Grant Administration: Section 7.11 Contract RequirementsAll contracts executed for performance of CDBG related activities must include a full and complete description of the federal and state requirements for contract compliance. The following documents must be physically attached to each contract as applicable:
- Professional Service Contracts must include all required Federal Contract Provision as outlined in the Grantee’s Assistance Agreement.
- Housing and Urban Development (HUD) Form 4010. (see HUD 4010 in Chapter 8: Labor Standards)
Bonds are negotiable instruments required by federal and state law from construction contractors as a form of insurance. Please see 2 CFR 200.304. The bonds are available to contractors from surety companies, which are then turned over to the grantee to protect against situations that may arise. Some of these situations include:
- Work not completed as specified and/or the contractor refuses to finish the work without a change order or price escalation;
- Laborers or subcontractors are not being paid for work and are suing the grantee to recover their loss; or
- Payment of liquidated damages is required, arising from labor standards violations.
Construction contracts must include the following documents either physically or by reference to the project bid specifications and any addendums:
1. Applicable Davis-Bacon and Related Acts (Davis-Bacon) Wage Decision assigned to the project.
2. Bid Bond (submitted with the bid), Payment Bond and Performance Bond obtained by contractor and provided to Grantee to insure contract fulfillment.
- The Bid Bond guarantees that the selected bidder will execute the required contract documents within the specified period of time. The Bid Bond must be equal to 5% of the bid price (contracts over $50,000).
- The Labor & Material Payment Bond is binding upon the contractor, subcontractors and their successors or assigns, for the payment of all indebtedness to a person for labor and service performed, material furnished, or services rendered. The payment bond must be for 100% of the contract price (contracts over $100,000).
- The Performance Bond ensures that the contractor will fulfill all obligations under the contract within one year of substantial completion. The performance bond must be for 100% of the contract price (contracts over $25,000).
- If a construction manager is employed, each subcontract exceeding $100,000 shall be bonded or a certified check required.
The bonding company issuing the bonds must hold a ‘Certificate of Authority’ as acceptable sureties.
- Contractor’s Certificate of Insurance shall be required. The grantee is responsible for ensuring that the levels are adequate.
Contract Contents and Provisions
All contracts for work or services on CDBG funded projects must include the CDFA Combined Front End Docs, as well as the following:
1. Effective date of contract,
2. Detailed description of the work or services to be performed,
3. Specifications of materials or other services to be provided,
4. Time for performance and completion of contract services,
5. Method of Compensation,
6. Conditions and terms under which the contract may be terminated, and remedies for violation or breach of contract, and
7. Printed and signed names and titles of Signatories for all contract parties.
A retainage account may be set up to ensure the project is satisfactorily completed, all suppliers have been paid in full, and all contractors, subcontractors and suppliers have submitted lien waivers. The amount of retainage withheld may not exceed 10% of the total contract amount.
A Retainage Agreement must be reached, and included in the contract, between the Grantee and the prime contractor to establish a procedure for holding the retained funds until all parties agree that the retainage may be released to the contractor upon satisfactory completion of the project.
Retainage Account funds may be:
1. Deposited into a mutually agreed upon financial institution, in a separate account. If deposited to an interest-bearing account, any accrued interest belongs to the contractor
2. Deducted from amounts of drawdowns for payments due contractor so that the State is holding the retainage funds until they become due and payable to the contractor.
If the contractor has provided Contractor’s Affidavit of Release of Liens (AIA Form G706A) and lien waivers from major subcontractors and suppliers, a contractor may request the balance of retainage.