Morgan Hill City Council
January 28, 2026

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(4) foreseeable conditions which Contractor could have
ascertained from reasonably diligent inspection of the Project site or review of the Contract Documents or other information provided or available to Contractor;
(5) Contractor’s failure, refusal, or financial inability to perform the Work within the Contract Time, including insufficient funds to pay its Subcontractors or suppliers;
(6) performance or non-performance by Contractor’s
Subcontractors or suppliers;
(7) the time required to respond to excessive RFIs (see Section

2.5(G));
(8) delayed submission of required submittals, or the time required for correction and resubmission of defective submittals; (9) time required for repair of, re-testing, or re-inspection of defective Work;
(10) enforcement of Laws by City, or outside agencies with jurisdiction over the Work; or
(11) City’s exercise or enforcement of any of its rights or Contractor’s duties pursuant to the Contract Documents, including correction of defective Work, extra inspections or testing due to non-compliance with Contract requirements, safety compliance, environmental compliance, or rejection and return of defective or deficient submittals.
(E) Compensable Delay. Pursuant to Public Contract Code Section 7102, in addition to entitlement to an extension of Contract Time, Contractor is entitled to compensation for costs incurred due to delay caused solely by City, when that delay is unreasonable under the circumstances involved and not within the contemplation of the parties (“Compensable Delay”). Contractor is not entitled to an extension of Contract Time or recovery of costs for Compensable Delay that is concurrent with Non-Excusable Delay. Delay due to Weather Delay Days in excess of normal for a given month, as set forth in Section 5.3(C), is not Compensable Delay, and will only entitle Contractor to an extension of time commensurate with the time lost due to such delay. (F) Recoverable Costs. Contractor is not entitled to compensation for Excusable Delay unless it is Compensable Delay, as defined above.

Contractor is entitled to recover only the actual, direct, reasonable, and

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substantiated costs (“Recoverable Costs”) for each working day that the Compensable Delay prevents Contractor from proceeding with more than 50% of the critical path Work scheduled for that day, based on the most recent progress schedule accepted by City. Recoverable Costs will not include home office overhead or lost profit.
(G) Request for Extension of Contract Time or Recoverable Costs. A request for an extension of Contract Time or any associated Recoverable Costs must be submitted in writing to City within 14 calendar days of the date the delay is first encountered, even if the duration of the delay is not yet known at that time, or any entitlement to the Contract Time extension or to the Recoverable Costs will be deemed waived. In addition to complying with the requirements of this Article 5, the request must be submitted in compliance with the Change Order request procedures in Article 6 below. Strict compliance with these requirements is necessary to ensure that any delay or consequences of delay may be mitigated as soon as possible, and to facilitate cost-efficient administration of the Project and timely performance of the Work. Any request for an extension of Contract Time or Recoverable Costs that does not strictly comply with all of the requirements of Article 5 and Article 6 will be deemed waived. (1) Required Contents. The request must include a detailed description of the cause(s) of the delay and must also describe the measures that Contractor has taken to mitigate the delay and/or its effects, including efforts to mitigate the cost impact of the delay, such as by workforce management or by a change in sequencing. If the delay is still ongoing at the time the request is submitted, the request should also include Contractor’s plan for continued mitigation of the delay or its effects.
(2) Delay Days and Costs. The request must specify the number of days of Excusable Delay claimed or provide a realistic estimate if the duration of the delay is not yet known. If Contractor believes it is entitled to Recoverable Costs for Compensable Delay, the request must specify the amount and basis for the Recoverable Costs that are claimed or provide a realistic estimate if the amount is not yet known. Any estimate of delay duration or cost must be updated in writing and submitted with all required supporting documentation as soon as the actual time and cost is known. The maximum extension of Contract Time will be the number of days, if any, by which an Excusable Delay or a Compensable Delay exceeds any concurrent Non-Excusable Delay. Contractor is entitled to an extension of Contract Time, or compensation for Recoverable Costs, only if, and only to the extent that, such delay will unavoidably delay Final Completion.

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(3) Supporting Documentation. The request must also include any and all supporting documentation necessary to evidence the delay and its actual impacts, including scheduling and cost impacts with a time impact analysis using critical path methodology and demonstrating the unavoidable delay to Final Completion. The time impact analysis must be submitted in a form or format acceptable to City.
(4) Burden of Proof. Contractor has the burden of proving that: the delay was an Excusable Delay or Compensable Delay, as defined above; Contractor has fully complied with its scheduling obligations in Section 5.2, Schedule Requirements; Contractor has made reasonable efforts to mitigate the delay and its schedule and cost impacts; the delay will unavoidably result in delaying Final Completion; and any Recoverable Costs claimed by Contractor were actually incurred and were reasonable under the
circumstances.
(5) Legal Compliance. Nothing in this Section 5.3 is intended to require the waiver, alteration, or limitation of the applicability of Public Contract Code Section 7102.
(6) No Waiver. Any grant of an extension of Contract Time, or compensation for Recoverable Costs due to Compensable Delay, will not operate as a waiver of City’s right to assess liquidated damages for Non-Excusable Delay.
(7) Dispute Resolution. In the event of a dispute over entitlement to an extension of Contract Time or compensation for Recoverable Costs, Contractor may not stop Work pending resolution of the dispute, but must continue to comply with its duty to diligently prosecute the performance and timely completion of the Work.

Contractor’s sole recourse for an unresolved dispute based on City’s rejection of a Change Order request for an extension of Contract Time or compensation for Recoverable Costs is to comply with the dispute resolution provisions set forth in Article 12 below.

5.4 Liquidated Damages. It is expressly understood that if Final Completion is not achieved within the Contract Time, City will suffer damages from the delay that are difficult to determine and accurately specify. Pursuant to Public Contract Code section 7203, if Contractor fails to achieve Final Completion within the Contract Time due to Contractor’s Non-Excusable Delay, City will charge Contractor in the amount specified in the Contract for each calendar day that Final Completion is delayed beyond the Contract Time, as liquidated damages and not as a penalty. Any waiver of

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accrued liquidated damages, in whole or in part, is subject to approval of the City Council or its authorized delegee.
(A) Liquidated Damages. Liquidated damages will not be assessed for any Excusable Delay or Compensable Delay, as set forth above. (B) Milestones. Liquidated damages will also be separately assessed for failure to meet milestones specified elsewhere in the Contract Documents.
(C) Setoff. City is entitled to deduct the amount of liquidated damages assessed against any payments otherwise due to Contractor, including progress payments, Final Payment, or unreleased retention. If there are insufficient Contract funds remaining to cover the full amount of liquidated damages assessed, City is entitled to recover the balance from Contractor or its performance bond surety.
(D) Occupancy or Use. Occupancy or use of the Project in whole or in part prior to Final Completion does not constitute City’s acceptance of the Project and will not operate as a waiver of City’s right to assess liquidated damages for Contractor’s Non-Excusable Delay in achieving Final Completion.
(E) Other Remedies. City’s right to liquidated damages under this Section applies only to damages arising from Contractor’s Non-Excusable Delay or failure to complete the Work within the Contract Time. City retains its right to pursue all other remedies under the Contract for other types of damage, including damage to property or persons, costs or diminution in value from defective materials or workmanship, costs to repair or complete the Work, or other liability caused by Contractor.

Article 6
Contract Modification

6.1 Contract Modification. Subject to the limited exception set forth in subsection (D) below, any change in the Work or the Contract Documents, including the Contract Price or Contract Time, will not be a valid and binding change to the Contract unless it is formalized in a Change Order, including a “no-cost” Change Order or a unilateral Change Order.

Changes in the Work pursuant to this Article 6 will not operate to release, limit, or abridge Contractor’s warranty obligations pursuant to Article 11 or any obligations of Contractor’s bond sureties.
(A) City-Directed Changes. City may direct changes in the scope or sequence of Work or the requirements of the Contract Documents, without invalidating the Contract. Such changes may include Extra Work as set

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forth in subsection (C) below, or deletion or modification of portions of the Work. Contractor must promptly comply with City-directed changes in the Work in accordance with the original Contract Documents, even if Contractor and City have not yet reached agreement as to adjustments to the Contract Price or Contract Time for the change in the Work or for the Extra Work. Contractor is not entitled to extra compensation for cost savings resulting from “value engineering” pursuant to Public Contract Code Section 7101, except to the extent authorized in advance by City in writing, and subject to any applicable procedural requirements for submitting a proposal for value engineering cost savings. (B) Disputes. In the event of a dispute over entitlement to or the amount of a change in Contract Time or a change in Contract Price related to a City-directed change in the Work, Contractor must perform the Work as directed and may not delay its Work or cease Work pending resolution of the dispute, but must continue to comply with its duty to diligently prosecute the performance and timely completion of the Work, including the Work in dispute. Likewise, in the event that City and Contractor dispute whether a portion or portions of the Work are already required by the Contract Documents or constitute Extra Work, or otherwise dispute the interpretation of any portion(s) of the Contract Documents, Contractor must perform the Work as directed and may not delay its Work or cease Work pending resolution of the dispute, but must continue to comply with its duty to diligently prosecute the performance and timely completion of the Work, including the Work in dispute, as directed by City. If Contractor refuses to perform the Work in dispute, City may, acting in its sole discretion, elect to delete the Work from the Contract and reduce the Contract Price accordingly, and self-perform the Work or direct that the Work be performed by others. Alternatively, City may elect to terminate the Contract for convenience or for cause.

Contractor’s sole recourse for an unresolved dispute related to changes in the Work or performance of any Extra Work is to comply with the dispute resolution provisions set forth in Article 12, below.
(C) Extra Work. City may direct Contractor to perform Extra Work related to the Project. Contractor must promptly perform any Extra Work as directed or authorized by City in accordance with the original Contract Documents, even if Contractor and City have not yet reached agreement on adjustments to the Contract Price or Contract Time for such Extra Work. If Contractor believes it is necessary to perform Extra Work due to changed conditions, Contractor must promptly notify the Engineer in writing, specifically identifying the Extra Work and the reason(s) the Contractor believes it is Extra Work. This notification requirement does not constitute a Change Order request pursuant to Section 6.2, below.

Contractor must maintain detailed daily records that itemize the cost of each element of Extra Work, and sufficiently distinguish the direct cost of

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the Extra Work from the cost of other Work performed. For each day that Contractor performs Extra Work, or Work that Contractor contends is Extra Work, Contractor must submit no later than the following Working Day, a daily report of the Extra Work performed that day and the related costs, together with copies of certified payroll, invoices, and other documentation substantiating the costs (“Extra Work Report”). The Engineer will make any adjustments to Contractor’s Extra Work Report(s) based on the Engineer’s records of the Work. When an Extra Work Report(s) is agreed on and signed by both City and Contractor, the Extra Work Report(s) will become the basis for payment under a duly authorized and signed Change Order. Failure to submit the required documentation by close of business on the next Working Day is deemed a full and complete waiver for any change in the Contract Price or Contract Time for any Extra Work performed that day.
(D) Minor Changes and RFIs. Minor field changes, including RFI replies from City, that do not affect the Contract Price or Contract Time and that are approved by the Engineer acting within his or her scope of authority, do not require a Change Order. By executing an RFI reply from City, Contractor agrees that it will perform the Work as clarified therein, with no change to the Contract Price or Contract Time.
(E) Remedy for Non-Compliance. Contractor’s failure to promptly comply with a City-directed change is deemed a material breach of the Contract, and in addition to all other remedies available to it, City may, at its sole discretion, hire another contractor or use its own forces to complete the disputed Work at Contractor’s sole expense, and may deduct the cost from the Contract Price.

6.2 Contractor Change Order Requests. Contractor must submit a request or proposal for a change in the Work, compensation for Extra Work, or a change in the Contract Price or Contract Time as a written Change Order request or proposal.
(A) Time for Submission. Any request for a change in the Contract Price or the Contract Time must be submitted in writing to the Engineer within 14 calendar days of the date that Contractor first encounters the circumstances, information or conditions giving rise to the Change Order request, even if the total amount of the requested change in the Contract Price or impact on the Contract Time is not yet known at that time. If City requests that Contractor propose the terms of a Change Order, unless otherwise specified in City’s request, Contractor must provide the Engineer with a written proposal for the change in the Contract Price or Contract Time within five working days of receiving City’s request, in a form satisfactory to the Engineer.

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(B) Required Contents. Any Change Order request or proposal submitted by Contractor must include a complete breakdown of actual or estimated costs and credits, and must itemize labor, materials, equipment, taxes, insurance, subcontract amounts, and, if applicable, Extra Work Reports. Any estimated cost must be updated in writing as soon as the actual amount is known.
(C) Required Documentation. All claimed costs must be fully documented, and any related request for an extension of time or delayrelated costs must be included at that time and in compliance with the requirements of Article 5 of the General Conditions. Upon request, Contractor must permit City to inspect its original and unaltered bidding records, subcontract agreements, subcontract change orders, purchase orders, invoices, or receipts associated with the claimed costs. (D) Required Form. Contractor must use City’s form(s) for submitting all Change Order requests or proposals, unless otherwise specified by City.
(E) Certification. All Change Order requests must be signed by Contractor and must include the following certification:
“The undersigned Contractor certifies under penalty of perjury that its statements and representations in this Change Order request are true and correct. Contractor warrants that this Change Order request is comprehensive and complete as to the Work or changes referenced herein, and agrees that any known or foreseeable costs, expenses, or time extension requests not included herein, are deemed waived.”

6.3 Adjustments to Contract Price. The amount of any increase or decrease in the Contract Price will be determined based on one of the following methods listed below, in the order listed with unit pricing taking precedence over the other methods. Markup applies only to Cityauthorized time and material Work, and does not apply to any other payments to Contractor. For Work items or components that are deleted in their entirety, Contractor will only be entitled to compensation for those direct, actual, and documented costs (including restocking fees), reasonably incurred before Contractor was notified of the City’s intent to delete the Work, with no markup for overhead, profit, or other indirect costs.
(A) Unit Pricing. Amounts previously provided by Contractor in the form of unit prices, either in a bid schedule or in a post-award schedule of values pursuant to Section 8.1, Schedule of Values, will apply to determine the price for the affected Work, to the extent applicable unit

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prices have been provided for that type of Work. No additional markup for overhead, profit, or other indirect costs will be added to the calculation. (B) Lump Sum. A mutually agreed upon, all-inclusive lump sum price for the affected Work with no additional markup for overhead, profit, or other indirect costs.
(C) Time and Materials. On a time and materials basis, if and only to the extent compensation on a time and materials basis is expressly authorized by City in advance of Contractor’s performance of the Work and subject to any not-to-exceed limit. Time and materials compensation for increased costs or Extra Work (but not decreased costs or deleted Work) will include allowed markup for overhead, profit, and other indirect costs, calculated as the total of the following sums, the cumulative total of which may not exceed the maximum markup rate of 15%:
(1) All direct labor costs provided by the Contractor, excluding superintendence, project management, or administrative costs, plus 15% markup;
(2) All direct material costs provided by the Contractor, including sales tax, plus 15% markup;
(3) All direct plant and equipment rental costs provided by the Contractor, plus 15% markup;
(4) All direct additional subcontract costs plus 10% markup for Work performed by Subcontractors; and
(5) Increased bond or insurance premium costs computed at 1.5% of the total of the previous four sums.

6.4 Unilateral Change Order. If the parties dispute the terms of a proposed Change Order, including disputes over the amount of compensation or extension of time that Contractor has requested, the value of deleted or changed Work, what constitutes Extra Work, or quantities used, City may elect to issue a unilateral Change Order, directing performance of the Work, and authorizing a change in the Contract Price or Contract Time for the adjustment to compensation or time that the City believes is merited.

Contractor’s sole recourse to dispute the terms of a unilateral Change Order is to submit a timely Claim pursuant to Article 12, below.

6.5 Non-Compliance Deemed Waiver. Contractor waives its entitlement to any increase in the Contract Price or Contract Time if Contractor fails to fully comply with the provisions of this Article. Contractor will not be paid for unauthorized Extra Work.

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Article 7
General Construction Provisions

7.1 Permits, Fees, Business License, and Taxes.
(A) Permits, Fees, and City Business License. Contractor must obtain and pay for all permits, fees, and licenses required to perform the Work, including a City business license. Contractor must cooperate with and provide notifications to all government agencies with jurisdiction over the Project, as may be required. Contractor must provide City with copies of all records of permits and permit applications, payment of required fees, and any licenses required for the Work.
(B) Taxes. Contractor must pay for all taxes on labor, material, and equipment, except Federal Excise Tax to the extent that City is exempt from Federal Excise Tax.

7.2 Temporary Facilities. Contractor must provide, at Contractor’s sole expense, any and all temporary facilities for the Project, including an onsite staging area for materials and equipment, a field office, sanitary facilities, utilities, storage, scaffolds, barricades, walkways, and any other temporary structure required to safely perform the Work along with any incidental utility services. The location of all temporary facilities must be approved by the City prior to installation. Temporary facilities must be safe and adequate for the intended use and installed and maintained in accordance with Laws and the Contract Documents. Contractor must fence and screen the Project site and, if applicable, any separate Worksites, including the staging area, and its operation must minimize inconvenience to neighboring properties. Additional provisions pertaining to temporary facilities may be included in the Specifications or Special Conditions.
(A) Utilities. Contractor must install and maintain the power, water, sewer, and all other utilities required for the Project site, including the piping, wiring, internet and wifi connections, and any related equipment necessary to maintain the temporary facilities.
(B) Removal and Repair. Contractor must promptly remove all such temporary facilities when they are no longer needed or upon completion of the Work, whichever comes first. Contractor must promptly repair any damage to City’s property or to other property caused by the installation, use, or removal of the temporary facilities, and must promptly restore the property to its original or intended condition.

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7.3 Noninterference and Site Management. Contractor must avoid interfering with City’s use of its property at or adjacent to the Project site, including use of roadways, entrances, parking areas, walkways, and structures. Contractor must also minimize disruption of access to private property in the Project vicinity. Contractor must coordinate with affected property owners, tenants, and businesses, and maintain some vehicle and pedestrian access to their residences or properties at all times. Temporary access ramps, fencing or other measures must be provided as needed.

Before blocking access to a private driveway or parking lot, Contractor must provide effective notice to the affected parties at least 48 hours in advance of the pending closure and allow them to remove vehicles.

Private driveways, residences and parking lots must have access to a roadway during non-Work hours.
(A) Offsite Acquisition. Unless otherwise provided by City, Contractor must acquire, use, and dispose of, at its sole expense, any Worksites, licenses, easements, and temporary facilities necessary to access and perform the Work.
(B) Offsite Staging Area and Field Office. If additional space beyond the Project site is needed, such as for the staging area or the field office, Contractor may need to make arrangements with the nearby property owner(s) to secure the space. Before using or occupying any property owned by a third party, Contractor must provide City with a copy of the necessary license agreement, easement, or other written authorization from the property owner, together with a written release from the property owner holding City harmless from any related liability, in a form acceptable to the City Attorney.
(C) Traffic Management. Contractor must provide traffic management and traffic controls as specified in the Contract Documents, as required by Laws, and as otherwise required to ensure public and worker safety, and to avoid interference with public or private operations or the normal flow of vehicular, bicycle, or pedestrian traffic.

7.4 Signs. No signs may be displayed on or about City’s property, except signage which is required by Laws or by the Contract Documents, without City’s prior written approval as to size, design, and location.

7.5 Project Site and Nearby Property Protections.
(A) General. Contractor is responsible at all times, on a 24-hour basis and at its sole cost, for protecting the Work, the Project site, and the materials and equipment to be incorporated into the Work, until the City has accepted the Project, excluding any exceptions to acceptance, if any.

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Except as specifically authorized by City, Contractor must confine its operations to the area of the Project site indicated in the Plans and Specifications. Contractor is liable for any damage caused by Contractor or its Subcontractors to the Work, City’s property, the property of adjacent or nearby property owners and the work or personal property of other contractors working for City, including damage related to Contractor’s failure to adequately secure the Work or any Worksite.
(1) Subject to City’s approval, Contractor will provide and install safeguards to protect the Work; any Worksite, including the Project site; City’s real or personal property and the real or personal property of adjacent or nearby property owners, including plant and tree protections.
(2) City wastewater systems may not be interrupted. If the Work disrupts existing sewer facilities, Contractor must immediately notify City and establish a plan, subject to City’s approval, to convey the sewage in closed conduits back into the sanitary sewer system.

Sewage must not be permitted to flow in trenches or be covered by backfill.
(3) Contractor must remove with due care, and store at City’s request, any objects or material from the Project site that City will salvage or reuse at another location.
(4) If directed by Engineer, Contractor must promptly repair or replace any property damage, as specified by the Engineer.

However, acting in its sole discretion, City may elect to have the property damage remedied otherwise, and may deduct the cost to repair or replace the damaged property from payment otherwise due to Contractor.
(5) Contractor will not permit any structure or infrastructure to be loaded in a manner that will damage or endanger the integrity of the structure or infrastructure.
(B) Securing Project Site. After completion of Work each day, Contractor must secure the Project site and, to the extent feasible, make the area reasonably accessible to the public unless City approves otherwise. All excess materials and equipment not protected by approved traffic control devices must be relocated to the staging area or demobilized. Trench spoils must be hauled off the Project site daily and open excavations must be protected with steel plates. Contractor and Subcontractor personnel may not occupy or use the Project site for any purpose during non-Work hours, except as may be provided in the Contract Documents or pursuant to prior written authorization from City.

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(C) Unforeseen Conditions. If Contractor encounters facilities, utilities, or other unknown conditions not shown on or reasonably inferable from the Plans or apparent from inspection of the Project site, Contractor must immediately notify the City and promptly submit a Request for Information to obtain further directions from the Engineer. Contractor must avoid taking any action which could cause damage to the facilities or utilities pending further direction from the Engineer. The Engineer’s written response will be final and binding on Contractor. If the Engineer’s subsequent direction to Contractor affects Contractor’s cost or time to perform the Work, Contractor may submit a Change Order request as set forth in Article 6 above.
(D) Support; Adjacent Properties. Contractor must provide, install, and maintain all shoring, bracing, and underpinning necessary to provide support to City’s property and adjacent properties and improvements thereon. Contractor must provide notifications to adjacent property owners as may be required by Laws. See also, Section 7.15, Trenching of Five Feet or More.
(E) Notification of Property Damage. Contractor must immediately notify the City of damage to any real or personal property resulting from Work on the Project. Contractor must immediately provide a written report to City of any such property damage in excess of $500 (based on estimated cost to repair or replace) within 24 hours of the occurrence. The written report must include: (1) the location and nature of the damage, and the owner of the property, if known; (2) the name and address of each employee of Contractor or any Subcontractor involved in the damage; (3) a detailed description of the incident, including precise location, time, and names and contact information for known witnesses; and (4) a police or first responder report, if applicable. If Contractor is required to file an accident report with another government agency, Contractor will provide a copy of the report to City.

7.6 Materials and Equipment.
(A) General. Unless otherwise specified, all materials and equipment required for the Work must be new, free from defects, and of the best grade for the intended purpose, and furnished in sufficient quantities to ensure the proper and expeditious performance of the Work. Contractor must employ measures to preserve the specified quality and fitness of the materials and equipment. Unless otherwise specified, all materials and equipment required for the Work are deemed to include all components required for complete installation and intended operation and must be installed in accordance with the manufacturer’s recommendations or instructions. Contractor is responsible for all shipping, handling, and

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storage costs associated with the materials and equipment required for the Work. Contractor is responsible for providing security and protecting the Work and all of the required materials, supplies, tools and equipment at Contractor’s sole cost until City has formally accepted the Project as set forth in Section 11.1, Final Completion. Contractor will not assign, sell, mortgage, or hypothecate any materials or equipment for the Project, or remove any materials or equipment that have been installed or delivered. (B) City-Provided. If the Work includes installation of materials or equipment to be provided by City, Contractor is solely responsible for the proper examination, handling, storage, and installation in accordance with the Contract Documents. Contractor must notify City of any defects discovered in City-provided materials or equipment, sufficiently in advance of scheduled use or installation to afford adequate time to procure replacement materials or equipment as needed. Contractor is solely responsible for any loss of or damage to such items which occurs while the items are in Contractor’s custody and control, the cost of which may be offset from the Contract Price and deducted from any payment(s) due to Contractor.
(C) Intellectual Property Rights. Contractor must, at its sole expense, obtain any authorization or license required for use of patented or copyright-protected materials, equipment, devices, or processes that are incorporated into the Work. Contractor’s indemnity obligations in Article 4 apply to any claimed violation of intellectual property rights.

7.7 Substitutions.
(A) “Or Equal.” Any Specification designating a material, product, or thing (collectively, “item”) or service by specific brand or trade name, followed by the words “or equal,” is intended only to indicate the quality and type of item or service desired, and Contractor may request use of any equal item or service. Unless otherwise stated in the Specifications, any reference to a specific brand or trade name for an item or service that is used solely for the purpose of describing the type of item or service desired, will be deemed to be followed by the words “or equal.” A substitution will only be approved if it is a true “equal” item or service in every aspect of design, function, and quality, as determined by City, including dimensions, weight, maintenance requirements, durability, fit with other elements, and schedule impacts.
(B) Request for Substitution. A post-award request for substitution of an item or service must be submitted in writing to the Engineer for

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approval in advance, within the applicable time period provided in the Contract Documents. If no time period is specified, the substitution request may be submitted any time within 35 days after the date of award of the Contract, or sufficiently in advance of the time needed to avoid delay of the Work, whichever is earlier.
(C) Substantiation. Any available data substantiating the proposed substitute as an equal item or service must be submitted with the written request for substitution. Contractor’s failure to timely provide all necessary substantiation, including any required test results as soon as they are available, is grounds for rejection of the proposed substitution, without further review.
(D) Burden of Proving Equality. Contractor has the burden of proving the equality of the proposed substitution at Contractor’s sole cost.

City has sole discretion to determine whether a proposed substitution is equal, and City’s determination is final.

(E) Approval or Rejection. If the proposed substitution is approved, Contractor is solely responsible for any additional costs or time associated with the substituted item or service. If the proposed substitution is rejected, Contractor must, without delay, install the item or use the service as specified by City.
(F) Contractor’s Obligations. City’s approval of a proposed substitution will not relieve Contractor from any of its obligations under the Contract Documents. In the event Contractor makes an unauthorized substitution, Contractor will be solely responsible for all resulting cost impacts, including the cost of removal and replacement and the impact to other design elements.

7.8 Testing and Inspection.
(A) General. All materials, equipment, and workmanship used in the Work are subject to inspection and testing by City at all times and at all locations during construction and/or fabrication, including at any Worksite, shops, and yards. All manufacturers’ application or installation instructions must be provided to the Inspector at least ten days prior to the first such application or installation. Contractor must, at all times, make the Work available for testing or inspection. Neither City’s inspection or testing of Work, nor its failure to do so, operate to waive or limit Contractor’s duty to complete the Work in accordance with the Contract Documents. (B) Scheduling and Notification. Contractor must cooperate with City in coordinating the inspections and testing. Contractor must submit samples of materials, at Contractor’s expense, and schedule all tests

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required by the Contract Documents in time to avoid any delay to the progress of the Work. Contractor must notify the Engineer no later than noon of the Working Day before any inspection or testing and must provide timely notice to the other necessary parties as specified in the Contract Documents. If Contractor schedules an inspection or test beyond regular Work hours, or on a Saturday, Sunday, or recognized City holiday, Contractor must notify the Engineer at least two Working Days in advance for approval. If approved, Contractor must reimburse City for the cost of the overtime inspection or testing. Such costs, including the City’s hourly costs for required personnel, may be deducted from payments otherwise due to Contractor.
(C) Responsibility for Costs. City will bear the initial cost of inspection and testing to be performed by independent consultants retained by City, subject to the following exceptions:
(1) Contractor will be responsible for the costs of any subsequent inspections or tests which are required to substantiate compliance with the Contract Documents, and any associated remediation costs.
(2) Contractor will be responsible for inspection costs, at City’s hourly rates, for inspection time lost because the Work is not ready, or Contractor fails to appear for a scheduled inspection. (3) If any portion of the Work that is subject to inspection or testing is covered or concealed by Contractor prior to the inspection or testing, Contractor will bear the cost of making that portion of the Work available for the inspection or testing required by the Contract Documents, and any associated repair or remediation costs. (4) Contractor is responsible for properly shoring all compaction test sites deeper than five feet below grade, as required under Section 7.15 below.
(5) Any Work or material that is defective or fails to comply with the requirements of the Contract Documents must be promptly repaired, removed, replaced, or corrected by Contractor, at Contractor’s sole expense, even if that Work or material was previously inspected or included in a progress payment. (D) Contractor’s Obligations. Contractor is solely responsible for any delay occasioned by remediation of defective or noncompliant Work or material. Inspection or testing of the Work does not in any way relieve Contractor of its obligations to perform the Work as specified. Any Work

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done without the inspection(s) or testing required by the Contract Documents will be subject to rejection by City.
(E) Distant Locations. If required off-site testing or inspection must be conducted at a location more than 100 miles from the Project site, Contractor is solely responsible for the additional travel costs required for testing and/or inspection at such locations.
(F) Final Inspection. The provisions of this Section 7.8 also apply to final inspection under Article 11, Completion and Warranty Provisions.

7.9 Project Site Conditions and Maintenance. Contractor must at all times, on a 24-hour basis and at its sole cost, maintain the Project site and staging and storage areas in clean, neat, and sanitary condition and in compliance with all Laws pertaining to safety, air quality, and dust control.

Adequate toilets must be provided, and properly maintained and serviced for all workers on the Project site, located in a suitably secluded area, subject to City’s prior approval. Contractor must also, on a daily basis and at its sole cost, remove and properly dispose of the debris and waste materials from the Project site.
(A) Air Emissions Control. Contractor must not discharge smoke or other air contaminants into the atmosphere in violation of any Laws.

Contractor must comply with all Laws, including the California Air Resources Board’s In-Use Off-Road Diesel-Fueled Fleets Regulation (13 CCR § 2449 et seq.).
(B) Dust and Debris. Contractor must minimize and confine dust and debris resulting from the Work. Contractor must abate dust nuisance by cleaning, sweeping, and immediately sprinkling with water excavated areas of dirt or other materials prone to cause dust, and within one hour after the Engineer notifies Contractor that an airborne nuisance exists.

The Engineer may direct that Contractor provide an approved waterspraying truck for this purpose. If water is used for dust control, Contractor will only use the minimum necessary. Contractor must take all necessary steps to keep waste water out of streets, gutters, or storm drains. See Section 7.19, Environmental Control. If City determines that the dust control is not adequate, City may have the work done by others and deduct the cost from the Contract Price. Contractor will immediately remove any excess excavated material from the Project site and any dirt deposited on public streets.
(C) Clean up. Before discontinuing Work in an area, Contractor must clean the area and remove all debris and waste along with the construction equipment, tools, machinery, and surplus materials.

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(1) Except as otherwise specified, all excess Project materials, and the materials removed from existing improvements on the Project site with no salvage value or intended reuse by City, will be Contractor’s property.
(2) Hauling trucks and other vehicles leaving the Project site must be cleaned of exterior mud or dirt before traveling on City streets.

Materials and loose debris must be delivered and loaded to prevent dropping materials or debris. Contractor must immediately remove spillage from hauling on any publicly traveled way. Streets affected by Work on the Project must be kept clean by street sweeping. (D) Disposal. Contractor must dispose of all Project debris and waste materials in a safe and legal manner. Contractor may not burn or bury waste materials on the Project site. Contractor will not allow any dirt, refuse, excavated material, surplus concrete or mortar, or any associated washings, to be disposed of onto streets, into manholes or into the storm drain system.
(E) Completion. At the completion of the Work, Contractor must remove from the Project site all of its equipment, tools, surplus materials, waste materials and debris, presenting a clean and neat appearance.

Before demobilizing from the Project site, Contractor must ensure that all surfaces are cleaned, sealed, waxed, or finished as applicable, and that all marks, stains, paint splatters, and the like have been properly removed from the completed Work and the surrounding areas. Contractor must ensure that all parts of the construction are properly joined with the previously existing and adjacent improvements and conditions. Contractor must provide all cutting, fitting and patching needed to accomplish that requirement. Contractor must also repair or replace all existing improvements that are damaged or removed during the Work, both on and off the Project site, including curbs, sidewalks, driveways, fences, signs, landscaping, utilities, street surfaces and structures. Repairs and replacements must be at least equal to the previously existing improvements, and the condition, finish and dimensions must match the previously existing improvements. Contractor must restore to original condition all property or items that are not designated for alteration under the Contract Documents and leave each Worksite clean and ready for occupancy or use by City.
(F) Non-Compliance. If Contractor fails to comply with its maintenance and cleanup obligations or any City clean up order, City may, acting in its sole discretion, elect to suspend the Work until the condition(s) is corrected with no increase in the Contract Time or Contract Price, or undertake appropriate cleanup measures without further notice

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and deduct the cost from any amounts due or to become due to Contractor.

7.10 Instructions and Manuals. Contractor must provide to City three copies each of all instructions and manuals required by the Contract Documents, unless otherwise specified. These must be complete as to drawings, details, parts lists, performance data, and other information that may be required for City to easily maintain and service the materials and equipment installed for this Project.
(A) Submittal Requirements. The instructions and manuals, along with any required guarantees, must be delivered to City for review prior to requesting final inspection pursuant to Section 11.1(A), unless otherwise specified.
(B) Training. Contractor or its Subcontractors must train City’s personnel in the operation and maintenance of any complex equipment or systems as a condition precedent to Final Completion, if required in the Contract Documents.

7.11 As-built Drawings. Contractor and its Subcontractors must prepare and maintain at the Project site a detailed, complete and accurate as-built set of the Plans which will be used solely for the purpose of recording changes made in any portion of the original Plans in order to create accurate record drawings at the end of the Project.
(A) Duty to Update. The as-built drawings must be updated as changes occur, on a daily basis if necessary. City may withhold the estimated cost for City to have the as-built drawings prepared from payments otherwise due to Contractor, until the as-built drawings are brought up to date to the satisfaction of City. Actual locations to scale must be identified on the as-built drawings for all runs of mechanical and electrical work, including all site utilities installed underground, in walls, floors, or otherwise concealed. Deviations from the original Plans must be shown in detail. The exact location of all main runs, whether piping, conduit, ductwork or drain lines, must be shown by dimension and elevation. The location of all buried pipelines, appurtenances, or other improvements must be represented by coordinates and by the horizontal distance from visible above-ground improvements.
(B) Final Completion. Contractor must verify that all changes in the Work are depicted in the as-built drawings and must deliver the complete set of as-built drawings to the Engineer for review and acceptance as a condition precedent to Final Completion and Final Payment.

7.12 Existing Utilities.

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(A) General. The Work may be performed in developed, urban areas with existing utilities, both above and below ground, including utilities identified in the Contract Documents or in other informational documents or records. Contractor must take due care to locate identified or reasonably identifiable utilities before proceeding with trenching, excavation, or any other activity that could damage or disrupt existing utilities. This may include excavation with small equipment, potholing, or hand excavation, and, if practical, using white paint or other suitable markings to delineate the area to be excavated. Except as otherwise provided herein, Contractor will be responsible for costs resulting from damage to identified or reasonably identifiable utilities due to Contractor’s negligence or failure to comply with the Contract Documents, including the requirements in this Article 7.
(B) Unidentified Utilities. Pursuant to Government Code § 4215, if, during the performance of the Work, Contractor discovers utility facilities not identified by City in the Contract Documents, Contractor must immediately provide written notice to City and the utility. City assumes responsibility for the timely removal, relocation, or protection of existing main or trunkline utility facilities located on the Project site if those utilities are not identified in the Contract Documents. Contractor will be compensated in accordance with the provisions of the Contract Documents for the costs of locating, repairing damage not due to Contractor’s failure to exercise reasonable care, and removing or relocating utility facilities not indicated in the Plans or Specifications with reasonable accuracy, and for equipment on the Project necessarily idled during such work. Contractor will not be assessed liquidated damages for delay in completion of the Work, to the extent the delay was caused by City’s failure to provide for removal or relocation of the utility facilities.

7.13 Notice of Excavation. Contractor must comply with all applicable requirements in Government Code § 4216 et seq., which are incorporated by reference herein.

7.14 Trenching and Excavations of Four Feet or More. As required by Public Contract Code § 7104, if the Work includes digging trenches or other excavations that extend deeper than four feet below the surface, the provisions in this Section apply to the Work and the Project. (A) Duty to Notify. Contractor must promptly, and before the following conditions are disturbed, provide written notice to City if Contractor finds any of the following conditions:
(1) Material that Contractor believes may be a hazardous waste, as defined in § 25117 of the Health and Safety Code, that is

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required to be removed to a Class I, Class II, or Class III disposal site in accordance with the provisions of existing Laws; (2) Subsurface or latent physical conditions at the Project site differing from those indicated by information about the Project site made available to bidders prior to the deadline for submitting bids; or
(3) Unknown physical conditions at the Project site of any unusual nature, materially different from those ordinarily encountered and generally recognized as inherent in work of the character required by the Contract Documents.
(B) City Investigation. City will promptly investigate the conditions and if City finds that the conditions materially differ from those indicated, apparent, or reasonably inferred from information about the Project site made available to bidders, or involve hazardous waste, and cause a decrease or increase in Contractor’s cost of, or the time required for, performance of any part of the Work, City will issue a Change Order. (C) Disputes. In the event that a dispute arises between City and Contractor regarding any of the conditions specified in subsection (B) above, or the terms of a Change Order issued by City, Contractor will not be excused from completing the Work within the Contract Time, but must proceed with all Work to be performed under the Contract. Contractor will retain any and all rights provided either by the Contract or by Laws which pertain to the resolution of disputes between Contractor and City.

7.15 Trenching of Five Feet or More. As required by Labor Code § 6705, if the Contract Price exceeds $25,000 and the Work includes the excavation of any trench or trenches of five feet or more in depth, a detailed plan must be submitted to City for acceptance in advance of the excavation.

The detailed plan must show the design of shoring, bracing, sloping, or other provisions to be made for worker protection from the hazard of caving ground during the excavation. If the plan varies from the shoring system standards, it must be prepared by a California registered civil or structural engineer. Use of a shoring, sloping, or protective system less effective than that required by the Construction Safety Orders is prohibited.

7.16 New Utility Connections. Except as otherwise specified, City will pay connection charges and meter costs for new permanent utilities required by the Contract Documents, if any. Contractor must notify City sufficiently in advance of the time needed to request service from each utility provider

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so that connections and services are initiated in accordance with the Project schedule.

7.17 Lines and Grades. Contractor is required to use any benchmark provided by the Engineer. Unless otherwise specified in the Contract Documents, Contractor must provide all lines and grades required to execute the Work. Contractor must also provide, preserve, and replace if necessary, all construction stakes required for the Project. All stakes or marks must be set by a California licensed surveyor or a California registered civil engineer. Contractor must notify the Engineer of any discrepancies found between Contractor’s staking and grading and information provided by the Contract Documents. Upon completion, all Work must conform to the lines, elevations, and grades shown in the Plans, including any changes directed by a Change Order.

7.18 Historic or Archeological Items.
(A) Contractor’s Obligations. Contractor must ensure that all persons performing Work at the Project site are required to immediately notify the Project Manager, upon discovery of any potential historic or archeological items, including historic or prehistoric ruins, a burial ground, archaeological or vertebrate paleontological site, including fossilized footprints or other archeological, paleontological or historical feature on the Project site (collectively, “Historic or Archeological Items”). (B) Discovery; Cessation of Work. Upon discovery of any potential Historic or Archeological Items, Work must be stopped within an 85-foot radius of the find and may not resume until authorized in writing by City. If required by City, Contractor must assist in protecting or recovering the Historic or Archeological Items, with any such assistance to be compensated as Extra Work on a time and materials basis under Article 6, Contract Modification. At City’s discretion, a suspension of Work required due to discovery of Historic or Archeological Items may be treated as Excusable Delay pursuant to Article 5, or as a suspension for convenience under Article 13.

7.19 Environmental Control. Contractor must not pollute any drainage course or its tributary inlets with fuels, oils, bitumens, acids, insecticides, herbicides or other harmful materials. Contractor must prevent the release of any hazardous material or hazardous waste into the soil or groundwater, and prevent the unlawful discharge of pollutants into City’s storm drain system and watercourses as required below. Contractor and its Subcontractors must at all times in the performance of the Work comply with all Laws concerning pollution of waterways.

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(A) Stormwater Permit. Contractor must comply with all applicable conditions of the State Water Resources Control Board National Pollutant Discharge Elimination System General Permit for Waste Discharge Requirements for Discharges of Stormwater Runoff Associated with Construction Activity (“Stormwater Permit”).
(B) Contractor’s Obligations. If required for the Work, a copy of the Stormwater Permit is on file in City’s principal administrative offices, and Contractor must comply with it without adjustment of the Contract Price or the Contract Time. Contractor must timely and completely submit required reports and monitoring information required by the conditions of the Stormwater Permit. Contractor also must comply with all other Laws governing discharge of stormwater, including applicable municipal stormwater management programs.

7.20 Noise Control. Contractor must comply with all applicable noise control Laws. Noise control requirements apply to all equipment used for the Work or related to the Work, including trucks, transit mixers or transient equipment that may or may not be owned by Contractor.

7.21 Mined Materials. Pursuant to Public Contract Code § 20676, Contractor will not purchase any sand, gravel, or other minerals for the Work from an operation subject to the Surface Mining and Reclamation Act of 1975 (Public Resources Code § 2710 et seq.) unless the Contractor certifies, under penalty of perjury, that the minerals are from a mining operation included on the AB 3098 List, which may be accessed online at:
https://www.conservation.ca.gov/smgb/Pages/AB-3098-List.aspx.

Article 8
Payment

8.1 Schedule of Values. Prior to submitting its first application for payment, Contractor must prepare and submit to the Project Manager a schedule of values apportioned to the various divisions and phases of the Work, including mobilization and demobilization. If a Bid Schedule was submitted with Contractor’s bid, the amounts in the schedule of values must be consistent with the Bid Schedule. Each line item contained in the schedule of values must be assigned a value such that the total of all items equals the Contract Price. The items must be sufficiently detailed to enable accurate evaluation of the percentage of completion claimed in each application for payment, and the assigned value consistent with any itemized or unit pricing submitted with Contractor’s bid. (A) Measurements for Unit Price Work. Materials and items of Work to be paid for on the basis of unit pricing will be measured according to the methods specified in the Contract Documents.

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(B) Deleted or Reduced Work. Contractor will not be compensated for Work that City has deleted or reduced in scope, except for any labor, material, or equipment costs for such Work that Contractor reasonably incurred before Contractor learned that the Work could be deleted or reduced. Contractor will only be compensated for those actual, direct and documented costs incurred, and will not be entitled to any mark up for overhead or lost profits.

8.2 Progress Payments. Following the last day of each month, or as otherwise required by the Special Conditions or Specifications, Contractor will submit to the Project Manager a monthly application for payment for Work performed during the preceding month based on the estimated value of the Work performed during that preceding month.
(A) Application for Payment. Each application for payment must be itemized to include labor, materials, and equipment incorporated into the Work, and materials and equipment delivered to the Project site, as well as authorized and approved Change Orders. Each payment application must be supported by the unit prices submitted with Contractor’s Bid Schedule and/or schedule of values and any other substantiating data required by the Contract Documents.

Each application for payment shall be accompanied by completed “Contract Balance Form,” a copy of which is provided at the end of Article 8.
(B) Payment of Undisputed Amounts. City will pay the undisputed amount due within 30 days after Contractor has submitted a complete and accurate payment application, subject to Public Contract Code § 20104.50. City will deduct a percentage from each progress payment as retention, as set forth in Section 8.5, below, and may deduct or withhold additional amounts as set forth in Section 8.3, below.

8.3 Adjustment of Payment Application. City may adjust or reject the amount requested in a payment application, including application for Final Payment, in whole or in part, if the amount requested is disputed or unsubstantiated. Contractor will be notified in writing of the basis for the modification to the amount requested. City may also deduct or withhold from payment otherwise due based upon any of the circumstances and amounts listed below. Sums withheld from payment otherwise due will be released when the basis for that withholding has been remedied and no longer exists.
(A) For Contractor’s unexcused failure to perform the Work as required by the Contract Documents, including correction or completion of punch

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list items, City may withhold or deduct an amount based on the City’s estimated cost to correct or complete the Work.
(B) For loss or damage caused by Contractor or its Subcontractors arising out of or relating to performance of the Work or any failure to protect the Project site, City may deduct an amount based on the estimated cost to repair or replace.
(C) For Contractor’s failure to pay its Subcontractors and suppliers when payment is due, City may withhold an amount equal to the total of past due payments and may opt to pay that amount separately via joint check pursuant to Section 8.6(B), Joint Checks.
(D) For Contractor’s failure to timely correct rejected, nonconforming, or defective Work, City may withhold or deduct an amount based on the City’s estimated cost to correct or complete the Work.
(E) For any unreleased stop notice, City may withhold 125% of the amount claimed.
(F) For Contractor’s failure to submit any required schedule or schedule update in the manner specified or within the time specified in the Contract Documents, City may withhold an amount equal to five percent of the total amount requested until Contractor complies with its schedule submittal obligations.
(G) For Contractor’s failure to maintain or submit as-built documents in the manner specified or within the time specified in the Contract Documents, City may withhold or deduct an amount based on the City’s cost to prepare the as-builts.
(H) For Work performed without Shop Drawings that have been accepted by City, when accepted Shop Drawings are required before proceeding with the Work, City may deduct an amount based on the estimated cost to correct unsatisfactory Work or diminution in value. (I) For fines, payments, or penalties assessed under the Labor Code, City may deduct from payments due to Contractor as required by Laws and as directed by the Division of Labor Standards Enforcement. (J) For any other fines, payments, or penalties assessed against the City relating to Contractor’s acts or omissions, including violations of Laws, City may withhold or deduct such amounts from payment otherwise due to Contractor.

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(K) For any other costs or charges that may be withheld or deducted from payments to Contractor, as provided in the Contract Documents, including liquidated damages, City may withhold or deduct such amounts from payment otherwise due to Contractor.

8.4 Early Occupancy. Neither City’s payment of progress payments nor its partial or full use or occupancy of the Project constitutes acceptance of any part of the Work.

8.5 Retention. City will retain five percent of the full amount due on each progress payment (i.e., the amount due before any withholding or deductions pursuant to Section 8.3, Adjustment of Payment Application), or the percentage stated in the Notice Inviting Bids, whichever is greater, as retention to ensure full and satisfactory performance of the Work.

Contractor is not entitled to any reduction in the rate of withholding at any time, nor to release of any retention before 35 days following City’s recordation of the Notice of Completion, subject to the terms of Public Contract Code Section 7107.
(A) Substitution of Securities. As provided by Public Contract Code Section 22300, Contractor may request in writing that it be allowed, at its sole expense, to substitute securities for the retention withheld by City.

Any escrow agreement entered into pursuant to this provision must fully comply with Public Contract Code Section 22300 and will be subject to approval as to form by City’s legal counsel. If City exercises its right to draw upon such securities in the event of default pursuant to section (7) of the statutory Escrow Agreement for Security Deposits in Lieu of Retention, pursuant to subdivision (g) of Public Contract Code Section 22300 (“Escrow Agreement”), and if Contractor disputes that it is in default, its sole remedy is to comply with the dispute resolution procedures in Article 12 and the provisions therein. It is agreed that for purposes of this paragraph, an event of default includes City’s rights pursuant to these Contract Documents to withhold or deduct sums from retention, including withholding or deduction for liquidated damages, incomplete or defective Work, stop payment notices, or backcharges. It is further agreed that if any individual authorized to give or receive written notice on behalf of a party pursuant to section (10) of the Escrow Agreement are unavailable to give or receive notice on behalf of that party due to separation from employment, retirement, death, or other circumstances, the successor or delegee of the named individual is deemed to be the individual authorized to give or receive notice pursuant to section (10) of the Escrow Agreement.
(B) Release of Undisputed Retention. All undisputed retention, less any amounts that may be assessed as liquidated damages, retained for stop notices, or otherwise withheld pursuant to Section 8.3, Adjustment of

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Payment Application, will be released as Final Payment to Contractor no sooner than 35 days following recordation of the notice of completion, and no later than 60 days following acceptance of the Project by City’s governing body or authorized designee pursuant to Section 11.1(C), Acceptance, or, if the Project has not been accepted, no later than 60 days after the Project is otherwise considered complete pursuant to Public Contract Code Section 7107(c).

8.6 Payment to Subcontractors and Suppliers. Each month, Contractor must promptly pay each Subcontractor and supplier the value of the portion of labor, materials, and equipment incorporated into the Work or delivered to the Project site by the Subcontractor or supplier during the preceding month. Such payments must be made in accordance with the requirements of Laws pertaining to such payments, and those of the Contract Documents and applicable subcontract or supplier contract. (A) Withholding for Stop Notice. Pursuant to Civil Code Section 9358, City will withhold 125% of the amount claimed by an unreleased stop notice, a portion of which may be retained by City for the costs incurred in handling the stop notice claim, including attorneys’ fees and costs, as authorized by law.
(B) Joint Checks. City reserves the right, acting in its sole discretion, to issue joint checks made payable to Contractor and a Subcontractor or supplier, if City determines this is necessary to ensure fair and timely payment for a Subcontractor or supplier who has provided services or goods for the Project. As a condition to release of payment by a joint check, the joint check payees may be required to execute a joint check agreement in a form provided or approved by the City Attorney’s Office.

The joint check payees will be jointly and severally responsible for the allocation and disbursement of funds paid by joint check. Payment by joint check will not be construed to create a contractual relationship between City and a Subcontractor or supplier of any tier beyond the scope of the joint check agreement.

8.7 Final Payment. Contractor’s application for Final Payment must comply with the requirements for submitting an application for a progress payment as stated in Section 8.2, above. Corrections to previous progress payments, including adjustments to estimated quantities for unit priced items, may be included in the Final Payment. If Contractor fails to submit a timely application for Final Payment, City reserves the right to unilaterally process and issue Final Payment without an application from Contractor in order to close out the Project. For the purposes of determining the deadline for Claim submission pursuant to Article 12, the date of Final Payment is deemed to be the date that City acts to release undisputed retention as final payment to Contractor, or otherwise provides written

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notice to Contractor of Final Payment or that no undisputed funds remain available for Final Payment due to offsetting withholdings or deductions pursuant to Section 8.3, Adjustment of Payment Application. If the amount due from Contractor to City exceeds the amount of Final Payment, City retains the right to recover the balance from Contractor or its sureties.

8.8 Release of Claims. City may, at any time, require that payment of the undisputed portion of any progress payment or Final Payment be contingent upon Contractor furnishing City with a written waiver and release of all claims against City arising from or related to the portion of Work covered by those undisputed amounts subject to the limitations of Public Contract Code Section 7100. Any disputed amounts may be specifically excluded from the release.

8.9 Warranty of Title. Contractor warrants that title to all work, materials, or equipment incorporated into the Work and included in a request for payment will pass over to City free of any claims, liens, or encumbrances upon payment to Contractor.

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CONTRACT BALANCE FORM
Project Name: _____________________________________
Note: A detailed invoice MUST be attached to this Contract Balance Form.

CONTRACTOR NAME: ____________________________ DATE: ______________________________ MAILING ADDRESS: ______________________________ TELEPHONE NO.: ____________________ ______________________________ FAX NO.: ___________________________ ______________________________ PROJECT NO.: ______________________ INVOICE NO.: _______________________

1. ORIGINAL CONTRACT AMOUNT: $________

2. APPROVED CHANGE ORDERS TOTAL: $________

3. REVISED CONTRACT AMOUNT: (1+2) $________

4. PREVIOUS BALANCE PAID: $________

5. REMAINING BALANCE: (3-4) $________

6. CURRENT PROGRESS PAYMENT DUE: $________
(before retention)

7. 5% RETENTION FROM WORK DONE: (-)$________

8. CURRENT BALANCE DUE: (6-7) $________

9. REMAINING BALANCE OF REVISED
CONTRACT AMOUNT: (5-8) $________
(including retention)

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Article 9
Labor Provisions

9.1 Discrimination Prohibited. Discrimination against any prospective or present employee engaged in the Work on grounds of race, color, ancestry, national origin, ethnicity, religion, sex, sexual orientation, age, disability, or marital status is strictly prohibited. Contractor and its Subcontractors are required to comply with all applicable Laws prohibiting discrimination including the California Fair Employment and Housing Act (Government Code Section 12900 et seq.), Government Code Section 11135, and Labor Code Sections 1735, 1777.5, 1777.6, and 3077.5.

9.2 Labor Code Requirements.
(A) Eight Hour Day. Pursuant to Labor Code Section 1810, eight hours of labor constitute a legal day’s work under this Contract. (B) Penalty. Pursuant to Labor Code Section 1813, Contractor will forfeit to City as a penalty, the sum of $25.00 for each day during which a worker employed by Contractor or any Subcontractor is required or permitted to work more than eight hours in any one calendar day or more than 40 hours per calendar week, except if such workers are paid overtime under Labor Code Section 1815.
(C) Apprentices. Contractor is responsible for compliance with the requirements governing employment and payment of apprentices, as set forth in Labor Code Section 1777.5, which is fully incorporated by reference.
(D) Notices. Pursuant to Labor Code Section 1771.4, Contractor is required to post all job site notices prescribed by Laws.

9.3 Prevailing Wages. Each worker performing Work under this Contract that is covered under Labor Code Sections 1720, 1720.3, or 1720.9, including cleanup at the Project site, must be paid at a rate not less than the prevailing wage as defined in Sections 1771 and 1774 of the Labor Code. The prevailing wage rates are available online at http://www.dir.ca.gov/dlsr. Contractor must post a copy of the applicable prevailing rates at the Worksite.
(A) Penalties. Pursuant to Labor Code Section 1775, Contractor and any Subcontractor will forfeit to City as a penalty up to $200.00 for each calendar day, or portion of a day, for each worker paid less than the applicable prevailing wage rate. Contractor must also pay each worker the difference between the applicable prevailing wage rate and the amount actually paid to that worker.

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(B) Federal Requirements. If this Project is subject to federal prevailing wage requirements in addition to California prevailing wage requirements, Contractor and its Subcontractors are required to pay the higher of the currently applicable state or federal prevailing wage rates.

9.4 Payroll Records. Contractor must comply with the provisions of Labor Code Sections 1771.4, 1776, and 1812 and all implementing regulations, which are fully incorporated by this reference, including requirements for electronic submission of payroll records to the DIR.
(A) Contractor and Subcontractor Obligations. Contractor and each Subcontractor must keep accurate payroll records, showing the name, address, social security number, work classification, straight time and overtime hours worked each day and week, and the actual per diem wages paid to each journeyman, apprentice, worker, or other employee employed in connection with the Work. Each payroll record must contain or be verified by a written declaration that it is made under penalty of perjury, stating both of the following:
(1) The information contained in the payroll record is true and correct; and
(2) Contractor or Subcontractor has complied with the
requirements of Labor Code Sections 1771, 1811, and 1815 for any Work performed by its employees on the Project.
(B) Certified Record. A certified copy of an employee’s payroll record must be made available for inspection or furnished to the employee or his or her authorized representative on request, to City, to the Division of Labor Standards Enforcement, to the Division of Apprenticeship Standards of the DIR, and as further required by the Labor Code. (C) Enforcement. Upon notice of noncompliance with Labor Code Section 1776, Contractor or Subcontractor has ten days in which to comply with the requirements of this section. If Contractor or Subcontractor fails to do so within the ten day period, Contractor or Subcontractor will forfeit a penalty of $100.00 per day, or portion of a day, for each worker for whom compliance is required, until strict compliance is achieved. Upon request by the Division of Apprenticeship Standards, or the Division of Labor Standards Enforcement, these penalties will be withheld from payments then due to Contractor.

9.5 Labor Compliance. Pursuant to Labor Code section 1771.4, the Contract for this Project is subject to compliance monitoring and enforcement by the DIR.

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9.6 Wage Theft Prevention. Compliance with Wage and Hour Laws:

Contractor, and any subcontractor it employs to complete work under this Agreement, shall comply with all applicable federal, state and local wage and hour laws. Applicable laws may include, but are not limited to, the Federal Fair Labor Standards Act and the California Labor Code.

Final Judgments, Decisions, and Orders: For purposes of this Section, a “final judgment, decision, or order” refers to one for which all appeals have been exhausted or the time to appeal has expired. Relevant investigatory government agencies include: the federal Department of Labor, the California Division of Labor Standards Enforcement, or any other governmental entity or division tasked with the investigation and enforcement of wage and hour laws.

Prior Judgments against Contractor and/or its Subcontractors: BY SIGNING

THIS AGREEMENT, CONTRACTOR AFFIRMS THAT IT HAS DISCLOSED ANY

FINAL JUDGMENTS, DECISIONS OR ORDERS FROM A COURT OR
INVESTIGATORY GOVERNMENT AGENCY FINDING – IN THE FIVE (5) YEARS PRIOR TO EXECUTING THIS AGREEMENT – THAT CONTRACTOR

OR ITS SUBCONTRACTOR(S) HAS VIOLATED ANY APPLICABLE WAGE AND HOUR LAWS. CONTRACTOR FURTHER AFFIRMS THAT IT OR ITS SUBCONTRACTOR(S) HAS SATISFIED AND COMPLIED WITH – OR HAS

REACHED AGREEMENT WITH THE CITY REGARDING THE MANNER IN WHICH IT WILL SATISFY – ANY SUCH JUDGMENTS, DECISIONS OR ORDERS.

Judgments or Decisions During Term of Contract: If at any time during the term of this Agreement, a court or investigatory government agency issues a final judgment, decision or order finding that Contractor or an subcontractor it employs to perform work under this Agreement has violated any applicable wage and hour law, or Contractor learns of such a judgment, decision, or order that was not previously disclosed, Contractor shall inform the City Attorney, no more than fifteen (15) days after the judgment, decision or order becomes final or of learning of the final judgment, decision or order. Contractor and its subcontractors shall promptly satisfy and comply with any such judgment, decision, or order, and shall provide the City Attorney with documentary evidence of compliance with the final judgment, decision or order within five (5) days of satisfying the final judgment, decision or order. The City reserves the right to require Contractor to enter into an agreement with the City regarding the manner in which any such final judgment, decision, or order will be satisfied.

City’s Right to Withhold Payment: Where Contractor or any subcontractor it employs to perform work under this Agreement has been found in violation of any applicable wage and hour law by a final judgment, decision or order of a court or government agency, the City reserves the right to withhold payment to Contractor until such judgment, decision or order has been satisfied in full.

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Material Breach: Failure to comply with any part of this Section constitutes a material breach of this Agreement. Such breach may serve as a basis for immediate termination of this Agreement and/or any other remedies available under this Agreement and/or law.

Notice to City Related to Wage Theft Prevention: Notice provided to the City Attorney as required under this Section shall be addressed to: City Attorney, City of Morgan Hill, 17575 Peak Avenue, Morgan Hill, CA 95037. The Notice provisions of this Section are separate from any other notice provisions in this Agreement and, accordingly, only notice provided to the above address satisfies the notice requirements in this Section.

Article 10
Safety Provisions

10.1 Safety Precautions and Programs. Contractor and its Subcontractors are fully responsible for safety precautions and programs, and for the safety of persons and property in the performance of the Work.

Contractor and its Subcontractors must at all times comply with all applicable health and safety Laws and seek to avoid injury, loss, or damage to persons or property by taking reasonable steps to protect its employees and other persons at any Worksite, materials and equipment stored on or off site, and property at or adjacent to any Worksite. (A) Reporting Requirements. Contractor must immediately notify the City of any death, serious injury or illness resulting from Work on the Project. Contractor must immediately provide a written report to City of each recordable accident or injury occurring at any Worksite within 24 hours of the occurrence. The written report must include: (1) the name and address of the injured or deceased person; (2) the name and address of each employee of Contractor or of any Subcontractor involved in the incident; (3) a detailed description of the incident, including precise location, time, and names and contact information for known witnesses; and (4) a police or first responder report, if applicable. If Contractor is required to file an accident report with a government agency, Contractor will provide a copy of the report to City.
(B) Legal Compliance. Contractor’s safety program must comply with the applicable legal and regulatory requirements. Contractor must provide City with copies of all notices required by Laws.
(C) Contractor’s Obligations. Any damage or loss caused by Contractor arising from the Work which is not insured under property insurance must be promptly remedied by Contractor.

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(D) Remedies. If City determines, in its sole discretion, that any part of the Work or Worksite is unsafe, City may, without assuming responsibility for Contractor’s safety program, require Contractor or its Subcontractor to cease performance of the Work or to take corrective measures to City’s satisfaction. If Contractor fails to promptly take the required corrective measures, City may perform them and deduct the cost from the Contract Price. Contractor agrees it is not entitled to submit a Claim for damages, for an increase in Contract Price, or for a change in Contract Time based on Contractor’s compliance with City’s request for corrective measures pursuant to this provision.

10.2 Hazardous Materials. Unless otherwise specified in the Contract Documents, this Contract does not include the removal, handling, or disturbance of any asbestos or other Hazardous Materials. If Contractor encounters materials on the Worksite that Contractor reasonably believes to be asbestos or other Hazardous Materials, and the asbestos or other Hazardous Materials have not been rendered harmless, Contractor may continue Work in unaffected areas reasonably believed to be safe, but must immediately cease work on the area affected and report the condition to City. No asbestos, asbestos-containing products or other Hazardous Materials may be used in performance of the Work.

10.3 Material Safety. Contractor is solely responsible for complying with Section 5194 of Title 8 of the California Code of Regulations, including by providing information to Contractor’s employees about any hazardous chemicals to which they may be exposed in the course of the Work. A hazard communication program and other forms of warning and training about such exposure must be used. Contractor must also maintain Safety Data Sheets (“SDS”) at the Worksite, as required by Law, for materials or substances used or consumed in the performance of the Work. The SDS will be accessible and available to Contractor’s employees, Subcontractors, and City.
(A) Contractor Obligations. Contractor is solely responsible for the proper delivery, handling, use, storage, removal, and disposal of all materials brought to the Worksite and/or used in the performance of the Work. Contractor must notify the Engineer if a specified product or material cannot be used safely
(B) Labeling. Contractor must ensure proper labeling on any material brought onto the Worksite so that any persons working with or in the vicinity of the material may be informed as to the identity of the material, any potential hazards, and requirements for proper handling, protections, and disposal.

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10.4 Hazardous Condition. Contractor is solely responsible for determining whether a hazardous condition exists or is created during the course of the Work, involving a risk of bodily harm to any person or risk of damage to any property. If a hazardous condition exists or is created, Contractor must take all precautions necessary to address the condition and ensure that the Work progresses safely under the circumstances. Hazardous conditions may result from, but are not limited to, use of specified materials or equipment, the Work location, the Project site condition, the method of construction, or the way any Work must be performed.

10.5 Emergencies. In an emergency affecting the safety or protection of persons, Work, or property at or adjacent to any Worksite, Contractor must take reasonable and prompt actions to prevent damage, injury, or loss, without prior authorization from the City if, under the circumstances, there is inadequate time to seek prior authorization from the City.

Article 11
Completion and Warranty Provisions

11.1 Final Completion.
(A) Final Inspection and Punch List. When the Work required by this Contract is fully performed, Contractor must provide written notification to the City requesting final inspection. The Engineer will schedule the date and time for final inspection, which must include Contractor’s primary representative for the Project and its superintendent. Based on that inspection, City will prepare a punch list of items that are incomplete, missing, defective, incorrectly installed, or otherwise not compliant with the Contract Documents. The punch list to Contractor will specify the time by which all of the punch list items must be completed or corrected. The punch list may include City’s estimated cost to complete each punch list item if Contractor fails to do so within the specified time. The omission of any non-compliant item from a punch list will not relieve Contractor from fulfilling all requirements of the Contract Documents. Contractor’s failure to complete any punch list item within the time specified in the punch list will not waive or abridge its warranty obligations for any such items that must be completed by the City or by a third party retained by the City due to Contractor’s failure to timely complete any such outstanding item. (B) Requirements for Final Completion. Final Completion will be achieved upon completion or correction of all punch list items, as verified by City’s further inspection, and upon satisfaction of all other Contract requirements, including any commissioning required under the Contract Documents, and submission of all final submittals, including instructions

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and manuals as required under Section 7.10, and complete, final as-built drawings as required under Section 7.11, all to City’s satisfaction. (C) Acceptance. The Project will be considered accepted upon City Council action during a public meeting to accept the Project, unless the Engineer is authorized to accept the Project, in which case the Project will be considered accepted upon the date of the Engineer’s issuance of a written notice of acceptance. In order to avoid delay of Project close out, the City may elect, acting in its sole discretion, to accept the Project as complete subject to exceptions for punch list items that are not completed within the time specified in the punch list.
(D) Final Payment and Release of Retention. Final Payment and release of retention, less any sums withheld pursuant to the provisions of the Contract Documents, will not be made sooner than 35 days after recordation of the notice of completion. If Contractor fails to complete all of the punch list items within the specified time, City may withhold up to one hundred fifty percent 150% of City’s estimated cost to complete each of the remaining items from Final Payment and may use the withheld retention to pay for the costs to self-perform the outstanding items or to retain a third party to complete any such outstanding punch list item.

11.2 Warranty.
(A) General. Contractor warrants that all materials and equipment will be new unless otherwise specified, of good quality, in conformance with the Contract Documents, and free from defective workmanship and materials. Contractor further warrants that the Work will be free from material defects not intrinsic in the design or materials required in the Contract Documents. Contractor warrants that materials or items incorporated into the Work comply with the requirements and standards in the Contract Documents, including compliance with Laws, and that any Hazardous Materials encountered or used were handled as required by Laws. At City’s request, Contractor must furnish satisfactory evidence of the quality and type of materials and equipment furnished. Contractor’s warranty does not extend to damage caused by normal wear and tear, or improper use or maintenance.
(B) Warranty Period. Contractor’s warranty must guarantee its Work for a period of one year from the project acceptance (the “Warranty Period”), except when a longer guarantee is provided by a supplier or manufacturer or is required by the Specifications or Special Conditions.

Contractor must obtain from its Subcontractors, suppliers and manufacturers any special or extended warranties required by the Contract Documents.

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(C) Warranty Documents. As a condition precedent to Final Completion, Contractor must supply City with all warranty and guarantee documents relevant to equipment and materials incorporated into the Work and guaranteed by their suppliers or manufacturers. (D) Subcontractors. The warranty obligations in the Contract Documents apply to Work performed by Contractor and its Subcontractors, and Contractor expressly agrees to be co-guarantor of such Work.
(E) Contractor’s Obligations. Upon written notice from City to Contractor of any defect in the Work discovered during the Warranty Period, Contractor or its responsible Subcontractor must promptly correct the defective Work at its own cost. Contractor’s obligation to correct defects discovered during the Warranty Period will continue past the expiration of the Warranty Period as to any defects in Work for which Contractor was notified prior to expiration of the Warranty Period. Work performed during the Warranty Period (“Warranty Work”) will be subject to the warranty provisions in this Section 11.2 for a one-year period that begins upon completion of such Warranty Work to City’s satisfaction. (F) City’s Remedies. If Contractor or its responsible Subcontractor fails to correct defective Work within ten days following notice by City, or sooner, if required by the circumstances, City may correct the defects to conform with the Contract Documents at Contractor’s sole expense.

Contractor must reimburse City for its costs in accordance with subsection (H) below.
(G) Emergency Repairs. In cases of emergency where any delay in correcting defective Work could cause harm, loss or damage, City may immediately correct the defects to conform with the Contract Documents at Contractor’s sole expense. Contractor or its surety must reimburse City for its costs in accordance with subsection (H), below.
(H) Reimbursement. Contractor must reimburse City for its costs to repair under subsections (F) or (G), above, within 30 days following City’s submission of a demand for payment pursuant to this provision. If City is required to initiate legal action to compel Contractor’s compliance with this provision, and City is the prevailing party in such action, Contractor and its surety are solely responsible for all of City’s attorney’s fees and legal costs expended to enforce Contractor’s warranty obligations herein in addition to any and all costs incurred by City to correct the defective Work.

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condition suitable for the proposed occupation or use, and that it is in its best interest to occupy or make use of the Project, or any portions of it, prior to Final Completion. City will notify Contractor in writing of its intent to occupy or make use of the Project or any portions of the Project, pursuant to this provision.
(A) Non-Waiver. Occupation or use of the Project, in whole or in part, prior to Final Completion will not operate as acceptance of the Work or any portion of it, nor will it operate as a waiver of any of City’s rights or Contractor’s duties pursuant to these Contract Documents, and will not affect nor bear on the determination of the time of substantial completion with respect to any statute of repose pertaining to the time for filing an action for construction defect.
(B) City’s Responsibility. City will be responsible for the cost of maintenance and repairs due to normal wear and tear with respect to those portions of the Project that are being occupied or used before Final Completion. The Contract Price or the Contract Time may be adjusted pursuant to the applicable provisions of these Contract Documents if, and only to the extent that, any occupation or use under this Section actually adds to Contractor’s cost or time to complete the Work within the Contract time.

11.4 Substantial Completion. For purposes of determining “substantial completion” with respect to any statute of repose pertaining to the time for filing an action for construction defect, “substantial completion” is deemed to mean the last date that Contractor or any Subcontractor performs Work on the Project prior to recordation of the Notice of Completion, except for warranty work performed under this Article.

Article 12
Dispute Resolution

12.1 Claims. This Article applies to and provides the exclusive procedures for any Claim arising from or related to the Contract or performance of the Work.
(A) Limitations. A Claim may only include the portion of a previously rejected demand that remains in dispute between Contractor and City.

With the exception of any dispute regarding the amount of money actually paid to Contractor as Final Payment, Contractor is not entitled to submit a Claim demanding a change in the Contract Time or the Contract Price, which has not previously been submitted to City in full compliance with Article 5 and Article 6, and subsequently rejected in whole or in part by City.

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(B) Scope of Article. This Article is intended to provide the exclusive procedures for submission and resolution of Claims of any amount, and applies in addition to the provisions of Public Contract Code Section 9204 and Sections 20104, et seq., which are incorporated herein by this reference.
(C) No Work Delay. Notwithstanding the submission of a Claim or any other dispute between the parties related to the Project or the Contract Documents, Contractor must perform the Work and may not delay or cease Work pending resolution of a Claim or other dispute, but must continue to diligently prosecute the performance and timely completion of the Work, including the Work pertaining to a Claim or other dispute. (D) Informal Resolution. Contractor will make a good faith effort to informally resolve a dispute before initiating a Claim, preferably by face-toface meeting between authorized representatives of Contractor and City.

12.2 Claims Submission. The following requirements apply to any Claim subject to this Article:
(A) Substantiation. The Claim must be submitted to City in writing by registered or certified mail with return receipt requested and clearly identified as a “Claim” submitted pursuant to this Article 12. The Claim must include all of the documents necessary to substantiate the Claim including the Change Order request that was rejected in whole or in part, and a copy of City’s written rejection that is in dispute. The Claim must clearly identify and describe the dispute, including relevant references to applicable portions of the Contract Documents, and a chronology of the relevant events. Any Claim for additional payment must include a complete, itemized breakdown of all known or estimated labor, materials, taxes, insurance, and subcontract, or other costs. Substantiating documentation such as payroll records, receipts, invoices, or the like, must be submitted in support of each component of claimed cost. Any Claim for an extension of time or delay costs must be substantiated with a schedule analysis and narrative depicting and explaining claimed time impacts.

Contractor understands that submission of a Claim which has no basis in fact or which Contractor knows to be false may violate the False Claims Act (Government Code Section 12650 et seq.).
(B) Claim Format and Content. A Claim must be submitted in the following format:
(1) Provide a cover letter, specifically identifying the submission as a “Claim” submitted under this Article 12, and specifying the requested remedy (e.g., amount of proposed change to Contract Price and/or change to Contract Time).

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(2) Provide a summary of each Claim, including underlying facts and the basis for entitlement and identify each specific demand at issue, including the specific Change Order request (by number and submittal date), and the date of City's rejection of that demand, in whole or in part.
(3) Provide a detailed explanation of each issue in dispute. For multiple issues included within a single Claim or for multiple Claims submitted concurrently, separately number and identify each individual issue or Claim and include the following for each separate issue or Claim:
(a) A succinct statement of the matter in dispute, including Contractor’s position and the basis for that position;
(b) Identify and attach all documents that substantiate the Claim, including relevant provisions of the Contract
Documents, RFIs, calculations, and schedule analysis (see subsection (A), Substantiation, above);
(c) A chronology of relevant events; and
(d) Analysis and basis for claimed changes to Contract
Price, Contract Time, or any other remedy requested.
(4) Provide a summary of issues and corresponding claimed damages. If, by the time of the Claim submission deadline (below), the precise amount of the requested change in the Contract Price or Contract Time is not yet known, Contractor must provide a good faith estimate, including the basis for that estimate, and must identify the date by which it is anticipated that the Claim will be updated to provide final amounts.
(5) Include the following certification, executed by Contractor’s authorized representative:
“The undersigned Contractor certifies under penalty of perjury that its statements and representations in this Claim submittal are true and correct. Contractor warrants that this Claim submittal is comprehensive and complete as to the matters in dispute, and agrees that any costs, expenses, or delay not included herein are deemed waived.”
(C) Submission Deadlines.

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(1) A Claim disputing rejection of a request for a change in the Contract Time or Contract Price must be submitted within 21 days following the date that City notified Contractor in writing that a request for a change in the Contract Time or Contract Price, duly submitted in compliance with Article 5 and Article 6, has been rejected in whole or in part. A Claim disputing the terms of a unilateral Change Order must be submitted within 21 days following the date of issuance of the unilateral Change Order. These Claim deadlines apply even if Contractor cannot yet quantify the total amount of any requested change in the Contract Time or Contract Price. If the Contractor cannot quantify those amounts, it must submit an estimate of the amounts claimed pending final determination of the requested remedy by Contractor.
(2) With the exception of any dispute regarding the amount of Final Payment, any Claim must be filed on or before the date of Final Payment, or will be deemed waived.
(3) A Claim disputing the amount of Final Payment must be submitted within 21 days of the effective date of Final Payment, under Section 8.7, above.
(4) Strict compliance with these Claim submission deadlines is necessary to ensure that any dispute may be mitigated as soon as possible, and to facilitate cost-efficient administration of the Project.

Any Claim that is not submitted within the specified deadlines will be deemed waived by Contractor.

12.3 City’s Response. City will respond within 45 days of receipt of the Claim with a written statement identifying which portion(s) of the Claim are disputed, unless the 45 day period is extended by mutual agreement of City and Contractor, or as otherwise allowed under Public Contract Code Section 9204. However, if City determines that the Claim is not adequately substantiated pursuant to Section 12.2(A), Substantiation, City may first request, in writing, within 30 days of receipt of the Claim, any additional documentation supporting the Claim or relating to defenses to the Claim that City may have against the Claim.
(A) Additional Information. If additional information is thereafter required, it may be requested and provided upon mutual agreement of City and Contractor. If Contractor’s Claim is based on estimated amounts, Contractor has a continuing duty to update its Claim as soon as possible with information on actual amounts in order to facilitate prompt and fair resolution of the Claim.

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(B) Non-Waiver. Any failure by City to respond within the times specified above will not be construed as acceptance of the Claim in whole or in part, or as a waiver of any provision of these Contract Documents.

12.4 Meet and Confer. If Contractor disputes City’s written response, or City fails to respond within the specified time, within 15 days of receipt of City’s response or within 15 days of City’s failure to respond within the applicable 45- day time period under Section 12.3, respectively, Contractor may notify City of the dispute in writing sent by registered or certified mail, return receipt requested and demand an informal conference to meet and confer for settlement of the issues in dispute. If Contractor fails to notify City of the dispute and demand an informal conference to meet and confer in writing within the specified time, Contractor’s Claim will be deemed waived.
(A) Schedule Meet and Confer. Upon receipt of the demand to meet and confer, City will schedule the meet and confer conference to be held within 30 days, or later if needed to ensure the mutual availability of each of the individuals that each party requires to represent its interests at the meet and confer conference.
(B) Location for Meet and Confer. The meet and confer conference will be scheduled at a location at or near City’s principal office. (C) Written Statement After Meet and Confer. Within ten working days after the meet and confer has concluded, City will issue a written statement identifying which portion(s) of the Claim remain in dispute, if any.
(D) Submission to Mediation. If the Claim or any portion remains in dispute following the meet and confer conference, within ten working days after the City issues the written statement identifying any portion(s) of the Claim remaining in dispute, the Contractor may identify in writing disputed portion(s) of the claim that will be submitted for mediation as set forth below.

12.5 Mediation and Government Code Claims.
(A) Mediation. Within ten working days after the City issues the written statement identifying any portion(s) of the Claim remaining in dispute following the meet and confer, City and Contractor will mutually agree to a mediator, as provided under Public Contract Code § 9204.

Mediation will be scheduled to ensure the mutual availability of the selected mediator and all of the individuals that each party requires to represent its interests. If there are multiple Claims in dispute, the parties may agree to schedule the mediation to address all outstanding Claims at the same time. The parties will share the costs of the mediator and

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mediation fees equally, but each party is otherwise solely and separately responsible for its own costs to prepare for and participate in the mediation, including costs for its legal counsel or any other consultants. (B) Government Code Claims.
(1) Timely presentation of a Government Code Claim is a condition precedent to filing any legal action based on or arising from the Contract. Compliance with the Claim submission requirements in this Article 12 is a condition precedent to filing a Government Code Claim.
(2) The time for filing a Government Code Claim will be tolled from the time Contractor submits its written Claim pursuant to Section

12.2, above, until the time that Claim is denied in whole or in part at the conclusion of the meet and confer process, including any period of time used by the meet and confer process. However, if the Claim is submitted to mediation, the time for filing a Government Code Claim will be tolled until conclusion of the mediation, including any continuations, if the Claim is not fully resolved by mutual agreement of the parties during the mediation or any continuation of the mediation.

12.6 Tort Claims. This Article does not apply to tort claims and nothing in this Article is intended nor will be construed to change the time periods for filing tort-based Government Code Claims.

12.7 Arbitration. It is expressly agreed, under Code of Civil Procedure Section 1296, that in any arbitration to resolve a dispute relating to this Contract, the arbitrator’s award must be supported by law and substantial evidence.

12.8 Burden of Proof and Limitations. Contractor bears the burden of proving entitlement to and the amount of any claimed damages.

Contractor is not entitled to damages calculated on a total cost basis, but must prove actual damages. Contractor is not entitled to speculative, special, or consequential damages, including home office overhead or any form of overhead not directly incurred at the Project site or any other Worksite; lost profits; loss of productivity; lost opportunity to work on other projects; diminished bonding capacity; increased cost of financing for the Project; extended capital costs; non-availability of labor, material or equipment due to delays; or any other indirect loss arising from the Contract. The Eichleay Formula or similar formula will not be used for any recovery under the Contract. The City will not be directly liable to any Subcontractor or supplier.

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12.9 Legal Proceedings. In any legal proceeding that involves enforcement of any requirements of the Contract Documents, the finder of fact will receive detailed instructions on the meaning and operation of the Contract Documents, including conditions, limitations of liability, remedies, claim procedures, and other provisions bearing on the defenses and theories of liability. Detailed findings of fact will be requested to verify enforcement of the Contract Documents. All of the City's remedies under the Contract Documents will be construed as cumulative, and not exclusive, and the City reserves all rights to all remedies available under law or equity as to any dispute arising from or relating to the Contract Documents or performance of the Work.

12.10 Other Disputes. The procedures in this Article 12 will apply to any and all disputes or legal actions, in addition to Claims, arising from or related to this Contract, including disputes regarding suspension or early termination of the Contract, unless and only to the extent that compliance with a procedural requirement is expressly and specifically waived by City.

Nothing in this Article is intended to delay suspension or termination under Article 13.

Article 13
Suspension and Termination

13.1 Suspension for Cause. In addition to all other remedies available to City, if Contractor fails to perform or correct Work in accordance with the Contract Documents, including non-compliance with applicable environmental or health and safety Laws, City may immediately order the Work, or any portion of it, suspended until the circumstances giving rise to the suspension have been eliminated to City’s satisfaction. (A) Notice of Suspension. Upon receipt of City’s written notice to suspend the Work, in whole or in part, except as otherwise specified in the notice of suspension, Contractor and its Subcontractors must promptly stop Work as specified in the notice of suspension; comply with directions for cleaning and securing the Worksite; and protect the completed and inprogress Work and materials. Contractor is solely responsible for any damages or loss resulting from its failure to adequately secure and protect the Project.

(B) Resumption of Work. Upon receipt of the City’s written notice to resume the suspended Work, in whole or in part, except as otherwise specified in the notice to resume, Contractor and its Subcontractors must promptly re-mobilize and resume the Work as specified; and within ten days from the date of the notice to resume, Contractor must submit a recovery schedule, prepared in accordance with the Contract Documents, showing how Contractor will complete the Work within the Contract Time.

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(C) Failure to Comply. Contractor will not be entitled to an increase in the Contract Time or Contract Price for a suspension occasioned by Contractor’s failure to comply with the Contract Documents. (D) No Duty to Suspend. City’s right to suspend the Work will not give rise to a duty to suspend the Work, and City’s failure to suspend the Work will not constitute a defense to Contractor’s failure to comply with the requirements of the Contract Documents.

13.2 Suspension for Convenience. City reserves the right to suspend, delay, or interrupt the performance of the Work in whole or in part, for a period of time determined to be appropriate for City’s convenience. Upon notice by City pursuant to this provision, Contractor must immediately suspend, delay, or interrupt the Work and secure the Project site as directed by City except for taking measures to protect completed or in-progress Work as directed in the suspension notice, and subject to the provisions of Section

13.1(A) and (B), above. If Contractor submits a timely request for a Change Order in compliance with Articles 5 and 6, the Contract Price and the Contract Time will be equitably adjusted by Change Order pursuant to the terms of Articles 5 and 6 to reflect the cost and delay impact occasioned by such suspension for convenience, except to the extent that any such impacts were caused by Contractor’s failure to comply with the Contract Documents or the terms of the suspension notice or notice to resume. However, the Contract Time will only be extended if the suspension causes or will cause unavoidable delay in Final Completion. If Contractor disputes the terms of a Change Order issued for such equitable adjustment due to suspension for convenience, its sole recourse is to comply with the Claim procedures in Article 12.

13.3 Termination for Default. City may declare that Contractor is in default of the Contract for a material breach of or inability to fully, promptly, or satisfactorily perform its obligations under the Contract. (A) Default. Events giving rise to a declaration of default include Contractor’s refusal or failure to supply sufficient skilled workers, proper materials, or equipment to perform the Work within the Contract Time; Contractor’s refusal or failure to make prompt payment to its employees, Subcontractors, or suppliers or to correct defective Work or damage; Contractor’s failure to comply with Laws, or orders of any public agency with jurisdiction over the Project; evidence of Contractor’s bankruptcy, insolvency, or lack of financial capacity to complete the Work as required within the Contract Time; suspension, revocation, or expiration and nonrenewal of Contractor’s license or DIR registration; dissolution, liquidation, reorganization, or other major change in Contractor’s organization, ownership, structure, or existence as a business entity;

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unauthorized assignment of Contractor’s rights or duties under the Contract; or any material breach of the Contract requirements. (B) Notice of Default and Opportunity to Cure. Upon City’s declaration that Contractor is in default due to a material breach of the Contract Documents, if City determines that the default is curable, City will afford Contractor the opportunity to cure the default within ten days of City’s notice of default, or within a period of time reasonably necessary for such cure, including a shorter period of time if applicable. (C) Termination. If Contractor fails to cure the default or fails to expediently take steps reasonably calculated to cure the default within the time period specified in the notice of default, City may issue written notice to Contractor and its performance bond surety of City’s termination of the Contract for default.
(D) Waiver. Time being of the essence in the performance of the Work, if Contractor’s surety fails to arrange for completion of the Work in accordance with the Performance Bond within seven calendar days from the date of the notice of termination pursuant to paragraph (C), City may immediately make arrangements for the completion of the Work through use of its own forces, by hiring a replacement contractor, or by any other means that City determines advisable under the circumstances.

Contractor and its surety will be jointly and severally liable for any additional cost incurred by City to complete the Work following termination, where “additional cost” means all cost in excess of the cost City would have incurred if Contractor had timely completed Work without the default and termination. In addition, City will have the right to immediate possession and use of any materials, supplies, and equipment procured for the Project and located at the Project site or any Worksite on City property for the purposes of completing the remaining Work. (E) Compensation. Within 30 days of receipt of updated as-builts, all warranties, manuals, instructions, or other required documents for Work installed to date, and delivery to City of all equipment and materials for the Project for which Contractor has already been compensated, Contractor will be compensated for the Work satisfactorily performed in compliance with the Contract Documents up to the effective date of the termination pursuant to the terms of Article 8, Payment, subject to City’s rights to withhold or deduct sums from payment otherwise due pursuant to Section

8.3, and excluding any costs Contractor incurs as a result of the termination, including any cancellation or restocking charges or fees due to third parties. If Contractor disputes the amount of compensation determined by City, its sole recourse is to comply with the Claim Procedures in Article 12, by submitting a Claim no later than 30 days following notice from City of the total compensation to be paid by City.

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(F) Wrongful Termination. If Contractor disputes the termination, its sole recourse is to comply with the Claim procedures in Article 12. If a court of competent jurisdiction or an arbitrator later determines that the termination for default was wrongful, the termination will be deemed to be a termination for convenience, and Contractor’s damages will be strictly limited to the compensation provided for termination for convenience under Section 13.4, below. Contractor waives any claim for any other damages for wrongful termination including special or consequential damages, lost opportunity costs, or lost profits, and any award of damages is subject to Section 12.8, Burden of Proof and Limitations.

13.4 Termination for Convenience. City reserves the right, acting in its sole discretion, to terminate all or part of the Contract for convenience upon written notice to Contractor.
(A) Compensation to Contractor. In the event of City’s termination for convenience, Contractor waives any claim for damages, including for loss of anticipated profits from the Project. The following will constitute full and fair compensation to Contractor, and Contractor will not be entitled to any additional claim or compensation:
(1) Completed Work. The value of its Work satisfactorily performed as of the date notice of termination is received, based on Contractor’s schedule of values and unpaid costs for items delivered to the Project site that were fabricated for incorporation in the Work;
(2) Demobilization. Demobilization costs specified in the schedule of values, or if demobilization costs were not provided in a schedule of values pursuant to Section 8.1, then based on actual, reasonable, and fully documented demobilization costs; and (3) Termination Markup. Five percent of the total value of the Work performed as of the date of notice of termination, including reasonable, actual, and documented costs to comply with the direction in the notice of termination for convenience, and demobilization costs, which is deemed to cover all overhead and profit to date.
(B) Disputes. If Contractor disputes the amount of compensation determined by City pursuant to paragraph (A), above, its sole recourse is to comply with the Claim procedures in Article 12, by submitting a Claim no later than 30 days following notice from City of total compensation to be paid by City.

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13.5 Actions Upon Termination for Default or Convenience. The following provisions apply to any termination under this Article, whether for default or convenience, and whether in whole or in part.
(A) General. Upon termination, City may immediately enter upon and take possession of the Project and the Work and all tools, equipment, appliances, materials, and supplies procured or fabricated for the Project.

Contractor will transfer title to and deliver all completed Work and all Work in progress to City.
(B) Submittals. Unless otherwise specified in the notice of termination, Contractor must immediately submit to City all designs, drawings, as-built drawings, Project records, contracts with vendors and Subcontractors, manufacturer warranties, manuals, and other such submittals or Work-related documents required under the terms of the Contract Documents, including incomplete documents or drafts. (C) Close Out Requirements. Except as otherwise specified in the notice of termination, Contractor must comply with all of the following:
(1) Immediately stop the Work, except for any Work that must be completed pursuant to the notice of termination and comply with City’s instructions for cessation of labor and securing the Project and any other Worksite(s).
(2) Comply with City’s instructions to protect the completed Work and materials, using best efforts to minimize further costs. (3) Contractor must not place further orders or enter into new subcontracts for materials, equipment, services or facilities, except as may be necessary to complete any portion of the Work that is not terminated.
(4) As directed in the notice, Contractor must assign to City or cancel existing subcontracts that relate to performance of the terminated Work, subject to any prior rights, if any, of the surety for Contractor’s performance bond, and settle all outstanding liabilities and claims, subject to City’s approval.
(5) As directed in the notice, Contractor must use its best efforts to sell any materials, supplies, or equipment intended solely for the terminated Work in a manner and at market rate prices acceptable to City.
(D) Payment Upon Termination. Upon completion of all termination obligations, as specified herein and in the notice of termination, Contractor

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will submit its request for Final Payment, including any amounts due following termination pursuant to this Article 13. Payment will be made in accordance with the provisions of Article 8, based on the portion of the Work satisfactorily completed, including the close out requirements, and consistent with the previously submitted schedule of values and unit pricing, including demobilization costs. Adjustments to Final Payment may include deductions for the cost of materials, supplies, or equipment retained by Contractor; payments received for sale of any such materials, supplies, or equipment, less re-stocking fees charged; and as otherwise specified in Section 8.3, Adjustment of Payment Application. (E) Continuing Obligations. Regardless of any Contract termination, Contractor’s obligations for portions of the Work already performed will continue and the provisions of the Contract Documents will remain in effect as to any claim, indemnity obligation, warranties, guarantees, submittals of as-built drawings, instructions, or manuals, record maintenance, or other such rights and obligations arising prior to the termination date.

Article 14
Miscellaneous Provisions

14.1 Assignment of Unfair Business Practice Claims. Under Public Contract Code Section 7103.5, Contractor and its Subcontractors agree to assign to City all rights, title, and interest in and to all causes of action it may have under Section 4 of the Clayton Act (15 U.S.C. Section 15) or under the Cartwright Act (Chapter 2 (commencing with Section 16700) of Part 2 of Division 7 of the Business and Professions Code), arising from purchases of goods, services, or materials pursuant to the Contract or any subcontract. This assignment will be effective at the time City tenders Final Payment to Contractor, without further acknowledgement by the parties.

14.2 Provisions Deemed Inserted. Every provision of law required to be inserted in the Contract Documents is deemed to be inserted, and the Contract Documents will be construed and enforced as though such provision has been included. If it is discovered that through mistake or otherwise that any required provision was not inserted, or not correctly inserted, the Contract Documents will be deemed amended accordingly.

14.3 Waiver. City’s waiver of a breach, failure of any condition, or any right or remedy contained in or granted by the provisions of the Contract Documents will not be effective unless it is in writing and signed by the City. City’s waiver of any breach, failure, right, or remedy will not be deemed a waiver of any other breach, failure, right, or remedy, whether or

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not similar, nor will any waiver constitute a continuing waiver unless specified in writing by the City.

14.4 Titles, Headings, and Groupings. The titles and headings used and the groupings of provisions in the Contract Documents are for convenience only and may not be used in the construction or interpretation of the Contract Documents or relied upon for any other purpose.

14.5 Statutory and Regulatory References. With respect to any amendments to any statutes or regulations referenced in these Contract Documents, the reference is deemed to be the version in effect on the date that bids were due.

14.6 Survival. The provisions that survive termination or expiration of this Contract include Contract Section 11, Notice, and subsections 12.1, 12.2,

12.3, 12.4, 12.5, and 12.6 of Section 12, General Provisions; and the following provisions in these General Conditions: Section 2.2(J), Contractor’s Records, Section 2.3(C), Termination, Section 3.7, Ownership, Section 4.2, Indemnity, Article 12, Dispute Resolution, and Section 11.2, Warranty.

END OF GENERAL CONDITIONS

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SPECIAL CONDITIONS

1. Emergency Contact. Prior to the commencement of Work on the Project, Contractor must provide contact information to the Project Manager for the person designated by Contractor to respond to any emergency that arises on the Worksite during the course of the Project. That person will be responsible for responding to the Worksite within thirty (30) minutes following notification of an emergency by City’s Police or Fire Department, regardless of the time of day.

8 CITY COUNCIL STAFF REPORT
MEETING DATE: January 28, 2026
PREPARED BY:

Matt Mahood, Economic Development Director
APPROVED BY: City Manager

ACCEPT MORGAN HILL PROPERTY AND BUSINESS IMPROVEMENT

DISTRICT (MHPBID) OWNERS' ASSOCIATION ANNUAL REPORT
(DBA DOWNTOWN MORGAN HILL IMPROVEMENT DISTRICT)

RECOMMENDATION(S)
Accept and file the Downtown Morgan Hill Improvement District Annual Report.

COUNCIL PRIORITIES, GOALS & STRATEGIES
City Council Ongoing Priorities
Maintaining and Enhancing Infrastructure
Preserving and Cultivating Public Trust
2024-2025 Strategic Priorities
Fiscal Sustainability
Economic Development and Tourism
Guiding Documents
Bikeways, Trails, and Recreation Master Plan
Downtown Strategic Plan
Economic Blueprint
Morgan Hill 2035 General Plan
REPORT NARRATIVE:

The Downtown Morgan Hill Improvement District (DMHID) serves as the Owners' Association of the Morgan Hill Property and Business Improvement District (MHPBID), and is required to present an annual report at the end of each year of operation to the Morgan Hill City Council pursuant to Streets and Highways Code §36650. The Purpose of this staff report is to present the MHPBID's 2025 Annual Report (Attachment 1) for acceptance by the City Council.

Background:

On November 16, 2022, the City Council adopted a resolution establishing a Morgan Hill Property and Business Improvement District (MHPBID) for a five-year term.

The MHPBID provides for the collection of a property assessment from all parcels located within the District that are categorized as commercial, government or nonprofit.

8 The assessment rate (cost to the parcel owner) is based on parcel type, parcel square footage, and in some cases, linear frontage. To determine a parcel’s assessment, the applicable square footage rates are applied to the parcels within the MHPBID as follows:

Commercial and government parcels are assessed at a rate of $0.10 per square foot and non-profit parcels are assessed at a rate of $0.04 per square foot. Frontage rates are applied to parcels fronting East 3rd St, after Monterey Rd. intersection, Monterey Rd., and Depot St. Frontage rates are applied to the parcels within these areas as follows: Commercial parcels are assessed at an additional rate of $5.00 per linear foot and non-profit parcels are assessed at an additional rate of $2.00 per linear foot.

MHPBID assessments are public/private funds managed by a non-profit board and are used to support clean and safe, capital improvement, marketing and special event efforts, designed to increase foot traffic, beautification and vibrancy to the District.

The Streets and Highways Code §36650 requires the MHPBID to provide the City Council with an Annual Report that articulates the following:
• Any proposed changes in the boundaries of the improvement district or any benefit zones or classification of businesses within the district. • The improvements, maintenance, and activities provided for that fiscal year. • An estimate of the cost of providing improvements, maintenance, and activities for that fiscal year.
• The method and basis of levying the assessment in sufficient detail to allow each business owner to estimate the amount of the assessment to be levied against their business for that fiscal year.
• The estimated amount of any surplus or deficit revenues to be carried over from a previous fiscal year.
• The estimated amount of any contributions to be made from sources other than assessments levied pursuant to this part.
• A statement confirming that all required annual federal and state filings to ensure corporate good standing and to maintain tax-exempt status are completed and up to date.
• A copy of the previous year’s accepted federal and state tax filings.

Management District Plan:

A Management District Plan (MDP) identifies the MHPBID’s boundaries, budget, services, and governance. Below is a summary of MHPBID’s Plan:
• Boundary: The MHPBID boundary includes parcels north of Dunne, east of Del Monte, south of Main, and west of Butterfield, as shown on the map in the MDP. • Term: Five (5)-year assessment beginning January 1, 2024, through December 31, 2028, with an annual 30-day period of protest for termination by assessed businesses.
• Budget: Annual assessment rates as outlined above will produce an annual

8 budget of approximately $284,640. The MDP allows the Owners Association to annually approve incremental increases to the MHPBID rate up to 3%. • Mission: The purpose of the MHPBID is to provide improvements, maintenance, and activities which constitute and convey a special benefit to assessed parcels.

The MHPBID will provide Clean and Safe programs, Capital Improvements and Art Installations, Marketing and Special Events, and related Management and Administration directly and only to assessed parcels within its boundaries. • Governance: A non-profit corporation, Downtown Morgan Hill Improvement District (DMHID), serves as the “Owners' Association” charged with the management of funds and implementation of the MHPBID Management District Plan. An annual report is required to be provided to the City Council at the end of each year of operation. The owner’s association first report shall be due after the first year of operation of the District (January 1, 2024 - December 31, 2024).

Owners' Association Makeup and Goal (DMHID Board of Directors):

The MHPBID shall be governed by the Downtown Morgan Hill Improvement District (DMHID) Board, with oversight from the Morgan Hill City Council.

The Owners' Association, DMHID, is a private entity separate from the City of Morgan Hill. The corporation shall have no less than five (5) and no more than nine (9) Directors. A majority of the Board of Directors of the DMHID must be parcel owners paying the assessment and the remaining Board seats must represent a variety of interests within the MHPBID as follows: a minimum of three (3) Directors must be property owners or approved managers paying the MHPID assessment, a minimum of two (2) Directors must be City of Morgan Hill staff members representing Public Works and Economic Development, and a combination of up to four (4) Directors can be business owners within the MHPBID, Downtown residents, and/or additional property owners or approved managers paying the MHPBID assessment. Currently, the Economic Development Director and the Public Services Director serve on the DMHID Board.

The goal of DMHID is to maintain the Downtown District as a safe and inviting environment, attract more tenants, shoppers, and visitors, increase property values, and stabilize occupancy. The DMHID will achieve these goals by providing clean and safe programs, capital improvements, art installations, marketing, special events, and related district management within the Downtown boundary. This private/public partnership will have the ability to leverage parcel owners’ investment with additional public investment to provide the financial resources necessary to develop and implement a focused strategy to support existing and future businesses and patrons in Downtown Morgan Hill.

Annual Report
The Owners' Association is required to present an annual report at the end of each year of operation to the City Council pursuant to Streets and Highways Code §36650. The 2025 Annual Report is attached for the City Council’s review and acceptance (Attachment 1).

8 DMHID’s Annual Report does not propose any changes to the boundaries, benefit zones, or classifications of businesses. A list of activities and accomplishments undertaken by the district are listed in the Annual Report, including illumination of trees in the center median from Main Ave to Dunne, annual sidewalk cleaning, funding of the Morgan Hill Police Department’s 2-year pilot program installing Condor Cameras on Monterey Rd. and Depot St., funding and content creation for the Visit Morgan Hill Destination Guide, management of the Sidewalk Saturdays Makers Market, creation and management of three Twilight Markets, as well as other marketing and partnership efforts.

In 2025, DMHID’s income was $313,994, which consisted of $267,407 in assessment funds and $46,587 in non-assessment revenue. The 2025 end of year account balance as of December 31, 2025, was $258,537.

A copy of the DMHID's 2025 Statement of Financial Position (Attachment 2) and 2024 Tax Return (Attachment 3) are attached.

COMMUNITY ENGAGEMENT:

The DMHID board of directors meets every month and conforms with Brown Act noticing requirements. These meetings are open to the public, and meeting records are kept at www.dmhid.org.

ALTERNATIVE ACTIONS:

No alternative action is recommended, as this is an annual report on activities which have already occurred.

PRIOR CITY COUNCIL AND COMMISSION ACTIONS:

On January 15, 2025, the City Council accepted and filed the 2024 Downtown Morgan Hill Improvement District Annual Report.

On November 16, 2022, the City Council signed a resolution to form the Morgan Hill Property and Business Improvement District, approving the assessment formula and levying the assessments.

On September 28, 2022, the City Council adopted a Resolution of Intent to form the PBID and authorized the City Manager to sign the ballot for all city-owned properties in support of the formation.

FISCAL AND RESOURCE IMPACT:

As provided by State Law, the MHPBID assessment will appear as a separate line item on annual property tax bills prepared by the County of Santa Clara (County). The County is responsible for collecting the assessment on a bi-annual basis and remitting to the City. The City forwards the assessments to the Owners' Association, known as the Downtown Morgan Hill Improvement District (DMHID), a nonprofit corporation managing the MHPBID funds in accordance with the MDP. The PBID funds are a

8 combination of public and private funds managed by a non-profit board (DMHID).

The City gets paid a fee equal to two percent (2%) of the amount of the assessment collected to cover administration costs. In 2025, the City collected $5,457.00 from the administration fee.

CEQA (California Environmental Quality Act):

Categorical Exemption
Pursuant to CEQA, organizational or administrative activities of governments that will not result in direct or indirect physical changes in the environment are exempt activities.

ANNUAL
REPORT
2025

DOWNTOWN MORGAN

HILL IMPROVEMENT

DISTRICT
Prepared by:

JAN 01-DEC 31

MORGAN HILLPROPERTYAND

BUSINESSIMPROVEMENT DISTRICT

ANNUAL
REPORT
District Background
Downtown Morgan Hill Improvement District (DMHID)
This report serves as the Annual Report from the Downtown Morgan Hill Improvement District Board (DMHID), responsible for the Downtown District and Morgan Hill Property and Business Improvement District (MHPBID) to the Morgan Hill City Council.

Developed by a coalition of Downtown property owners , the Morgan Hill Property and Business Improvement District (MHPBID) is a benefit assessment district whose main goal is to provide improvements, maintenance, and activities which constitute and convey a special benefit to assessed parcels. The MHPBID includes parcels north of Dunne Avenue, east of Del Monte Street, south of Main Street, and west of Butterfield Boulevard. As required by state law, property owners have created this Management District Plan (Plan) to form the MHPBID. The Downtown MHPBID is managed by a 501c6 non-profit organization, the Downtown Morgan Hill Improvement District (DMHID), in agreement with the City and guided by a board of directors comprised of property owners, business owners, residents and city staff.

The DMHID aligns services with the direct benefits to those who contribute, ensuring a vibrant future for Downtown Morgan Hill.

The Downtown Morgan Hill Improvement District (DMHID) is dedicated to enhancing the vibrancy and economic success of Downtown Morgan Hill. Funded by Downtown commercial property owners, non-profits and the City, their mission is to promote a safe, clean, and welcoming environment through targeted programming, beautification, and marketing. The DMHID will achieve these goals by providing clean and safe programs, capital improvements, art installations, marketing, special events, and related district management within the Downtown boundary. This private/public partnership will have the ability to leverage property owners’ investment along with additional private investment to provide the financial resources necessary to develop and implement a focused strategy to support existing and future businesses and patrons in Downtown Morgan Hill.

1 ASSESSMENT

OVERVIEW
The boundaries of the Assessment District include approximately 15 blocks surrounding the Monterey Road commercial corridor. The Assessment District is generally bounded on the south of Main Avenue, on the west of Butterfield Boulevard, on the north of Dunne Avenue, and on the East by Del Monte Avenue, as shown on the map below.

District Boundary

2 The assessment roll is a listing of the proposed assessment for the Fiscal Year 2024/2025 apportioned to each parcel, as shown on the last equalized roll of the Assessor of the County of Santa Clara. The assessment roll for Fiscal Year 2024/2025 has been attached as Appendix 1.

ASSESSMENT

OVERVIEW
Assessment Roll
3 As provided by State Law, the MHPBID assessment will appear as a separate line item on annual property tax bills prepared by the County of Santa Clara (County). The Santa Clara County Assessor’s Office is responsible for collecting the assessment from the property owners and remitting it to the City on a bi-annual basis. The County levies and collects the assessments in the same manner and at the same time as ordinary ad valorem property taxes. The City forwards the assessments to the Owners' Association, known as the Downtown Morgan Hill Improvement District (DMHID), a nonprofit corporation managing the MHPBID funds in accordance with the MDP, defined as “Plan” above.

Time and Manner of Collecting Assessments
If a property owner believes that an assessment has been calculated or applied in error, the owner may contact the Board to correct the property information used to calculate the assessment. For Fiscal Year 2025/2026, the DMHID did not receive any requested corrections from property owners.

Resolution Disputes
Assessment Term
The MHPBID was established with an initial five (5)-year assessment term beginning January 1, 2024, through December 31, 2028, with an annual 30-day period of protest for termination by assessed businesses.

92 58
Property Owners
Properties
Annual Budget
Clean & Safe
60%
Capital Improvements & Art Installations
15%
Marketing & Special Events
10%
Administration
10%
Collection Fee
2%
Contingency Reserve
3%
Parcel Type
Square Footage
Assessment Rate (sq.ft.)
Linear Frontage
Assessment Rate (ln.ft.)
Commercial/Government $0.10 $5.00
Non-profit $0.04 $2.00
Parcels located within the District that are categorized as commercial, government, or nonprofit are subject to the assessment. The assessment rate (cost to the parcel owner) is based on parcel type, parcel square footage, and in some cases, linear frontage. To determine a parcel’s assessment, the applicable square footage and linear frontage rates in the table below are applied to the parcels within the MHPBID.

Frontage rates are applied to parcels fronting East 3rd St, after Monterey Rd. intersection, Monterey Rd., and Depot St. The initial annual assessment rates are shown below. Assessment rates may be subject to an increase of no more than three percent (3%) per year.

ASSESSMENT

OVERVIEW
Assessment Formula
$284,640

4 KEYFOCUS
AREAS
Capital Improvements and Art Installations
The Capital Improvements and Art Installation Program helps enhance the Downtown District through investments in public space improvements, streetscape features, and public art installations.

The Marketing and Special Events Program helps enhance the visibility and appeal of the Downtown District through investments in coordinated marketing, special events, and positive media outreach.

Clean and Safe
Marketing and Special Events
The Clean & Safe Program helps create a cleaner, safer, and more welcoming Downtown District through enhanced services like litter removal, graffiti abatement, pressure washing, and investments in improved lighting and security measures.
5 Service Plan
A service plan to provide special benefits to assessed properties was developed using several methods. A series of property owner meetings, a survey of property owners, and an analysis of current property conditions and needs were all conducted. The primary needs identified were: Clean and Safe programs, Capital Improvements and Art Installations, and Marketing and Special Events. The MHPBID can provide these services to the District and directly benefit the assessed parcels within its boundaries.

2025

PROGRAMACTIVITIES
The focus of the Morgan Hill Property Business Improvement District (MHPBID) is to maintain the Downtown District as a safe and inviting environment, attract more tenants and shoppers, increase property values, and stabilize occupancy.

Under the leadership of the elected members of the Association (the “Board”), the Association implements and funds various improvements, services, and activities that will benefit the nonresidential properties throughout the Assessment District. The Assessment District maintains a 3% operating reserve for unanticipated expenses and new programs or projects not listed below.

The improvements, services, and activities detailed below are collectively referred to as the Program Activities Plan. The City currently provides certain improvements, services, and activities throughout the Downtown area. The Program Activities Plan funded by assessment revenue is in addition to those services provided by the City.

The Program Activities Plan may be amended in any year and is subject to the review and approval of the Board prior to City Council approval.

6 CLEAN &
SAFE
7 Monterey Median Tree Lighting
Completed the illumination of all trees in
the median from Monterey Road to
Dunne Avenue.

Lighting colors are changed every other
month to reflect the holiday or occassion.

Facilitated the removal of unkept
sidewalk tree lighting between Monterey
Road and Dunne Avenue.

Condor Camera Pilot Program
Partnered with the Morgan Hill Police
Department to fund 50% of a 2-year pilot
program to add security cameras to
Downtown.

Sidewalk Cleaning
Managed and funded a Districtwide sidewalk cleaning after the 4th of July festivities.

EVENTS
Sidewalk Saturdays
Organized and managed eight local
Makers Markets on the 2nd Saturday of
every month, during the months of MayDecember.

Averaged 45 vendors per event and
opened booth space for community
partners.

Included a partial closure of 3rd Street.

Twilight Markets
Developed three additional markets on
Thursday evenings called “Twilight
Markets,” in June, August, and October.

Included over 35 vendor, community
partner, resource, and kids’ activity
booths.

Offered activities free of charge to
support the community.

8 EVENTS
9 Merry Morgan Hill
Partnered with local non-profit and service
organizations to develop a lineup of holidaythemed events during the month of December.

Events included:

Free community movie night after the Holiday
Lights Parade featuring “The Grinch.”
Jingle on 3 Street Community Market.
rd
Shopping and Santa Experience at the Granada.

Signature holiday play written and performed
by the South Valley Civic Theatre.

MARKETING
10 DESTINATIONGUIDE
Assisted with funding and content
creation for Visit Morgan Hill’s 2026-
2027 Destination Guide.

COMMUNITYOUTREACH
Presented to and collaborated with
local non-profit, business, and service
organizations including: Rotary,
Kiwanis, Morgan Hill Downtown
Association, Morgan Hill Chamber of
Commerce, South County Real Estate
Association, Mushroom Festival,
Edward Boss Prado Foundation,
YMCA of Silicon Valley, LCAC, MHUSD,
Wineries of Santa Clara Valley,
Freedom Fest, and Historical Society.

SOCIALMEDIA/PRINTMEDIA
Grew Instagram account by 56%.

Authored bi-monthly column in
Morgan Hill Times Publication.

Maintain Sidewalk Saturday and Twilight Markets, while growing program visibility, diversifying vendors, and increasing foot traffic.

Work with partner organizations to host and implement events to leverage costs and permit accessibility.

Fundraise and manage the construction and implementation of a Downtown Gateway Arch Project.

Replace and upgrade garbage cans along Depot Street.

Enhance landscaping along Depot Street.

Coordinate Quarterly Downtown Clean up Days in collaboration with partner organizations.

Research developing a Downtown Street Team to help with graffiti abatement, Utilize “See Click Fix” reporting to support clean and safe efforts.

Develop grant programs to cost-share upgrades to parking lot lighting and the removal of brick planter boxes.

Increase safety through enhanced lighting and access to the VTA Parking Lot.

Fund year two of the Downtown security camera Pilot Program.

Perform annual sidewalk cleaning.

Investigate funding strategies to install twinkle lights on Monterey Road sidewalk trees.
2026PROGRAM

ACTIVITIESPLAN

11 FINANCIALS
$89,261.54
$267,406.84
$45,306.98
Administration
Assessment
Collection
Non-Assessment
Revenue
2025EXPENSES
2025 REVENUE
12 The organization’s 2025 financial report has been attached as Appendix 2 Clean & Safe $85,301.24 $26,235.26
Marketing and
Special Events
$313,994.09
PBID Startup
Fund Repayment $12,900.00
2025 NET REVENUE $87,151.05
$226,843.04
Capital Improvement/
Art Installation $13,145.00
Other Revenue $1,280.27

FINANCIALS
DMHID/ MHPBID 2024 Federal Return of Organization Exempt from Income Tax was electronically filed and accepted with the Internal Revenue Service.

No tax is payable with the filing of this return.

DMHID’s 2024 California Exempt Organization Annual Information Return was electronically filed.

No audit conducted for 2024.

Taxes Prepared Without Audit
Other Contributions
No other financial contributions to the DMHID were made.

Proposed Changes
There are no proposed changes to the boundaries of the improvement district or to any of the benefit zones or classification of business within the district.

The Morgan Hill Property and Business Improvement District (MHPBID) is a benefit assessment district whose main goal is to provide improvements, maintenance, and activities which constitute and convey a special benefit to assessed parcels. This approach has been used successfully in other cities throughout the country to provide special benefits to property owners, namely increased sales, attraction of new tenants, increased occupancies, and specifically increased property values. The goal in years to come is to meet and exceed the criteria of each of the target areas outlined in the MDP, generate revenue and sales tax, and grow Downtown Morgan Hill as a vibrant, beautiful, and welcoming destination.

Conclusion

13 Visits to the Downtown District
2019 2020 2021 2022 2023 2024 2025

0.0 0.5

1.0 1.5

2.0 2.5

3.0 2025 Visitors Average Length
of Stay
Average Number
of Visits per Visitor
574K* 103MINUTES* 5.22*

DOWNTOWN

METRICS
14 (Millions of Visits)
*Data collected from Placer.ai platform

Q1+Q2 Q3+Q4
2019 2020 2021 2022 2023 2024 2025
0 100
200
300
400
500
600
2025 Sales Tax
$524K*

DOWNTOWN

METRICS
15 Sales Tax Generated
($ Thousands)
2025 vs 2019
+25% *
*Data collected from HdL Company
Q3+Q4 not yet
released

2025 Property Value Vacancies
$374.5M* 5
Downtown District Property Values
2019 2020 2021 2022 2023 2024 2025
0 100
200
300
400

DOWNTOWN

METRICS
16 ($ Millions)
*Data collected from Santa Clara County Assessor’s Office

DMHID

BOARD OF DIRECTORS

DANMCCRANIE
Chairman

ERICWALLACE
Treasurer

MATTMAHOOD
Secretary

CHRIS GHIONE
Director

FRANK LEAL
Director

HONNIEMURPHY
Director

LARRY CARR
Director

ROSYBERGIN
Director

SAMCARLSON
Director
As of December 31, 2025, the DMHID Board Members were:
17

CONTACT
US
Phone/
Email/
Website/
408-310-4623
[email protected]
dmhid.org
#destinationdowntownmh

72615003 1,141
$
114.10
72614008 3,200
$
520.00
76708011 5,434
$
543.40
76708003 5,600
$
560.00
76707010 5,000
$
700.00
76707011 5,000
$
700.00
76707042 7,405
$
740.50
72614007 5,600
$
760.00
72614041 8,527
$
1,252.70
76707050 10,000
$
1,400.00
72614042 13,600
$
1,760.00
72615004 23,031
$
2,303.10
76707065 25,353
$
2,535.30
72615070 40,306
$
4,030.60
72613055 42,852
$
5,060.20
72613047 40,946
$
6,104.60
72614076 46,995
$
7,119.50
72615072 77,536
$
7,753.60
76708008 94,089
$
9,408.90
72604001 98,058
$
9,805.80
72612005 105,826
$
10,582.60
72615071 264,409
$
26,440.90
72613052 300,059
$
34,795.90
$ 134,991.70
72612006 354,578
$
35,457.80
72614074 47,600
$
5,560.00
72614028 11,530
$
1,553.00
76707027 4,995
$
699.50
APPENDIX 1
Fiscal Year 2024/2025 Assessment Roll
Property APN Lot Square Feet Assessment

76707028 5,000
$
700.00
76707029 5,002
$
700.20
76707041 21,700
$
2,170.00
$ 11,382.70
72613058 71,702
$
9,800.20
72604015 54,450 $ 5,445.00
72613049 21,780
$
6,488.00
72614075 31,609 $ 5,435.90
76708046 33,000
$
4,300.00
72604008 34,816 $ 3,481.60
72614051 13,509
$
1,350.90
72614050 13,872
$
1,817.20
76707059 30,494
$
3,049.40
76707031 5,000
$
700.00
76707030 5,000
$
700.00
76707066 12,117
$
1,611.70
$
3,011.70
72614015 5,600
$
560.00
72614013 5,662
$
766.20
72614014 11,200
$
1,520.00
$
2,846.20
76707064 21,200 $ 2,495.00
76707014 12,400
$
1,240.00
$ 2,444.50
76708034 16,932
$
2,383.20
72613021 16,600 $ 2,260.00
72613037 11,200
$
1,520.00
$ 1,520.00
APPENDIX 1
Fiscal Year 2024/2025 Assessment Roll
Property APN Lot Square Feet Assessment

72613056 7,875  $
1,677.50
72613057 10,525  $      1,417.50 76708004 10,000  $
1,400.00
72614052 13,851  $      1,385.10 76708033 9,680  $
1,368.00
72614047 12,800  $      1,280.00 76707004 12,400  $
1,240.00
72613050 11,605  $      1,160.50 76708007 11,200  $
1,120.00
76707007 11,200  $      1,120.00 76708018 11,200  $
1,120.00
76707006 11,200  $      1,120.00 72614020 2,400  $
240.00
72614019 5,840  $
879.00
$
1,119.00
72614009 3,800  $      1,055.00 72613031 8,276  $
1,027.60
76708006 6,000  $      1,000.00 72613060 6,880  $
988.00
72613041 6,000  $          975.00 72614048 6,720  $
912.00
76707055 9,000  $          900.00 72613022 22,400  $
896.00
76708014 7,281  $
371.24
76708015 6,797  $
431.88
$          803.12 76707057 5,405  $
775.50
72613018 5,600  $          760.00 72614012 5,600  $
760.00
72614011 5,600  $          760.00 76708045 5,000  $
700.00 APPENDIX 1
Fiscal Year 2024/2025 Assessment Roll
Property APN Lot Square Feet Assessment

76707047 5,000 $ 700.00
72614027 4,737
$
678.70
72613059 6,776 $ 677.60
72614010 4,356
$
660.60
72613017 5,600 $ 660.00
76707016 5,600
$
560.00
76707017 5,600 $ 560.00
72654014 2,770
$
277.00
72654031 1,810 $ 181.00
72654033 585
$

58.50 72654032 585 $ 58.50
$ 277,034.84
APPENDIX 1
Fiscal Year 2024/2025 Assessment Roll
Property APN Lot Square Feet Assessment

APPENDIX2
Calendar Year 2025 Financial Report

APPENDIX2
Calendar Year 2025 Financial Report

Downtown Morgan Hill Improvement District
Statement of Financial Position
As of December 31, 2025
ASSETS
Current Assets
TOTAL
AS OF DEC 31, 2025 AS OF DEC 31, 2024 (PY) CHANGE
Bank Accounts
Heritage CKNG (*8837) - 1 6,672.05 17,242.02 -10,569.97 Heritage MMKT (*8845) - 1 251,865.25 154,144.23 97,721.02 Total Bank Accounts $258,537.30 $171,386.25 $87,151.05
Total Current Assets $258,537.30 $171,386.25 $87,151.05 TOTAL ASSETS $258,537.30 $171,386.25 $87,151.05

LIABILITIES AND EQUITY
Liabilities
Total Liabilities $0.00
Equity
Net Assets 171,386.25 97,232.06 74,154.19
Net Revenue 87,151.05 74,154.19 12,996.86
Total Equity $258,537.30 $171,386.25 $87,151.05
TOTAL LIABILITIES AND EQUITY $258,537.30 $171,386.25 $87,151.05

Downtown Morgan Hill Improvement District
Statement of Activity
January - December 2025
Revenue
TOTAL
JAN - DEC 2025 JAN - DEC 2024 (PY) CHANGE
Event Revenue
Block Party/Night Market Revenue 1,200.00 1,200.00
Downtown Brochure Revenue 7,650.00 -7,650.00
Merry Morgan Hill Revenue 10,095.00 10,095.00
Oktoberfest Revenue 1,250.00 -1,250.00
Pumpkin Market/Halloween Street Revenue 4,650.00 4,650.00 Sidewalk Saturdays Revenue 29,361.98 28,860.00 501.98
Total Event Revenue 45,306.98 37,760.00 7,546.98
Property Assessments 267,406.84 267,406.85 -0.01
Total Revenue $312,713.82 $305,166.85 $7,546.97
GROSS PROFIT $312,713.82 $305,166.85 $7,546.97
Expenditures
Administration Expenses (10%)
Bank charges 30.00 30.00 0.00
Bookkeeping 1,488.75 1,488.75
Insurance 2,510.00 2,039.00 471.00
Legal fees 14,399.72 14,399.72
Meals 385.48 57.29 328.19
Office Supplies & Software 2,755.86 964.15 1,791.71
Se.rvice Contracts/Annual Report 1,317.50 -1,317.50
Staff 63,000.00 21,000.00 42,000.00
Tax Preparation & Filing 850.00 800.00 50.00
Tax Roll Preparation & Submission 3,120.00 3,120.00 0.00 Website/Domain 721.73 347.88 373.85
Total Administration Expenses (10%) 89,261.54
---
29,675.82 59,585.72
Capital Improvements & Art Installation (15%)
Gateway Arch
------------------- ·--
Total Capital Improvements & Art Installation (15%)
13,145.00
13,145.00
13,145.00
13,145.00
Clean & Safe Programs (60%)
Flock Cameras 22,500.00 22,500.00
Sidewalk Power Washing 22,553.52 22,553.52 0.00
Tree Lighting 40,247.72 116,152.11 -75,904.39
Total Clean & Safe Programs (60%) 85,301.24 138,705.63 -53,404.39 Marketing & Special Events (10%)
Downtown Block Party/Night Market Expenses 406.28 288.89 117.39 Downtown Business Brochure Expenses 10,000.00 26,484.93 -16,484.93 Merry Morgan Hill Expenses 5,219.90 5,219.90
Oktoberfest Expenses 24.69 -24.69
Pumpkin Market/Halloween Street Expenses 106.02 106.02

Downtown Morgan Hill Improvement District
Statement of Activity
January - December 2025
TOTAL
JAN - DEC 2025 JAN - DEC 2024 (PY) CHANGE
Sidewalk Saturdays Expenses 10,503.06 24,485.99 -13,982.93 Total Marketing &Special Events (10%) 26,235.26 51,284.50 -25,049.24 PBID Start-up Funds Repayment 12,900.00 12,900.00 ·

0.00 Total Expenditures $226,843.04 $232,565.95 $ -5,722.91 NET OPERATING REVENUE $85,870.78 $72,600.90 $13,269.88
Other Revenue
Interest Income 1,280.27 1,553.29 -273.02
----·---·
Total Other Revenue $1,280.27 $1,553.29 $-273.02
NET OTHER REVENUE $1,280.27 $1,553.29 $-273.02
NET REVENUE $87,151.05 $74,154.19 $12,996.86

9 CITY COUNCIL STAFF REPORT
MEETING DATE: January 28, 2026
PREPARED BY:

Chris Ghione, Public Services Director
APPROVED BY: City Manager
REPEAL CHAPTER 15.63 (PROHIBITION OF NATURAL GAS
INFRASTRUCTURE IN NEW BUILDINGS) OF TITLE 15 (BUILDINGS

AND CONSTRUCTION) OF THE MORGAN HILL MUNICIPAL CODE

RECOMMENDATION(S)
Waive the reading and introduce an Ordinance repealing Chapter 15.63 of the Morgan Hill Municipal Code regarding the prohibition of natural gas infrastructure in new buildings.

COUNCIL PRIORITIES, GOALS & STRATEGIES
None
REPORT NARRATIVE:

On November 6, 2019, the City Council adopted Ordinance No. 2306, which added Chapter 15.63 to the Municipal Code. This ordinance prohibited the installation of natural gas infrastructure in newly constructed buildings effective March 1, 2020, as a strategy to reduce the community's carbon footprint.

However, a judicial ruling by the Ninth Circuit Court of Appeals in California Restaurant Association v. City of Berkeley has fundamentally changed the legal landscape. The court held that the federal Energy Policy and Conservation Act (EPCA) preempts local ordinances that prohibit the installation of natural gas infrastructure. The City has not denied any permits for gas infrastructure based on the 2019 ordinance since the courts struck down Berkeley’s similar ordinance and has approved projects with gas infrastructure since that time. The City recently received notice that the United States Department of Justice filed a lawsuit on January 5, 2026, against the City (and the City of Petaluma) to strike down its 2019 ban on natural gas infrastructure in new buildings.

In addition to banning gas infrastructure, the City's ordinance also requires that when natural gas is allowed by exception that the development include sufficient electrical capacity, wiring and conduit to facilitate future full building electrification. However, State requirements now include the same requirements that are included in Ordinance No. 2306, so it is unnecessary to retain these provisions in the City's code. Because Morgan Hill’s local ordinance prohibits natural gas infrastructure and staff had previously determined it is now preempted by federal law and is no longer legally enforceable, City

9 staff is recommending the repeal of the ordinance to clearly demonstrate the City's position.

The City will continue to encourage but not require developers to utilize all electric construction in alignment with the City's Climate Action Plan.

COMMUNITY ENGAGEMENT:

Inform
City staff provided notice of repeal via various communication channels to the community. City staff emailed community members that were engaged in our climate action plan work, informing them of the repeal and City Council meeting.

ALTERNATIVE ACTIONS:

There is no feasible alternative to the recommended action. While the City is not required to actively repeal ordinances that have been invalidated so long as the ordinances are not being enforced, repeal of the ordinance will eliminate any confusion over the status of the ordinance. Since the Ninth Circuit Court of Appeals struck down the City of Berkeley’s gas ban in 2023, cities have shifted away from "direct bans" on gas piping or appliances. Because federal law prevents local governments from regulating the energy use of appliances, cities are now using alternative strategies, such as "Reach Codes" to restrict the use of natural gas in new construction. The City Council could choose to direct staff to research and bring back alternatives for reducing natural gas in new construction. However, this would need to occur following the action associated with this agenda item.

PRIOR CITY COUNCIL AND COMMISSION ACTIONS:

The ordinance eliminating natural gas for new construction was adopted by the City Council on November 6, 2019. The City's intent to reduce natural gas use in the City was reinforced by the City Council's adoption of its Climate Action Plan on December 15, 2021.

FISCAL AND RESOURCE IMPACT:

There are no direct fiscal impacts associated with this repeal.

CEQA (California Environmental Quality Act):

Not a Project
In accordance with CEQA Guidelines section 15378(b)(5), action on this item is not a project subject to CEQA because it is an administrative and legal action that will not result in a direct physical change to the environment.

ORDINANCE NO. XXXX, NEW SERIES

AN ORDINANCE OF THE CITY OF MORGAN HILL
REPEALING CHAPTER 15.63 (PROHIBITION OF

NATURAL GAS INFRASTRUCTURE IN NEW
BUILDINGS) OF TITLE 15 (BUILDINGS AND

CONSTRUCTION) OF THE MORGAN HILL MUNICIPAL
CODE

THE CITY COUNCIL OF THE CITY OF MORGAN HILL DOES ORDAIN AS FOLLOWS:

Section 1. Findings. The City Council finds and declares as follows:

1. The City of Morgan Hill previously adopted Chapter 15.63 of the Municipal Code to prohibit natural gas infrastructure in newly constructed buildings.

2. The City Council finds that the Ninth Circuit Court of Appeals’ decision in California Restaurant Association v. City of Berkeley held that the federal Energy Policy and Conservation Act (EPCA) preempts local ordinances that prohibit the installation of natural gas infrastructure in new buildings. Consequently, Chapter 15.63 of the Morgan Hill Municipal Code is now preempted by federal law and is no longer legally enforceable.

3. The repeal of this ordinance ensures that building standards in Morgan Hill remain consistent with the judicial rulings and the current practices of the City.

Section 2. Repeal. Chapter 15.63 (Prohibition of Natural Gas Infrastructure in New Buildings) of the Morgan Hill Municipal Code is hereby repealed in its entirety.

Section 3. Severability. Should any provision of this ordinance be deemed unconstitutional or unenforceable by a court of competent jurisdiction, such provision shall be severed from the ordinance, and such severance shall not affect the remainder of the ordinance.

Section 4. Effective Date; Posting. This Ordinance shall take effect on the 31st day following adoption. The City Clerk is hereby directed to publish this Ordinance or a summary thereof pursuant to Government Code Section 36933.

THE FOREGOING ORDINANCE WAS INTRODUCED AT A MEETING OF THE CITY COUNCIL HELD ON THE 28TH DAY OF JANUARY, 2026, AND WAS FINALLY ADOPTED AT A MEETING OF THE CITY COUNCIL HELD ON THE 18TH DAY OF FEBRUARY, 2026, AND SAID ORDINANCE WAS DULY PASSED AND ADOPTED IN ACCORDANCE WITH LAW BY THE FOLLOWING VOTE:

City of Morgan Hill
Ordinance No. 2362, New Series

AYES: COUNCIL MEMBERS:

NOES: COUNCIL MEMBERS:

ABSTAIN: COUNCIL MEMBERS:

ABSENT: COUNCIL MEMBERS:

APPROVED: ATTEST:
______________________________ _______________________________ MARK TURNER, Mayor MICHELLE BIGELOW, City Clerk

CERTIFICATE OF THE CITY CLERK

I, MICHELLE BIGELOW, CITY CLERK OF THE CITY OF MORGAN HILL, CALIFORNIA, do hereby certify that the foregoing is a true and correct copy of Ordinance No. 2362, New Series, adopted by the City Council of the City of Morgan Hill, California at their regular meeting held on the 18th day of February 2026.

WITNESS MY HAND AND THE SEAL OF THE CITY OF MORGAN HILL.

DATE: _____________________ _____________________________ MICHELLE BIGELOW, City Clerk