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Council weighs risks of surety bond versus irrevocable letter of credit for developer-financed paving
Summary
Council discussion focused on whether a surety bond gives the same protection as an irrevocable letter of credit; staff and councilors agreed the bond can secure payment but noted letters of credit are mechanically easier to draw on and emphasized attorney-fee provisions to aid collection if necessary.
Council discussion examined the trade-offs between the developer's proposed surety bond and the more typical irrevocable letter of credit. A staff presenter said the development agreement and code permit alternative forms of security, and that the developer had used the bond process on earlier phases of Rachel Brook Estates. "It's a little harder to collect and make a claim on the surety bond," the presenter said, noting the city required attorney-fee provisions to be added so the city could recover collection costs if it became necessary.
One council member said the irrevocable letter of credit may be "easier and quicker to draw on" if the project failed, which is mechanically different from recovering on a surety bond. Councilors weighed this mechanical difference against the modest size of the Phase 3 project and the developer's prior experience; they concluded the development agreement language and fee-recovery provisions reduced the city's exposure enough to proceed on this project.
The discussion led to a motion and approval of the resolution allowing the development agreement and the proposed security approach to move forward for Phase 3.
