CR 88-100 Pledge Securities Lunda Construction
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1988 P 1\ \
1 J Council Report: 8B-l00
PLEDGE &. ASSIGNMENT OF SECURITIES
IN LIEU OF RETAINAGE
LUNDA CONSTRUCTION COMPANY .~
Proposed .lotion.
Staft reoommends adoption of' the following motion: Move ~at::. the Kayor
and Manager be authorized to sign an agreement for the Pledge and
Assignm.ent or Securities in Lieu of RetainaRe for the oonstru~t1on ot
the railroad viaduct bridge on 11th Avenue South.
This action will accept the 86curity of an eecro.. account in lieu ot
normal reta1nage during construction of t.he viaduct bridge on 11 tb
Avenue South.
OverYiew.
State law and the City contract with Lunda Construction Company allows
the retainage of up to 5J of' the contract amount, or $63.007.43. as
~ .ecurlty tor the perform.nce of Lucda and the paymact of 11ens and
..' subcontractors and tel' other purposes.
Lunda wishes to substitute securities as allowed for in Minnesota
Sta.tutes, Section 15.73 in return for the release of the retainage.
Primary Issues to Consider.
0 Will this establish an undesirable prectdent?
0 Should the City enter into the agreement?
0 Have adequate funds been deposited?
Supporting Information.
0 Proposed Agreemez:tt
0 Comments from City Attorney
0 Copy of Minn statute Section 15.73
0 Copy of deposit receipt from escrow agency
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rdon P. Ander80n
irector of Engineering
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. Council Report: 88-100
Page 2
Baokgr'ound.
On each contract the City has with construction contractors, a clause
1s added that allows the City to l'e tain 5~ of each payment to j nsure
good performance and the payment of 11en$ and aubcontracto1":S and Cor'
otller purposes. Tbese retained amQUnt3 are kept until the project is
completed satisfactorily after which they are forwarded to the
contractor.
Minnesota Statutes, Section 15.73 allows the contractor, at the
cont.ractors option, to substitute certain securities in return for the
release of retained funds or for not retaining funds. These
se'tlllr1ties must be agreed to and must be deposited with a third party
that. acts as an escrow agent until the release of these funds by the
Cl t 'I .
The ef'fect of this statute allows the contractor to get interest on
the money as it. is earned instead of leaving it in the City treasury
until the project is completed.
Allalysis.
- Will this establish an undesirable precident?
The City bas not been asked to enter into such an agreement on any
preVious contracts. Subdivision of the statute states that this 1s at
the option of tb~ contractor so the City may only control the terms or
securities deposited.
- Should the City enter into the agreement?
The statute states that this is at the opt.ion of the contractor. The
City Attorney has examined the agreement and finds it reasonable in
ita' terms.
- Have adequate funds been deposited?
On Nay 18. 1988, Lunda Construction Company purChased a $70,000 u.s.
Treasury Bill and depo~ited it with the National Exchange Bank & Tt"ust
COllI' any of Fond Du Lac, Wisconsin, Escrow Agency. This amount is more
tnan 5% of the total contract price for the bridge construction and
places th~ total retainage under Ci t,y control for the length of the
contract and until released by the City Manager upon completion of the
project.
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. Council Report: 88-100
Page 3
Alte-rnatlves.
1 . Authorize the Hayor and Manager to sign the proposttd
agreement. If this agreement 1s executedp no amounts
will be retained from periodic payments.
2. Request additional information regarding the agreement,
This action will require that the normal retainage be
kept from periodic payments until an agreement Is signed.
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BRIDGES PIlE DRIVING DAMS
May 20. 1988
City of Hopkins
1010 First Street South
Hopkins. MN 55343
Dear Mr. Anderson:
Enclosed is the signed Escrow Agreement with the City of Hopkins. Please
. approach the City Council for approval and execution. Return one copy to
Lunda Construction Company and one copy to the National Exchallge Bank.
thank you in advance; for your cooperation.
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Very truly youra.
LUNDA CONSTRUCTION COMPANY
W ;
CARL mIXlU~
CONTROLLER
CH:lf
\:c: Lunda Construction Company - Minneapolis Office
Job File M802
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AGREEMENT FOR THE
. PLEDGE AND ASSIGNMENT OF SECURITIES
IN LIEU OF RETAINAGE
This Agreement is made this 18th day of May 1 1988, by
and between the City of Hopkins ("City") and Lunda COl1struction Company
("Lunda"). and the National Exchange Bank & Trust of Fond dll Lac, Wisconsin
("Escrow Agent").
WHEREAS, Lunda has contracted with the City for the construction of a
Railroad Viaduct Bridge at 11th Avenue South in the City of Hopkins, Minnesota
SAP 132-346-10, Lunda Job #M802; and
WHEREASt pursuant to Paragraph 5.1.1 of the General Specifications of the
Construction Contract letween the City and Lunda, the City may retain up to 5%
. of the c~ntract amount. or $63.007.43, as security for the performance of
Lunda and the payment of liens and subcontractors and for other purposes; and
WHEREAS. Minn. Stat.t Section 15.73 permits Lunda to substitute certain
securities in return for the release of such retained funds; and
WHEREAS. Lunda wishes to substitute the securities listed in Exhibit A.
attacheti hereto (lithe Se~uritiesn). for the $63.007.43 of retainage in the
present case; and
WHEREAS. the National Exchange Bank & Trust of Fond du Lac. Wisconsin
C"Excrow Agent") has agreed to act as an excrow agent for receipt and handling
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of the Securities; and
WHEREAS, the parties by this Agreement intend to define the method by <l
which" the Securities shall be substituted and handled;
NOW. THEREFORE. the parties hereto agree as follows:
. (1) The City further agrees that no retainage shall occur for the
duration of the Contract.
(2) The Escrow Agent agrees to handle and dispose of the Securities and
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. any proceeds from the sale of the Securities in accordance with the provisions
of this Agreement.
(3) In consideration for the r~lease of the Retainage Funds by the City
and its waiver of further retainage, and for the purpose of replacing said
Retainage Funds as the City's security and as its guarantee of performance by
Lunda. Lunda agrees:
(a) That it will purchase Securities qualifying under Minn. Stat.
Section 15.73 with a par value and present market value E.qual to or greater
than $63,OO7.4J. which Securities are listed on Exhibit A. attached hereto
(the "Securities"); and
(b) That it will place the Securities in the possession and control
of the Escrow Agent; and
:. (c) That it will undertake and cooperate ~~th any additional
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measures and actions necessary to effect the assignment and transfer of the
Securities or sale proceeds to the City.
Cd) That it will undertake and cooperate with any additional
measures and actions necessary to effect the assignment and transfer of the
Securities or sale proceeds to the City.
(4) Once in possession of the Securities, the Excrow Agent shall retsin
them until directed otherwise by the City, acting through its City Manager.
In the event that the Securities mature prior to the receipt of further
direction form the City, the Excrow Agent shall take the cash proceeds from the
mature Securities (both principal and interest) and deposit them in an interest-
bearing account which shall be subject to the liquidation and transfer
provisions of this agreement.
. (5) In the event that circumstances arise which would have permitted the
City under the Construction Contract and specifications to utilize the
Retainage Funds to cure Lunda's performance, the City, by its City Manager.
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