HomeMy WebLinkAboutCS 34-06
REPORT TO
EXECUTIVE COMMITTEE
Report Number: CS 34-06
Date: June 26, 2006
From:
Gillis A. Paterson
Director, Corporate Services & Treasurer
Subject:
Adoption of Pay Assurance
Recommendation:
1. It is recommended that Report CS 34-06 of the Director, Corporate Services &
Treasurer be received;
2. That the City of Pickering amend its standard Subdivision Agreement to include the
Pay Assurance provisions as outlined in Schedule "A" and any other changes as
deemed necessary by the City Solicitor and the Director, Corporate Services &
Treasurer;
3. That the City Clerk advise the Ontario Sewer and Watermain Construction
Association and the Ontario Urban Development Institute (UDI) that the City has
agreed to include Pay Assurance provisions in the City's Subdivision Agreements;
and,
4. That the appropriate officials of the City of Pickering be authorized to take the
necessary action to give effect hereto.
Executive Summary: At the December 5, 2005 City Council meeting, Mr. Steve
Mahoney made a presentation regarding the benefits of the pay assurance program.
This program is designed to protect "Prime Contractors" who undertake work for
"Developers" where the developers either do not payor are substantially late in making
their payments. Under the pay assurance plan, the prime contractors would be able to
be paid by the City drawing on the Letter of Credit provided by the developer.
Council referred the matter to the Director, Corporate Services & Treasurer to review
and report back on this matter. The Director met with appropriate City staff and Mr.
Mahoney and also reviewed other reports and agreements from other municipalities.
Financial Implications: Not Applicable
Report CS 34-06
Date: June 26, 2006
;;~28
Subject: Adoption of Pay Assurance
Page 2
Background: Mr. Steve Mahoney made a presentation to Council on December 5,
2005 regarding the benefits of the "Pay Assurance" program and Council passed
Resolution 216/05 which states in part:
"2. That the City of Pickering endorse the concept of Pay Assurance, in principle;
and
3. That the Director, Corporate Services & Treasurer report back to Council on
Pay Assurance once staff has met with representatives of the program."
The Pay Assurance program proposes to amend the City's current subdivision
agreement by attaching clauses that would require the City to pay the sewer and
watermain contractor if the developer defaults on paying the contractor. The amended
subdivision agreement would permit the City to draw on the Letter of Credit as provided
by the developer under certain rules and conditions. Currently the sewer and
watermain contractors have limited recourse should a developer not pay for complete
and acceptable work. Under this scenario, when a developer fails to pay, the City still
derives the benefit of a completed municipal service, the developer is still able to sell
new products or homes; yet the sewer and watermain contractor who built the essential
services which assists in the construction of the new subdivision receives nothing.
Ontario Sewer and Watermain Construction Association (OSWCA) members are the
prime service contractors who work on either public right of way (roads) or what will
soon become public right of way property. If the developer does not pay the contractor
for his work, the contractor can sue the developer. Unfortunately, the Construction Lien
Act, does not provide the same level of protection to these contractors as compared to
other contractors because liens cannot be attached to public roads.
In order to avoid the "non-payment or late payment" scenario, legal conditions would be
added to the City's standard Subdivision Agreement which would provide for payment
to the prime contractor if the developer fails to pay. Under the City's revised subdivision
agreement, prime contractors would seek payment for their services by having the City
draw on the Letter of Credit provided by the developer. Any payment to a contractor
would be subject to a $3,000 administrative fee per payment. In addition, City staff will
review the administration fee on an annual basis to ensure that the City's costs are
recovered especially with potentially large development projects on the horizon. The
$3,000 administrative fee will be listed in the City's annual user fee guide starting in
2007.
How will Pay Assurance Work? - (The Basics)
1. Prime Contractor delivers to the City, proof that it has invoiced the developer and
that the invoice is still outstanding after 91 days.
2. The developers' consulting engineer certifies that the work is being invoiced by the
contractor has been completed satisfactorily.
3. The prime contractor signs and releases the City from all potential claims.
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Report CS 34-06
Date: June 26, 2006
Subject: Adoption of Pay Assurance
Page 3
4. The developer signs and releases the City from all potential claims
5. The City draws on the "Letter of Credit" and puts the funds into escrow.
6. The City pays the monies out of escrow in accordance with the final award under
the Arbitration Act.
In addition, no payment will be considered to the prime contractor, unless the claim
being considered is at least $25,000.
Revision to the City's Standard Subdivision AQreement
Schedule A includes the proposed new wording to be added to the City's standard
subdivision agreement. The proposed wording has been reviewed by the Director,
Planning & Development and the City Solicitor. They concur with the direction being
taken by the City.
Attachments:
1. Schedule A - Pay Assurance Provisions
Prepared By:
Approved I Endorsed By:
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Stan Karwowski
Manager, Finance & Taxation
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Gillis A. Paterson
Director, Corporate Services & Treasurer
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Attachment
Copy: Chief Administrative Officer
Recommended for the consideration of
Pickering Cit Co cil
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ATTACHMENT #-1- TO REPORT#Q.}\/....O(
Schedule A
Revision to the City's Subdivision Agreement
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PAY ASSURANCE
(1) In this section,
(a) "Prime Contract" means a direct contract with the Owner for the
construction of any of the Works; and
(b) "Prime Contractor" means the party contracting with the Owner under
a Prime Contract.
(2) Where a Prime Contractor notifies the City in writing that monies are
payable in relation to any of the works identified in a Prime Contract, the
City is hereby authorized to draw upon the securities posted by the Owner
under this Agreement and place such funds in escrow provided,
(a) the Owner has notified the City in writing of the name of the Prime
Contractor prior to the commencement of construction;
(b) the Prime Contractor operates at arm's length from the Owner and is
not otherwise under the control of the Owner;
(c) the Owner has posted security in accordance with this Agreement;
(d) the Prime Contractor has delivered to the City a true copy of its invoice
addressed to the Owner for payment under the Prime Contract;
(e) payment of the invoice has been outstanding for a period of at least
ninety-one (91) calendar days or such longer period of time as may be
set out for payment in the Prime Contract;
(f) the Owner's Consulting Engineer has certified,
(i) that the work invoiced to the Owner by the Prime Contractor for
which payment is sought has been completed satisfactorily in
accordance with the Owner's obligations under this Agreement;
(ii) the date upon which the Prime Contractor's invoice became due
and payable under the Prime Contract; and
(iii) that the Prime Contractor has performed all of its obligations
under the Prime Contract;
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(g) the Prime Contractor has delivered to the City proof that it has made a
written demand for payment to the Owner to which the Owner has not
responded for a period of at least thirty (30) days and beyond the
ninety-one day (91) day period set out in (e) above; and
(h) the Prime Contractor has executed a Release and Indemnity in a form
satisfactory to the City, releasing the City from any and all claims the
Prime Contractor may have against the City and indemnifying the City
against any and all claims for loss arising from any source whatsoever
resulting from the City's payment into escrow and agreement to be
bound by the dispute resolution process under the Arbitration Act,
S.O. 1991, c. 17, as amended.
(3) The City shall not process a payment in favour of the Prime Contractor
unless the amount claimed is at least twenty-five thousand dollars ($25,
000.00).
(4) The City shall be entitled to reimbursement of its administrative costs which
shall be deducted from each payment processed in favour of the Prime
Contractor in the amount of $3,000.00.
(5) The Owner shall not make any claims against the City and hereby releases
and agrees to indemnify the City of and from any claims arising from the
release of any funds drawn from the security posted by the Owner or as a
result of any action taken under this section.
(6) Under no circumstances shall the City be obliged to drawn down and pay
the full amount of security it holds under this Agreement. For greater
certainty, the City shall not be left with less than one hundred per cent
(100%) of the value of uncompleted Works plus twenty per cent (20%) of
the value of all completed Works.
(7) If the City makes payments to the Prime Contractor in accordance with this
Agreement, the works for which the Prime Contractor receives payment
from the City out of the Owner's security shall be credited toward the
Owner's obligations under this Agreement less ten per cent (10%) on
account of maintenance and less applicable administrative charges (as
outlined in subsection (4).
(8) The procedure set out in this section shall have no application in cases
where the installation of the Works is done prior to execution of this
Agreement.
(9) The Owner shall make explicit reference to these pay assurance provisions
in any Prime Contract.
(10) The City shall have no obligation to pay the Prime Contractor except in
accordance with this section.
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(11) If for any reason the City has released securities or is unable to cash or
access the Letter of Credit, there shall be no claim against the City
available to a Prime Contractor.
(12) The disputed payment under the Prime Contract shall be submitted to
arbitration pursuant to the Arbitration Act, S.O. 1991, c.17, as amended.
(13) The City shall pay monies out of escrow in accordance with the final award
under the Arbitration Act, S.O. 1991, c.17, as amended.