Bonds and Agreements Primer

Bonds and Agreements Primer

Fairfax County Customer and Technical Support Center

September 8, 2016Presentation to NAIOP/NVBIA

Projects Recently Held Up Liability follows Developer named in

the agreement Sale of company or property, and

issuance of RUP and Non-RUP does not release development agreement obligations

Developer defined at VA Code § 15.2-851.1

Why require bonds? Protect public

› Ensure public and proffered improvements are constructed according to standards on the plans

› e.g., streets, walkways, streetlights, sanitary sewer, storm drains, trees

Why require bonds? Requirements defined in PFM

Chapter 2-0600: Bonds & Agreements

Bond is returned to the developer when the public and proffered improvements are completed and accepted

Bonds and Agreements Basics

New bonds for construction plans with public improvements› Bond Estimate Review › Bond and Permit Package Approval

Bond release = goal as soon as project is completed and approved

If the project is not completed by the bond expiration date:› Bond extension› Bond reduction› Bond replacementDetails: http

://www.fairfaxcounty.gov/dpwes/construction/bonds

New bonds paperwork Private developer

› Permit package › Development Agreement› Corporate Surety/Letter of Credit/Set Aside

Letter/Cash› Signature authority – organizational documents and

incumbency certificates› Fees

County reviewDetails: http://www.fairfaxcounty.gov/dpwes/construction/bonds

Practical Tip - Timing Any documents submitted by COB Friday

are reviewed prior to and included in the following Wednesday Bond Committee› Unless submittal is found incomplete

County review: Bond Committee› Department of Finance› Office of the County Attorney› LDS

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Extension/Replacement/Reduction

County emails three notices: at 60 days before expiration, at 30 days and at time of Default

Bond reduction allowed when some work complete (at least 30%)

Replacement agreement is required when› Developer changes› Type of Surety changes› New Surety needed because bank has fallen below

rating requirements› Requires the same documents as a new bond

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Customer initiates replacement bond

Customers may request a replacement bond at any time› Sale of property› Change of corporate ownership or

membership

Final Bond Release Process(PFM 2-0603)

http://www.fairfaxcounty.gov/dpwes/publications/pfm/chapter2.pdf All improvements installed and required

approvals/acceptances obtained Developer requests bond release via the county

site inspector and passes final inspection Fairfax County Provides Letter 18 to Developer Fairfax County notifies Outside Agencies

› Seven business days for comment Letter 18 signed by Developer & returned to

Fairfax County Bond Released

Shared Goal: Bond Release Before we can release bonds, approvals from:

› Fairfax County Water Authority› Wastewater› Street Lights› VDOT street acceptance› Urban Forestry› All development related proffers and their associated

agencies› Fire Marshal› Others (e.g., property corner certifications, geotechnical

certifications, permits, violations, etc.) Full list of requirements from PFM 2-0603 :

http://www.fairfaxcounty.gov/dpwes/publications/pfm/chapter2.pdf

Shared Goal: Bond Release

Most common hold ups:› VDOT street acceptance› Proffers/development conditions

› Streetlights – either not installed or payment not received

Defaults (PFM 2-0604)http://www.fairfaxcounty.gov/dpwes/publications/pfm/chapter2.pdf

Remember the emails sent at 60 and again 30 days?› (and again at default?)

If the development agreement expires, project moves into default

Consequences of Default PFM 2-0600 Future agreements may not be

accepted Future bond amounts may be 150% of

engineering estimate Future cash or letter of credit may be

required in lieu of performance bond Hold up permit issuance and

inspections

Per VA Code § 15.2-851.1, developers with prior defaults risk needing to post cash or letter of credit :

If the owner or developer has not met all previous land development obligations in accordance with all development agreements with the locality as determined by the governing body or its designated administrative agency for the previous seven years, then a personal, corporate, or property bond may be disallowed by the governing body as security for such facilities, and in such event, security for such facilities shall be restricted to a certified check, cash escrow, or a letter of credit that meets the requirements of clause (iv) herein.

See also PFM 2-0601.5.

Per VA Code § 15.2-851.1, developers with prior defaults may be required to post 150% construction cost for future developments:

However, if for the previous seven years the owner or developer has not met all previous land development obligations in accordance with all development agreements with the locality as determined by the governing body or its designated administrative agency, the governing body may require that the allowance for estimated administrative costs, inflation, and potential damage to existing roads or utilities be greater than 25% of the estimated construction costs, but not to exceed 50% of the estimated construction costs. “Developer,” as used in this section, means any owner, builder, subdivider or other person or entity engaged in the land development process and shall include their principals, officers, members, managers, partners, alter egos, and members of the immediate family related to any of the foregoing.

Developer Performance – Bond Amount

2-0601.2B (95-06-PFM) The bond amount is the full amount of the cost estimate plus contingencies, engineering costs and inflation. In the event the developer has not met all the previous land development obligations in accordance with all development agreements with Fairfax County for the previous seven years, then the bond amount should include the cost estimate plus a factor of 50 percent of the estimate to cover administrative costs, inflation, and potential damage to existing roads or utilities.

Importance of Bond Release Avoid difficulties with your future

agreements – obtain bond release Street acceptance most frequent

hurdle NVBIA/NAIOP/Fairfax County/VDOT

committee› Joint inspection process› Better results

Joint Inspections County inspector and technical specialist VDOT inspector Owner/developer and optionally their

contractor performing work onsite Held after owner/developer submits post-

construction package› Submit to county inspector with public street

inspection guideline checklist› County forwards to VDOT› VDOT contacts county staff with inspection

date/time

Past Example Photos Conditions are site specific These are just examples – ultimately

the approving authority (e.g., VDOT) determines the final punch list› Joint inspection has helped speed this up

Your bond release can be held up because of details missed at construction

Not ok - severely exposed aggregate on top of curb. Also, no cracks are acceptable – hairline or otherwise, in header curb or gutter pan.

OK – Minor chips to curb and gutter is acceptable if damage is localized.

Storm drain structure opening too wide: safety hazard. Not OK.

Variable width

sidewalk, not ok

Minor damage to gutter pan, ok if proper seal obtained when asphalt topping is applied. No severe chipping into gutter pan.

Streets Degrade Over Time Proceed with street dedication before

wear and tear Failure to achieve street dedication

may require future milling and paving

Questions?

For more information http://www.fairfaxcounty.gov/dpwes/co

nstruction/bonds/ Most common errors:

http://www.fairfaxcounty.gov/dpwes/construction/bonds/common-errors.htm

Development agreement: http://www.fairfaxcounty.gov/dpwes/forms/developmentagreement.pdf

For more information Bonds and Agreements Center

› Hallala Faraj, Chief› 703-324-1519› hallala.faraj@fairfaxcounty.gov

Site and Technical Services› Kenneth Williams, Chief› 703-324-1757› kenneth.williams@fairfaxcounty.gov

Customer and Technical Support Center› Ellie Codding, Chief› 703-324-1695› eleanor.codding@fairfaxcounty.gov