BY COUNCILOR STAUBER:
RESOLVED, that the proper city officials are authorized to enter into an agreement substantially in the form of that on file in the office of the city clerk as Public Document No. __________ with Northland Constructors of Duluth, LLC, and M&I Marshall & Ilsley Bank for the deposit and payment of funds held in escrow in lieu of retainage on construction contracts as provided for in Minnesota Statutes Section 15.73.
STATEMENT OF PURPOSE: The purpose of this resolution is to authorize the city to enter into an agreement with Northland Constructors of Duluth, LLC, and M&I Marshall & Ilsley Bank to provide for the deposit, the investment and the payment of funds to provide protection to the city in lieu of holding retainage on contracts for construction work between the city and Northland.
Historically, public construction contracts have provided for the public to pay only 95 percent of any request for payment on a job until it was certified as complete, at which time the remaining five percent was paid. In large projects involving extended periods of performance, this could result in the public agency holding the retained amount (the retainage) for an extended period of time during which the contractor lost the time-value of that money.
The legislature passed Minnesota Statues Section 15.73 which permitted the contractor, as an alternative, to deposit funds with a bank for investment in safe investments which the contracting agency could draw upon in the event of non-performance under the contract which would have otherwise justified taking the retainage and required, if the contractor chose to do this, that the public contracting agency had to pay out the retainage to the contractor. The contractor also benefitted in that it was also the beneficiary of any earning on the investments held by the bank in escrow.
Northland had previously had such an arrangement with the bank and the city but wished to change banks. Also, because of the volume of business done with Northland, it became obvious that an arrangement which allowed investment account to vary with the amount of retainage outstanding at any time would be to Northland’s and the city’s advantage. The agreement to be approved pursuant to this resolution would require that the amount in the investment account be at least equal to the amount of retainage the city would have been entitled to hold under the various construction contracts outstanding at any time and provides that funds can only be withdrawn with the approval of the city treasurer.