Report to Carson Reclamation Authority
Tuesday, June 04, 2019
Discussion
SUBJECT:
Title
CONSIDER AMENDED AND RESTATED ENVIRONMENTAL REMEDIATION AND DEVELOPMENT MANAGEMENT AGREEMENT WITH RE|SOLUTIONS, LLC, A COLORADO LIMITED LIABILITY COMPANY (“RES”)
Body
I. SUMMARY
This Amended and Restated Environmental Remediation and Development Management Agreement (“Agreement”) is by and between the Carson Reclamation Authority, a joint powers authority formed under the laws of the State of California (“CRA”), and RE|SOLUTIONS, LLC, a Colorado limited liability company (“RES”). This Agreement amends and restates in its entirety the previous Environmental Remediation and Development Management Agreement, dated as of July 26, 2017 between the CRA and RES as amended by Amendment No. 1 dated December 13, 2017, Amendment No. 2 dated August 21, 2018, and Amendment No. 3 approved September 4, 2018 (as amended, the “Original Agreement”). It was felt a new, clean Amended and Restated Agreement would be better for tracking and monitoring the Agreement going forward.
Most of the changes to the Original Agreement were in the nature of formatting and making certain sections internally consistent with one another. However, there were revisions to sections of the Minimum Monthly Fee Credit, the Incentive Payment, and Project Completion Fees. The Agreement also contains new, more specific language on reporting RES’ staffing levels (Section 5.01(d)), as well as RES’ contracting requirements for when it contracts with its subcontractors, as well as the process of approving or amending contracts (Sections 5.06(b) and (c)).
II. RECOMMENDATION
Recommendation
1. APPROVE the Amended and Restated Environmental Remediation and Development Management Agreement with RE|Solutions, LLC; and
2. AUTHORIZE the Chairman to execute all documents related to this Amendment.
Body
III. ALTERNATIVES
Take another action the Board deems appropriate.
IV. BACKGROUND
CRA and RES entered into an Environmental Remediation and Development Management Agreement dated July 26, 2017 (“Original Agreement”) under which RES agreed to provide environmental and development management services related to Cal Compact Landfill project. The First Amendment was approved January 10, 2018 to change the RES Master Account used for making payments to RES; on May 8, 2018 the Second Amendment was approved to amend Section 5.04 (i)(iii) (Insurance Management) and Section 5.12 related to the liability specifically arising from Pile Design, and other insurance requirements; and, on September 4, 2018 Amendment No. 3 was approved to extend the Minimum Monthly Payment paid to RES up to 16 months from the commencement of the contract, from the original 12 months, in order to preserve staff levels during an unanticipated delay in the commencement of the grading and construction work of the project where the Services Fees, which is the primary source of funding in the contract, will be adequate to cover the contractor’s management costs in undertaking this project.
As anticipated in September, this Agreement amends and restates in its entirety the Original Agreement. Since the Original Agreement had three Amendments, it was felt a new, clean Amended and Restated Agreement would be better for tracking and monitoring the Agreement going forward.
Most of the changes to the Original Agreement were in the nature of formatting and making certain sections internally consistent with one another. However, there were revisions to sections of the Minimum Monthly Fee Credit, the Incentive Payment, and Project Completion Fees. The Agreement also contains new, more specific language on reporting RES’ staffing levels (Section 5.01(d)), as well as RES’ contracting requirements for when it contracts with its subcontractors, as well as the process of approving or amending contracts (Sections 5.06(b) and (c)).
The Agreement streamlines the reporting by RES, especially as it relates to the project’s costs and financial considerations. RES already provides the CRA a 60 day rolling budget every 30 days, which shows the anticipated project expenditures for the next month and the month after that, and which has a reconciliation of each “next month” costs against its anticipated costs from the previous month (Section 5.05(e)). In addition, RES will now prepare a Global Sources and Uses report (Section 6.01) totaling all of the estimated and incurred costs, revenue sources, and available funds for the remainder of the project.
Changes in budgeted costs are often a reflection of changes in the project schedule, as tasks move to the following month. The Project Schedule is updated each month by Cambridge Construction Management, which is the project management firm jointly hired by the CRA and CAM-Carson to manage the overall project schedule.
That schedule provides for completion of the liner installation on Cell 2 on November 29, 2019. Site Development improvements on Cell 2 are scheduled for completion on March 6, 2020 and off-site improvements are scheduled for completion on April 2, 2020.
Incentive Fee
One change to the Agreement resolved an outstanding issue regarding the Incentive Fee, which was part of the Original Agreement. The Incentive Fee was similar to incentive fees in standard construction contracts, which pays the contractor a bonus based on timely performance of the contract. The problem with an Incentive Fee based on timely performance of this overall development (and not a specific construction task) is that ultimate control of the schedule did/does not rest with the contractor, RES, but was subject to the status of negotiations between CAM-Carson and the CRA; this schedule was delayed by about a year due to extra time needed on the EIR and the later addition of Simon to the partnership. To hold the contractor to an incentive date that they did not control was not in the spirit of the agreement. The CRA now approves schedule modifications developed by Cambridge, and as an alternative, the idea was to tie the Incentive Payment to performance under the modified schedule. However, this presented a similar but opposite problem - that an incentive for timely performance would instead be tied to a schedule that was continually being modified based on circumstances in the field felt less like a timely incentive fee and more like a completion fee, which exists in the contract in another section. As a result, the Incentive Fee was reduced by $450,000 and the same amount was added to the Completion Fee in $150,000 increments, based on the completion of Cell 2, Cell 1, and Cells 3, 4 and 5.
The Project Completion Fees are paid based on milestones, defined as the completion of Cell 2, Cell 1, and Cells 3, 4, and 5. The Agreement contains a more specific definition of completion and anticipated dates for Cell 2.
Minimum Monthly Fee Credit
Because the primary form of RES’ compensation is the “Services Fee” described in Section 4.06, calculated as a markup of 5% on subcontracted work, the minimum staffing required of RES to undertake all of the pre-development work pursuant to the Agreement is far in excess of the monthly Service Fees, which resulted in a negotiated Minimum Monthly Fee (“MMF”) described in Section 4.05, of $110,000 per month. All RES staffing costs were to be paid from the MMF. Contractually, the MMF was originally intended to be for no more than twelve months, during which the substantial construction work (grading, waste consolidation, infrastructure and pile installation) would have begun, generating sufficient Services Fees to eliminate the need to continue the MMF, though the parties expected heavy construction to start in February, 2018, a significantly shorter period than twelve months.
As illustration, the development schedule in place at the time of the Original Agreement had the Cell 2 project (the Fashion Outlets of Los Angeles) and the District at South Bay Specific Plan approved by the Planning Commission in November 2017 and City Council in December 2018. Therefore, construction, including grading and waste consolidation, would have commenced in February, 2018 and pile fabrication would have commenced in March 2018. Because of delays outside the control of RES (namely, completing the Conveyancing Agreement with Macerich and the later addition of Simon Property Group to the Project), substantial grading commenced in November, 2018 along with the Indicator Pile Program, which was a test installation of 26 piles intended to provide information about the reliability of the waste-depth mapping data, as well as on the effectiveness of the pile boring/hammering techniques and equipment.
The indicator test pile program did reveal an issue with compacted sand under certain parts of Block A of Cell 2, which led to “refusal” on a significant enough number of piles to force a redesign - and reapproval through DTSC - of the piles and the pile drilling techniques in the event the contractors encountered refusal, causing about a 60 day delay in pile installation. Refusal means a pile is left sticking out of the ground at a height greater than the allowed distance to cut off. The issues were resolved and pile production and installation commenced in April, 2019.
Further, grading and waste consolidation activity was slowed due to record rainfall this year.
RES and CRA completed an audit of the MMF paid under the Original Agreement and the Services Fee that would have accrued to RES between July 26, 2017 and February 1, 2019 had RES been entitled to earn a Services Fee for the Contractor Costs performing the RES Work during the period. The difference between the total MMF paid to RES and the Services Fees that RES would have otherwise earned during the MMF Credit Period constituted the “Total MMF Credit Amount” (which amount is equal to $1,035,076).
This Amendment now provides (Section 4.07) that commencing on March 1, 2019, an amount equal to one-half of the Total MMF Credit Amount (the “MMF Credit”) (i.e., $517,538) shall be deducted from the Services Fees payable to RES, which MMF Credit shall be deducted from the monthly Services Fee otherwise payable from the CRA to RES; provided however, in no event shall such deduction cause any monthly payment to RES to be less than $110,000. Such deductions of the Services Fee commenced on March 1, 2019 and shall continue until the amount of the MMF Credit is credited to CRA in full.
RES Subcontractors
Section 5.06 covers the bidding and hiring of subcontractors by RES. As the CRA’s Horizontal Master Developer, RES is responsible for the operation and maintenance (O&M) of the Site on the CRA’s behalf, as well as the design, preconstruction and construction activity (RES Work). Below are the O&M cost categories and the subcontractors currently under contract with RES and a description of the service the subcontractor provides. The O&M is mostly performed by TRC, under contract to RES, as well as other direct subcontractors to RES, such as that providing site security, and landscaping, weed abatement and vector abatement services.
O&M Cost Categories
1. Routine Site Management Services
2. Site Security
3. Site Maintenance
4. Routine Landfill Cap O&M
5. Routine Perimeter Air Monitoring
6. Weed and Vector Abatement Services
7. Storm Water Pollution Prevention Monitoring
8. Routine O&M of GCCS (including Rule 1150.1 Monitoring)
9. Storage Yard Maintenance
10. Routine Groundwater Extraction System O&M
11. Routine Groundwater Monitoring
Below are the subcontractors currently under contract with RES and a description of the service the subcontractor provides.
• TRC Solutions, Inc. (environmental engineering and environmental general contracting)
• SL Carson Builders, LLC (civil general contracting)
• Leighton Consulting, Inc. (geotechnical engineering)
• Cambridge CM, Inc. (project scheduling)
• Cummings Curley and Associates, Inc. (landscape architecture)
• Nadel Studio One (architectural feasibility studies)
• KPFF (structural engineering)
• Michael Baker International, Inc. (civil engineering)
• Casitas Security and Securitas Security Services USA, Inc. (site security)
• B&D Construction and Mayfield Enterprises, Inc. (site maintenance/stormwater management)
• DIRTONU, Inc./Murow CM (dry utility consulting)
• TER International, LLC (noise/vibration monitoring)
• Twining Consulting, Inc. (materials testing and deputy building inspections)
• Cumming Construction Management, Inc. (budget and schedule analysis)
• Labor Compliance Management (prevailing wage reporting and compliance)
• Mayfield Enterprises, Inc. (landscaping)
V. FISCAL IMPACT
Most of the changes to the Original Agreement do not have a fiscal impact to the CRA. However, the change to the MMF credit would reduce the amount that RES would require to “pay back” to the CRA by $517,538, largely attributable to delays in the development project entitlement and negotiation, which were outside their control or the scope of the RES contract.
The same dollar amount (cumulatively) is deducted from their monthly fees for the next several months until the obligation is retired.
VI. EXHIBITS
1. Amended and Restated Environmental Remediation and Development Management Agreement
1.
Prepared by: John S. Raymond, Executive Director