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HomeMy WebLinkAboutStaff Report 2308-18854.Approval of First Amendment to Tenant Work Letter for the Roth Building at 300 Homer Avenue between the City of Palo Alto and the Palo Alto History Museum; CEQA Status-- Not a Project. Supplemental Memo & Attachment added City Council Staff Report From: City Manager Report Type: CONSENT CALENDAR Lead Department: Administrative Services Meeting Date: September 5, 2023 Report #:2308-1885 TITLE Approval of First Amendment to Tenant Work Letter for the Roth Building at 300 Homer Avenue between the City of Palo Alto and the Palo Alto History Museum; CEQA Status--Not a Project. RECOMMENDATION Staff recommends that the City Council: Approve and authorize the City Manager, or their designee, to execute the First Amendment to Tenant Work Letter by and between the City of Palo Alto and Palo Alto History Museum to revise certain insurance requirements for Palo Alto History Museum and its general contractor, Vance Brown, Inc. BACKGROUND In December 2022 Council approved a 40-year lease with the Palo Alto History Museum for use of the Roth Building located at 300 Homer Avenue1. The lease contemplated construction of various tenant improvements, with additional details and obligations to be documented in a “mutually agreeable Tenant Work Letter.” At the April 17, 2023 meeting, the Council approved the Tenant Work Letter2. The Tenant Work Letter was fully executed on April 20, 2023, and the Palo Alto History Museum (the Museum) subsequently assumed responsibility for the property. The Tenant Work Letter requires the Museum to require the General Contractor to obtain builder’s risk policy that covers the full insurable value of the project. This is a standard insurance requirement for all City construction contracts. Under the terms of the construction contract between the Museum and Vance Brown, the Museum assumed responsibility for providing and maintaining the builder’s risk policy. According to a builder’s risk quotation, 1 CMR 15017 Approval of Lease for the Roth Building (300 Homer Ave.) https://cityofpaloalto.primegov.com/Public/CompiledDocument?meetingTemplateId=8715&compileOutputType= 1 2 CMR 2303-1108 Approval of Tenant Work Letter for Lease of 300 Homer Avenue Roth Building https://cityofpaloalto.primegov.com/meeting/document/1853.pdf?name=Item%2013%20Staff%20Report dated July 11, 2023, forwarded by the Museum, the total premium for a policy to cover the approximate $13 million project, effective from 7/17/2023 to 11/17/2024, would be $271,363. In July 2023, the Museum asked staff to check to see if the City’s insurance policy could cover the project instead. ANALYSIS The City maintains a comprehensive a program of insurance coverage for its operations and property holdings. The program includes a $25 million “course of construction” policy (which is another name for builder’s risk). Given the relatively significant cost of the builder’s risk policy the Museum would have to purchase, the Museum is seeking the City’s assistance to extend its policy coverage to the Museum and its general contractor, Vance Brown, Inc. Builder’s risk insurance is a product specifically designed for construction projects, and helps protect buildings from construction-period risks as well as related materials, supplies, and equipment. While the City has numerous construction projects in progress at any given time, the City’s standard construction contract requires the contractors to be responsible for builder’s risk insurance, with the City’s policy serving as a second layer of risk protection. The City therefore maintains minimal coverage of $25 million, less than 10% of the City’s annual capital budget. The Museum can be added onto the City’s property insurance policy for the museum project and name Vance Brown as loss payee for approximately $20,000 per year. The proposed cost on next year’s property insurance renewal is expected by June 2024. There are no projects covered under the City’s policy coverage at this time. Other projects in progress have Builders Risk coverage maintained by the general contractor and the pending Fire Station # 4 renovation project is expected to require the contractor to obtain builder’s risk insurance. The Tenant Work Letter must be amended to accommodate the Museum’s request, as the Tenant Work Letter currently requires the Museum, through its general contractor, to provide builder’s risk insurance. After the amendment is executed, staff will have the City’s insurance broker start scheduling the project on the City’s insurance policy. Using the City’s policy ensures the City has the right coverage, there would be no dispute with an insurance carrier on which party was responsible for the coverage and lower chances of disputed claims. However, if there is a loss and claim during the project, the deductible is $150,000 and there likely will be an increase in cost to the City’s property insurance premium rates in the future. The additional cost to add the Museum onto the City’s policy, any potential ongoing impacts to premium costs and any cost for deductibles should a claim be submitted is expected to be reimbursed fully by the Museum, but will nonetheless likely result in a substantial cost savings for the Museum. Exploring this insurance option at the request of the Museum and the resulting need to amend the Tenant Work Letter has resulted in a delay to the start of construction originally planned for July. While delays typically result in added costs, it is expected that these costs will be more than offset by the savings in the cost of insurance. Parties continue to review the Tenant Work Letter amendment and the final recommended amendment is expected to be distributed in late packet, no later than August 31. FISCAL/RESOURCE IMPACT No additional funds are needed in the current fiscal year. Beginning in FY 2025, the General Liability Fund will require an increase of $20,000 to cover the additional cost to add the Museum to the City’s insurance policy. The costs related to this proposal are expected to be fully reimbursed by the Museum within 30 days' notice provided to the Museum. This funding, and the associated reimbursement revenue, will be included in development of the FY 2025 Budget, subject to the appropriation of funds through the annual budget process. STAKEHOLDER ENGAGEMENT Staff has worked closely with Museum representatives to explore this option including meeting on several occasions to work out the details. ENVIRONMENTAL REVIEW Council action on this item is not a project as defined by the California Environmental Quality Act (CEQA) because amending the insurance requirements of the Tenant Work Letter is an organizational or administrative activity that will not result in direct or indirect physical changes in the environment. CEQA Guidelines section 15378(b)(5). ATTACHMENTS Attachment A: First Amendment to Tenant Work Letter (to be distributed August 31) APPROVED BY: Kiely Nose, Assistant City Manager 4.Approval of First Amendment to Tenant Work Letter for the Roth Building at 300 Homer Avenue between the City of Palo Alto and the Palo Alto History Museum; CEQA Status--Not a Project. Supplemental Memo & Attachment added   City Council Supplemental Report From: Kiely Nose, Assistant City Manager Meeting Date: September 5, 2023 Item Number: 4 Report #:2308-1971 TITLE Approval of First Amendment to Tenant Work Letter for the Roth Building at 300 Homer Avenue between the City of Palo Alto and the Palo Alto History Museum; CEQA Status--Not a Project. ANALYSIS This memorandum provides additional information to City Manager Report ID #2308-1885, Item # 4 on the September 5, 2023, City Council Agenda, Approval of First Amendment to Tenant Work Letter for the Roth Building at 300 Homer Avenue between the City of Palo Alto and the Palo Alto History Museum; CEQA Status--Not a Project. As indicated in Staff Report 2308-1885, the final recommended amendment was expected to be distributed in late packet, not later than August 31, 2023. The parties have reviewed the Tenant Work Letter amendment and Attachment A (First Amendment to Tenant Work Letter) is available for distribution. The final version of the amendment requires the City to work with its insurer to pay to the Museum proceeds with respect to any loss related to the Project in accordance with its insurance policy and limits the Museum’s responsibility for required reimbursements to a date not to exceed five years after the expiration of the Tenant Work Letter. ATTACHMENTS Attachment A: First Amendment to Tenant Work Letter APPROVED BY: Kiely Nose, Assistant City Manager FIRST AMENDMENT TO TENANT WORK LETTER THIS FIRST AMENDMENT TO TENANT WORK LETTER (this “First Amendment”) is entered into as of _______________ (“Execution Date”) by and between CITY OF PALO (“City”) and PALO ALTO HISTORY MUSEUM (“Museum”). RECITALS A.WHEREAS, City and Museum are parties to that certain Tenant Work Letter dated as of April 20, 2023; and B.WHEREAS, City and Museum desire to modify and amend the Tenant Work Letter only in the respects and on the conditions hereinafter stated. AGREEMENT NOW, THEREFORE, City and Museum, in consideration of the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, agree as follows: 1.Definitions. For purposes of this First Amendment, capitalized terms shall have the meanings ascribed to them in the Tenant Work Letter unless otherwise defined herein. 2.Coverage Requirements. Section 9.1 and 9.2 of the Tenant Work Letter are hereby deleted and replaced with the following: “9.1. Coverage Requirements. In addition to the insurance requirements set forth in the Lease, the Museum must require its Architect to obtain and maintain during the Term the insurance coverage described in Attachment C (Insurance Requirements (Architect)). The Museum must require the General Contractor to obtain prior to beginning and to maintain throughout construction of the Project, up to the date of Project acceptance, the insurance coverage described in Attachment D (Insurance Requirements (General Contractor)).” A.Builder’s Risk Insurance. City agrees to provide Builder’s Risk or Course of Construction insurance for the full insurable value of the Project on a replacement cost basis. The Builder’s Risk or Course of Construction insurance shall be maintained until completion of the Project. Such Builder’s Risk or Course of Construction insurance coverage shall be no less than the total amount of the Construction Contract, as the same may be modified during the course of the Project, including labor performed and materials or equipment supplied to the Project. The Museum, and, at the Museum’s election, the General Contractor, shall be named as loss payees under such Builder’s Risk or Course of Construction insurance with respect to the Project. The City shall work with the insurer to pay to the Museum proceeds with respect to any loss related to the Project in accordance with the insurance policy Loss Payable Provision which stipulates payment ‘jointly to the Named Attachment A Insured (City) and the Loss Payee (Museum), as interests may appear’. The City shall file a claim on behalf of the Museum for any loss related to the Project. Museum shall be responsible for the deductible portion of any loss related to the Project (as between the Museum and the City) and the Museum agrees to reimburse the City within 30 days notice from the City for any additional costs or premiums associated with adding the Museum and the General Contractor as a loss payee under the City’s insurance program, any deductible(s) for any claim(s) made against the Builder’s Risk or Course of Construction policy, and any future increases to the City’s insurance premiums resulting from any claims made against the Builder’s Risk or Course of Construction policy for a period not to exceed five years after the expiration of the Tenant Work Letter. The releases and waivers set forth in the penultimate sentence of Section 19 of the Lease shall not apply as to the City’s obligations under this Subparagraph A. “9.2. General Requirements. The insurance must remain in full force and effect during the Term, commencing on the Effective Date, except as otherwise specified for the General Contractor in Section 9.1, above. With the exception of workers’ compensation, employer’s liability, and professional liability insurance, each insurance policy required by the Tenant Work Letter must contain the following clauses or endorsements: A. “Coverage will not be suspended, voided, canceled by either party, reduced in coverage or in limits except after 30 days’ prior written notice by certified mail, return receipt requested, has been given to the City.” B. “All rights of subrogation are hereby waived against the City of Palo Alto and its elected and appointed officials, officers or employees, when acting within the scope of their employment or appointment.” C. “The City of Palo Alto, its elected and appointed officials, officers, employees, agents and volunteers are to be covered as insureds as respects: liability arising out of activities performed by or on behalf of the insured; products and completed operations of the insured; premises owned, occupied or used by the insured; or automobiles owned, subleased, hired or borrowed by the insured. Except for the waiver of subrogation contained in Section B, the coverage will contain no special limitations on the scope of protection afforded to the City, its elected and appointed officials, officers, employees, agents or volunteers.” D. “For any claims related to the Tenant Work Letter, the insured’s insurance coverage will be primary insurance as respects the City of Palo Alto, its elected and appointed officials, officers, employees, agents and volunteers. Any insurance or self- insurance maintained by the City, its elected and appointed officials, officers, employees, agents or volunteers will be in excess of the insured’s insurance and will not contribute with it, with the only exception for Builder’s Risk coverage.” E. “Any failure to comply with reporting or other provisions of the policies, including breaches of warranties, will not affect coverage provided to the City of Palo Alto, its elected and appointed officials, officers, employees, agents or volunteers.” F. “The insured’s insurance will apply separately to each insured against whom a claim is made or suit is brought, except with respect to the limits of the insurer’s liability.”” 3. Attachment D. Attachment D of the Tenant Work Letter is hereby deleted and replaced with the Attachment D attached hereto. 4. Effect of First Amendment. Except as modified by this First Amendment, the Tenant Work Letter and all the covenants, agreements, terms, provisions and conditions thereof shall remain in full force and effect and are hereby ratified and affirmed. In the event of any conflict between the terms contained in this First Amendment and the Tenant Work Letter, the terms herein contained shall supersede and control the obligations and liabilities of the parties. 5. Counterparts and PDF Signatures. This First Amendment may be executed in one or more counterparts, each of which, when taken together, shall constitute one and the same document. A portable document format (PDF) signature using Docusign on this First Amendment shall be equivalent to, and have the same force and effect as, an original signature. IN WITNESS WHEREOF, the parties have executed this First Amendment as of the day hereinabove first written. CITY: CITY OF PALO ALTO, a California chartered municipal corporation By: ______________________________ Name: ___________________________ Title: ____________________________ Date: ____________________________ Approved as to Form: By: ______________________________ Name: ___________________________ Title: ____________________________ Date: ____________________________ MUSEUM: PALO ALTO HISTORY MUSEUM By: ______________________________ Name: ___________________________ Title: ____________________________ Date: ____________________________ Rev. 2022 ATTACHMENT “D” INSURANCE REQUIREMENTS (GENERAL CONTRACTOR) CONTRACTORS, AT THEIR SOLE EXPENSE, SHALL FOR THE TERM OF THE CONTRACT OBTAIN AND MAINTAIN INSURANCE IN THE AMOUNTS FOR THE COVERAGE SPECIFIED BELOW, AFFORDED BY COMPANIES WITH AM BEST’S KEY RATING OF A-:VII, OR HIGHER, AUTHORIZED TO TRANSACT INSURANCE BUSINESS IN THE STATE OF CALIFORNIA. R E Q TYPE OF COVERAGE REQUIREMENT MINIMUM LIMITS EACH OCCURRENCE AGGREGATE YES WORKER’S COMPENSATION EMPLOYER’S LIABILITY STATUTORY YES GENERAL LIABILITY, INCLUDING PERSONAL INJURY, BROAD FORM PROPERTY DAMAGE BLANKET CONTRACTUAL, AND BODILY INJURY PROPERTY DAMAGE BODILY INJURY & PROPERTY DAMAGE COMBINED. $5,000,000 $5,000,000 $5,000,000 $10,000,000 $10,000,000 $10,000,000 YES AUTOMOBILE LIABILITY, INCLUDING ALL OWNED, HIRED, NON-OWNED BODILY INJURY - EACH PERSON - EACH OCCURRENCE PROPERTY DAMAGE BODILY INJURY AND PROPERTY DAMAGE, COMBINED $2,000,000 $2,000,000 $2,000,000 $2,000,000 $2,000,000 $2,000,000 $2,000,000 $2,000,000 $2,000,000 $2,000,000 YES POLLUTION LIABILITY ALL DAMAGES $2,000,000 YES THE CITY OF PALO ALTO IS TO BE NAMED AS AN ADDITIONAL INSURED: CONTRACTOR, AT ITS SOLE COST AND EXPENSE, SHALL OBTAIN AND MAINTAIN, IN FULL FORCE AND EFFECT THROUGHOUT THE ENTIRE TERM OF ANY RESULTANT AGREEMENT, THE INSURANCE COVERAGE HEREIN DESCRIBED, INSURING NOT ONLY CONTRACTOR AND ITS SUBCONSULTANTS OR SUBCONTRACTORS, IF ANY, BUT ALSO, WITH THE EXCEPTION OF WORKERS’ COMPENSATION, EMPLOYER’S LIABILITY AND PROFESSIONAL INSURANCE, NAMING AS ADDITIONAL INSUREDS CITY, ITS COUNCIL MEMBERS, OFFICERS, AGENTS, AND EMPLOYEES. II. ENDORSEMENT PROVISIONS, WITH RESPECT TO THE INSURANCE AFFORDED TO “ADDITIONAL INSUREDS” A. PRIMARY COVERAGE WITH RESPECT TO CLAIMS ARISING OUT OF THE OPERATIONS OF THE NAMED INSURED, INSURANCE AS AFFORDED BY THIS POLICY IS PRIMARY AND IS NOT ADDITIONAL TO OR CONTRIBUTING WITH ANY OTHER INSURANCE CARRIED BY OR FOR THE BENEFIT OF THE ADDITIONAL INSUREDS. Rev. 2022 ATTACHMENT “D” INSURANCE REQUIREMENTS (GENERAL CONTRACTOR) B. CROSS LIABILITY THE NAMING OF MORE THAN ONE PERSON, FIRM, OR CORPORATION AS INSUREDS UNDER THE POLICY SHALL NOT, FOR THAT REASON ALONE, EXTINGUISH ANY RIGHTS OF THE INSURED AGAINST ANOTHER, BUT THIS ENDORSEMENT, AND THE NAMING OF MULTIPLE INSUREDS, SHALL NOT INCREASE THE TOTAL LIABILITY OF THE COMPANY UNDER THIS POLICY. C. NOTICE OF CANCELLATION 1. IF THE POLICY IS CANCELED BEFORE ITS EXPIRATION DATE FOR ANY REASON OTHER THAN THE NON-PAYMENT OF PREMIUM, THE CONTRACTOR SHALL PROVIDE CITY AT LEAST A THIRTY (30) DAY WRITTEN NOTICE BEFORE THE EFFECTIVE DATE OF CANCELLATION. 2. IF THE POLICY IS CANCELED BEFORE ITS EXPIRATION DATE FOR THE NON- PAYMENT OF PREMIUM, THE CONTRACTOR SHALL PROVIDE CITY AT LEAST A TEN (10) DAY WRITTEN NOTICE BEFORE THE EFFECTIVE DATE OF CANCELLATION.