Club of Capistrano Valley
31371 EI Camino Real
San Juan Capistrano, CA 92675
Re: tetter Agreement/Waiving of bond Requirements
Under City/Club Lease Agreement
Dear Mr. Williams.
This letter agreement addresses the request of the Boys and Girls Club of Capistrano
Valley(the "Club")that the City Council waive the bonding requirements of section 8 of the
lease agreement dated June 1. 1999, between the City and the Club(the "Agreement")
The City agrees to waive the bonding requirements of section 8 of the Agreement providing
that the Club agrees in its implementation of section 3 of the Agreement to first obtain
written approval of the City Manager, George Scarborough, before proceeding to draw
down on any of the Club's previously approved loan from American Sterling Bank (aka
National Sterling Bank.) This commitment 7s further subject to the City Council's
ratification of this letter agreement.
Accordingly, please have your legally authorized representative execute the below-stated
acknowledgment.
Vyo s.
JFAr
Cney
as legally authorized representative of the 13oys and
Girls Club of Capistrano Valley (the "Club') hereby, on behalf of the Club, agree that the
Club shall fir$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,—
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