Management Report and Recommendations 12/31/1992

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City of Lino Lakes, Minnesota Management Report, Page 35 During 1992, the City entered into an agreement with Arcon Construction for the payment of retainage in accordance with MS 15.73 for the Brandywood Estates, White Tail Ridge and Reshanau Lake Trunk Improvements. MS 15.73 reads as follows: 15.73 ALTERNATIVE FORM OF RETAINAGE. Subdivision 1. At the option of the contractor, retainage shall be paid to the contractor in accordance with this section. Subdivision 2. The contractor may deposit bonds or securities with the public contracting agency or in any bank or trust company to be held in lieu of cash retainage for the benefit of the public contracting agency. In that event the public agency shall reduce the retainage in an amount equal to the value of the bonds and securities and pay the amount of the reduction to the contractor. Interest on the bonds or securities shall be payable to the contractor as it accrues. Subdivision 3. Bonds and securities deposited or acquired in lieu of retainage, as permitted by subdivision 2, shall be of a character approved by the state treasurer, including but not limited to: a) Bills, certificates, notes or bonds of the United States; b) Other obligations of the United States or its agencies; c) Obligations of any corporation wholly owned by the federal government; or d) Indebtedness of the Federal National Mortgage Association. Subdivision 4. If the public agency incurs additional costs as a result of the exercise of the option described in this section, the agency may recover the costs from the contractor by reducing the final payment due under the contract. As work on the contract progresses, the agency shall, upon demand, inform the contractor of all accrued costs. The purpose of this agreement is to reduce the amounts retained on progress payments to the contractor and provide assurance to the City that the project will be completed. The escrow agreement dated March 4, 1992 requires the contractor to deposit cash with the escrow agent to be held in lieu of cash retainage. However, the City, instead of the contractor, deposited $100,000 with the escrow agent. This does not appear to be in compliance with the escrow agreement. We recommend the City resolve this situation. Industrial Park Construction This fund was established in 1992 to account for construction costs in developing the City's industrial park. During 1992 the City transferred $1,298 from the Industrial Park Construction Fund to the Interim Construction Fund for reimbursement of prior years' costs. The City expects to finance these improvements through the sale of property within the park and the adoption of assessments.