The URL can be used to link to this page

Home My WebLink AboutR-84-0423J-84-349 4/5/84 RESOLUTION1 NO. 84-423 A RESOLUTION AUTHORIZING THE CITY MANAGER TO ESTABLISH A POLICY RELATIVE TO THE REQUIRE- MENTS FOR PERFORMANCE BONDS FOR PUBLIC WORKS CONSTRUCTION PROJECTS AND THE PROCUREMENT OF GOODS AND SERVICES. WHEREAS, the State of Florida has enacted Florida Statutes - Chapter 255.05, removing the State imposed requirement for performance bonds for public work contracts under $100,000; and WHEREAS, Section 18-54.4 of the City of Miami Code esta- blished the authority of the Manager to waive performance bond requirements for nonpublic works contracts and purchases; and WHEREAS, the City's electorate approved a charter amendment authorizing certain changes in the City's general purchases procedures which would improve small and; minority business participation in City contracts and procurement; and WHEREAS, the City Manager has concluded that the risks for the City associated with the adoption of the herein policy are manageable and minimal compared to the costs paid indirectly by the City and directly by the small business associated with the retention of the performance bond requirement for contracts and procurement $100,000 or less; NOW, THEREFORE, BE IT RESOLVED BY THE COMMISSION OF THE CITY OF MIAMI, FLORIDA: Section 1. The City Commission hereby adopts the policy that for contracts for the purchase of goods and services of $100,000 or less, no performance bond will be required unless the City Manager determines a unique situation exists placing the City at risk. A performance bond may be required provided that it is so stated in the initial solicitation of bids. Section 2. On contracts for the purchase of goods and services exceeding $100,000, the City Manager shall determine if CITY COMmissI ON - MEE 11111C OF APR 42. c a performance bond is to be required. The amount of bond and type of Fond will. be determined before bids are advertised. The basis of this determination would be industry practices and the degree of risk to the City. Section 3. For public works contracts of $100,000 or less, a performance bond will not be required. Section 4. On public works contracts over $100,000 but not exceeding $1,000,000, the City will agree to a "rollover" type performance bond program. Section 5. On public works contracts exceeding $1,000,000, full performance bonds will be required. PASSED AND ADOPTED this 5th day of April 1984. ATTEST: R4.VPH G . ONGI E City Clerk PREPARED Al�D TiPPROVI"'D BY: .f A7 QUI(JN Joqv, I I I Deputy CiWhttorney Maurice A. Ferre__ MAURICE A. FERRE, Mayor APPROVED AS TO FORM AND CORRECTNESS: r � GARCIA-PEDROSA �/COSE ity Attorney AQJ/wpc/pb/061 84-4233 91 68 CITY OF MIAM1, FLORIDA ( 1 INTER -OFFICE MEMORANDUM { i TO. Honorable Mayor andDATE: January 27, 1984 FILE: Members of the City Commission SUBJECT: Performance Bonds r FROM: Howard V. Gary REFERENCES: City Manager I AW ENCLOSURES: It is recommended that the City Commission adopt the attached resolution establishing a policy j for the requirement for ! performance bonds for all public works contracts and other # contracts for the purchase of goods and services. BACKGROUND: Staff has been working with representatives of minority business associations, technical assistance firms and minority Chamber of Commerce representatives to identify and remove: obstacles which have been continuing impediments to small. and minority business desiring to do business with the City. In reviewing the procurement process, i.t was found that the requirements for the bid bond and the performance bond created problems for small and minority firms. This resolution will deal only with the performance bonds. The bid bond - which is security to guarantee that the lowest bidder will execute a contract with the City - will possibly be the subject of a future resolution. A performance bond is simply a guarantee by a bonding company that the City will not be injured should contractor or vendor not perform the work specified by the contract. A review of the City procurement process and requirements revealed that: 1. There really are only three reasons to require performance bonds: a. It would be very difficult or impossible to have a second contractor complete the effort in the event of default of the original contractor. 84-4z&: b. The effect of the performance bond is to have contractors prequalified by the insurance company as opposed to being prequalified by the City. The insurance company researches the firm to determine potential for success. c. The possibility (threat) that the City may go to the Insurance Company for nonperformance may cause the contractor to perform in a more responsible fashion. 2. Recently, enacted Florida Legislation no longer requires a performance bond for public work construction contracts under $100,000 Florida Statutes -Chapter 255.05). 3. The present performance bond requirements used by the City may be waived by the City Manager (City code Section 18-54.4). 4. Performance bonds may cost as little as 1/2 of 1 percent for a a,c1.1. established firm and as r;:uch as 10 to 15 per°ccnt for high risk firms if in fact the bonding company accepts the account. 5. Public made a concerted effort, to develop smaller contracts in onticipation that minorities would be able to submit bids. That may account for the large number of contracts under $1007000. 6. Last year the City let approximately 23 public works contracts: two (2) exceeded $1 11, six were between $500,000 and $1 11, one (1) between $100,000 and $500,000 and 15 were less than $100,000. 7. Only once in eight years has the City had to call upon the performance bond for a non-public works contract. The average for public works contracts has been two or three per year. In almost all cases the retainage held by the City was sufficient to cover damages. 84-42« RECOMMENDATIONS: On a properly administered contract, either public works or purchase of goods and services, the City is not at significant risk in most cases if a performance bond is not required. This is particularly true where you have frequent inspections and payment is based only upon satisfactorily completed work. Additionally, the standard practices of retaining ten percent of the contract provides additional protection. After reviewing the City's purchasing process, it occurred to me that a unique bonding program for minority vendors may not be necessary for contracts under $1 M. What appears necessary, is a more realistic policy relating to all performance bonds. I recommend the following policies: 1. For contracts under $100,000 to purchase goods and services, no performance bond required of any vendor. Payment for goods services will be made only upon the delivery of said goods and services. There are two major problems with contracts dealing with goods and services: one is a problem of late deliveries and two is the possibility of a significant price increase and the vendor decides not to perform. The bid and subsequent contract should include a provision that late delivery will be sufficient reason to penalize or even cancel the contract. If a vendor decides not to perform, by virtue of the fact that we have a contract we are entitled to remedies through the court system for any damages. The policy should allow that in unique situations, a performance bond may be required provided that it is so stated in the initial bid. 2. On contracts for the purchase of goods and services exceeding $100,000, the City Manager shall determine if a performance bond is to be required. The amount of bond and type of bond will be determined before bids are advertised. Basis of this determination would be industry practices and the degree of risk to the City. 84-423 ' 3. For public works contracts $100,000 and less, a performance bond will not be required. In order to reduce the ' potential risk the City will: ° a. Hold back ten percent of the basic contract until all work is completed � �and auoe t d by the City. b. Provide more frequent inspections of work in progress to insure both quantity and quality of work. C. Require a "release of lien" for all materials purchased under the contract ` prior to being paid for by the City. d. Require contractors to carry a "builders risk" insurance policy protecting materials paid for by the City. 4. On public works contracts over $100`000 ' but less than $1 N` the City will accept a ' "rollover" type performance bond program. ' & rollover type bond is usually written for only the amount that the contractor �can be bonded for which may not be the full amount of the contract. It would ' work as follows: a contractor may be bondable for $200,000 and have a project ` for $400,000. The project would be Ur0beD into two $200,000 contracts and e performance bond would be secured on the first $200,000oontraot. After completing the first $200,000 contract and being accepted by the City, the bond is released ' on this portion of the work and "rollover" to the second $200,000 contract for the project. This requires close monitoring by the City. It establishes a track ' record for contractors to perform as required under o performance bond. �. On public works contracts exceeding $1 M, ` full performance bonds will be required. & contract of this size undoubtedly requires considerable resources and expertise and should be awarded to firms that meet industry standards. To require less may be placing the City at too great a risk. ' ` ^ RESOLUTION NO, A RESOLUTION AUTHORIZING THE CITY MANAGER TO ESTABLISH A POLICY RELATIVE TO THE REQUIREMENTS FOR PERFORMANCE BONDS FOR PUBLIC WORKS CONSTRUCTION PROJECTS AND THE PROCUREMENT OF GOODS AND SERVICES. WHEREAS, the State of Florida has enacted Florida Statutes - Chapter 255.05, removing the State imposed requirement for performance bonds for public work contracts under $100,000; and WHEREAS, the City of Miami Code - Section 18-54.4 established the authority of the Manager to waive performance bond requirements for non-public works contracts and purchases; and WHEREAS, the City's electorate approved a charter amendment authorizing certain changes in the City's general purchases procedures which would improve small and minority business participation in City contracts and procurement; and WHEREAS, the City Manager has concluded that the risks for the City associated with the adoption of this policy are manageable and minimal compared to the costs paid indirectly by the City and directly by the small business associated with the retention of the performance bond requirement for contracts and procurement $100,000 or less. NOW, THEREFORE, BE IT RESOLVED BY THE COMMISSION OF THE CITY OF MIAMI, FLORIDA: Section 1. This Commission hereby adopts the policy that for contracts under $100,000 to purchase goods and services, no performance bond will be required unless the City Manager determines a unique situation exist placing the City at risk. A performance bond may be required provided that it is so stated in the initial bid. Section 2. On contracts for tiie purchase of roods and services exceeding $100,000, the City Manager shall determine if a performance bond is to be required. The r 1 amount of bond and type of bond will be determined before bids are advertised. Basis of this determination would be industry practices and the degree of risk to the City. Section 3. For public works contracts $100,000 and less, a performanc-3 bond will not be required. Section 4. On public works contracts over $100,000 but less than $1 M, the City will agree to a "rollover" type performance bond program. Section 5. On public works contracts exceeding $1 M, full performance bonds will be required. PASSED AND ADOPTED this day 1984. ATTEST: RALPH G. ONGIE, CITY.CLER PREPARED AND APPROVED BY; OBERT F. CLARK DEPUTY CITY ATTORNEY APPROVED AS TO FORM AND CORRECTNESS: OSE R. GARCIA-PEDROSA CITY ATTORNEY MA R CE A. FERRE M A Y O R 84-42,-