Loading...
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. () ,) g. I'd ,..... 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: ç /~~/ Stan Karwowski Manager, Finance & Taxation c--~-·<:;;;;ç~:~.;· :~~:"..;~ Gillis A. Paterson Director, Corporate Services & Treasurer GAP:sk Attachment Copy: Chief Administrative Officer Recommended for the consideration of Pickering Cit Co cil ," of ATTACHMENT #-1- TO REPORT#Q.}\/....O( Schedule A Revision to the City's Subdivision Agreement .) ") ;',) I.- J I 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; ;;3 ... í" t (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. .'J 3" (. II. ,." (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.