Memorandum

City of Lawrence

Public Works

 

TO:

Mayor and City Commission

FROM:

David L. Corliss, City Manager

DATE:

December 2, 2014

RE:

Final Infrastructure Payment / Assists Foundation Donation

 

On November 25, 2014, the City Commission approved the claim payment to RCP, LLC in the amount of $10,359,633.23 for the shared infrastructure payment pursuant to the Rock Chalk Park development agreement.  Pursuant to the terms of the Development Agreement, the City is only required to pay an additional $92,970.77 in City funds.   The Development Agreement also requires that for approved shared infrastructure expenses, the City shall pay funds received from the Douglas County Community Foundation from the Assists Foundation.   The City received the transfer of $1 million of Assists Foundation donation from the Douglas County Community Foundation today, December 2, 2014.  This means, that with both City funds and DCCF/Assists Foundation funds, the remaining expenditure will not exceed $1,092,970.77 – which is the remaining funds that the City is contractually obligated to pay with either City funds or Assists Foundation donation funds (see attached memo on partial payment of on 11/25).

 

Staff has reviewed the remaining expense requests from RCP, LLC:

 

Item

Amount Requested            

Original Estimate in Development Agreement

Legal  Fees                                 

212,535.81*

167,836.00

Loan Origination Fee               

158,643.75   

150,000.00

Loan Interest                              

449,081.54

309,515.00

 

Professional Eng. Fees            

555,198.70

525,000.00

TOTAL

$1,375.459.80

$1,152,351.00

 

Total City is obligated to pay is up to $1,092,970.77 

 

*Mr. Frizell, Polsinelli attorney representing Bliss Sports II, clarified in a letter to RCP that $23,109.61 of the total initially requested legal fees (leaving a balance of $189,426.20) was incurred while a different site was still being considered for Rock Chalk Park.  Although in his view the fees still were “soft costs” as defined in the Development Agreement he has indicated that portion of his total billings “arguably” did not directly or indirectly contribute to the final transaction on the ultimate site and therefore could be considered separately from the remaining $189,426.20.

 

RCP, LLC has provided documentation on these expenses.  See attached. RCP says it does not have, and therefore cannot provide, itemized billing for the legal fees and the professional fees.  However, RCP has provided follow up supporting documentation from the law firm and architect providing additional background support for the fee amounts.  Additionally, RCP has reviewed these amounts and has obtained affidavits supporting the validity of the engineering and inspection expenditures.

 

City staff has also reviewed the supporting documentation for the remaining expenditure items.  Without doubting that these expenses were incurred on the project, it is appropriate to modify the amount the City should be required to pay based on when these expenses were incurred.  Specifically, it is not appropriate for the City pay costs for borrowing prior to the execution of the development agreement.  The developer did start the project before the execution of the development agreement in order to better achieve deadlines for the KU portion of the park, however, the interest costs for this early work should not be attributed to the City.  Likewise, the developer incurred additional borrowing expenses for infrastructure work beyond the City’s total infrastructure amount of $10,452,604 (including approved change orders).  Staff believes that the interest payment obligation of the City should be limited to this infrastructure amount.   Modifying the loan interest costs – by removing payments before the development agreement was executed (July 30, 2013) and by applying the interest cost to the smaller principal amount of $10,452,604, reduces the interest expense from $449,081.54 to $341,746.07.

 

The professional engineering/architect fees is a supported and an appropriate amount at the final expense of $555,198.70. This amount includes $470,995.98 for professional services and site design and $84,242.72 paid to Alpha Omega for geotechnical and testing services.   See supporting memorandum from Chuck Soules, comparing these design fees with other City infrastructure design fees as a percentage of the construction improvement work.  As with the legal fees, there is no itemization of the actual expenses, so the comparison of similar fees for similar construction work is an appropriate method to determine the reasonableness of the fee.

 

The loan origination fee was established at $150,000 in the development agreement (executed July 31, 2013).   The amount requested is $158,643.75, which is reflects additional filings and the lender’s legal fees associated with the loan.  See KUEA letter of 11/26/2014. 

 

Staff believes that the Bliss Sports II legal fees should be reduced to $162,933.33.   This removes the $23,109.61 which Mr. Frizell, the Polsinelli attorney has identified as having been incurred when the Rock Chalk Park was going to be at a nearby location rather than the final location, and also removes $26,492.87 fees for amounts billed after the development agreement was executed.  Staff believes that the legal work for the completed document should have been substantially completed before final execution of the agreement (See attached Revised Legal Fees Spread Sheet)

 

Item

Amount Requested            

Original Estimate        

Revised Amount

Legal  Fees                            

$212,535.81*

$167,836.00                      

$162,933.33

Loan Origination Fee          

$158,643.75  

$150,000.00                      

$158,643.75

Loan Interest    

$449,081.54  

$309,515.00                      

$341,746.07

Professional Eng. Fees       

$555,198.70

$525,000.00                      

$555,198.70

TOTAL

$1,375.459.80

$1,152,351.00                 

$1,218,521.85

 

Total City is obligated to pay is up to $1,092,970.77 

 

*As noted above, Mr. Frizell clarified that $23,109.61 of the initially requested legal fees (leaving a balance of $189,426.20) “arguably” did not directly or indirectly contribute to the final transaction on the ultimate site when City requested changes to remove fees associated with project not on the current site.

 

While there is justification and supporting documentation for expenses totaling $1,218,521.85 pursuant to the Development Agreement, the City is only obligated to pay $92,970.77 in City funds and the Assists Foundation donation of $ 1 million, for a total of $1,092,970.77.  

 

Included in the claim for December 9 is $1,092,970.77 Less $25,000 retainage for completion of final punchlist items for an amount of $1,067,970.77