Construction Phase Guidance

Following the loan closing and signing of the construction contract(s), one complete, signed copy of each contract document must be submitted to your EGLE project manager and must include the following items:

1. Agreement
2. Addenda
3. Notice to Proceed (loan condition requires issuance no later than 60 days following loan closing).
4. Payment Bond
5. Performance Bond 

1. Loan disbursements that include construction costs will not be processed until all executed contract documents have been submitted.
2. A EGLE Davis-Bacon Act Compliance Certification form must accompany every disbursement request that includes construction costs.
3. Only one loan disbursement request will be processed in a single calendar month. The exception is for the first month where two requests may be submitted during the month (submittal date may be different within the month).
4. All disbursement requests must be signed by the authorized representative and may be emailed or hard copies mailed to the EGLE project manager.
5. Contingency funds may be used to cover the cost of eligible items not initially included in your loan. Approval from the EGLE project manager must be received prior to requesting any contingency amount.
6. Under-runs on one line item may be used for overruns on another line item, provided the overrun is an eligible expense. However, if the 6-percent contingency is exceeded, there are no loan amendments.
7. All project costs must be documented, regardless of whether or not they are eligible for loan assistance.
8. Documentation (e.g., invoices) to support costs requested for reimbursement must be submitted with each disbursement request. 

Please notify your EGLE project manager of the preconstruction meeting and construction progress meetings so they can attend as schedules permit. In addition, copies of the construction progress meeting minutes must be submitted to your EGLE project manager. If regular progress meetings are not held, then the construction engineer must provide a monthly synopsis of construction progress to the EGLE project manager.

The EGLE project manager and/or district staff will make site visits during construction as needed or upon request. The EGLE project manager should be notified when the loan recipient is ready to initiate operation of the project so a final site visit can be scheduled.

The loan recipient must complete and submit a Davis-Bacon Act Compliance Certification form with each disbursement request. Although submitted with the monthly request for loan reimbursement, certification that the project has remained in compliance with the Davis-Bacon Act must be based on a weekly review of contractor payroll records. Additional information can be found in the Davis-Bacon Act Guidance and Frequently Asked Questions.

All change orders must be submitted to your EGLE project manager for review. In addition, all changes to the construction contract that could result in a revised Part 41 or Act 399 permit must be approved by the district engineer prior to construction of that portion of the project. All change orders must be submitted even if the loan amount is exceeded or costs are ineligible.

Each change order must include the following information:

1. Project name, project number, contract name or number, change order number, net cost of change order and revised contract amount, any additional days added to the contract and the revised contract completion date, and the signatures of the owner, contractor, and engineer with dates signed.
2. A description of the change(s) and an explanation or reason for the change(s).
3. Contractor/subcontractor quotes/proposals to support prices for new items of work.
4. All applicable drawings and technical information

To be allowable, a change order item must be within the scope of the loan project and conform with loan eligibility guidelines. District staff will review change orders for compliance with the construction permit requirements and technical acceptability.

When change order reviews have been completed, the EGLE project manager will send a change order approval/denial letter to the loan recipient. Change order costs should not be included in a loan disbursement request until the change order has been approved by the EGLE.

The loan recipient may appeal a change order determination. The authorized representative must notify the EGLE project manager in writing that they disagree with the determination and provide supporting documentation to support their position.

1. The EGLE project manager will review the supporting documentation and will notify the authorized representative whether the determination is changed or remains the same.
2. If a disagreement with the determination remains, the loan recipient may appeal further in accordance with Rule 13 of the State Revolving Fund administrative rules.

The loan recipient is required to notify the EGLE project manager in writing when the project initiates operation. The loan recipient must notify the EGLE district engineer of the I/O date as well if construction of the project is under a permit or Administrative Consent Order. Initiation of operation is defined as the date when the project becomes capable of operation for the purposes for which it was planned, designed and built (typically equates to substantial completion).

The proposed I/O date indicated in the loan application dictates the loan repayment schedule. The "actual" I/O of the construction project may differ from the target date specified; however, the repayment date of the loan will not change.

Administrative completion occurs after the final allowable project costs are verified and the completion of the loan scope is confirmed.

In conjunction with the submittal of the contractor’s final pay estimate, the authorized representative must certify that all work has been completed and accepted by the owner, all punch list items have been addressed, and all retainage has been released to the prime contractor(s). 6

The final disbursement request must tabulate all eligible project costs, including those costs exceeding the loan amount. A disbursement request should not be marked “final” until approved final project costs have been established by the project manager. Your project manager will work with you to facilitate preparation of a final disbursement request that reflects the appropriate DEQ-approved final cost figures.

In most cases, your loan project will be ready for administrative completion as soon as the project manager has verified the final project costs and a final disbursement request that accurately reflects the approved final costs has been processed. If an overpayment has occurred due to ineligible costs being reimbursed, administrative completion must wait until the Michigan Finance Authority (MFA) has received the proper repayment of the amount owed. If the verification of final project costs results in an amount equal to or less than the loan award, an administrative completion letter will be issued. When the final cost is less than the loan commitment, MFA will recalculate the loan repayment schedule to reflect the lesser amount.

Once the administrative completion notification has been sent, the MFA will make any necessary adjustments to the loan, recalculate the loan repayment schedule if the final cost is less than the loan commitment, or use the existing repayment schedule. The MFA will notify the authorized representative in writing of any adjustments.

Project records should be retained by the loan recipient for a period of three years from the date of the administrative completion letter. Project files are subject to examination by the MFA, EGLE, or the U.S. Environmental Protection Agency.

Public Act 524 took effect January 1, 1983, and regulates the retainage of payments on construction contracts with public agencies. This Act states that if the public agency chooses to retain funds, the funds must be deposited in an interest bearing account for the contractor. The Act also states that a public agency is not required to deposit retained funds in an interest bearing account if the retained funds are to be provided under a state or federal grant and the retained funds have not been paid to the public agency.

The question has been raised over the years as to whether or not a public agency has the option of not depositing retained funds in an interest bearing account if the retained funds are to be provided under a SRF/DWRF loan AND the funds are not requested for disbursement. Under our loan programs, any funds drawn from a loan, including retainage, are subject immediately to our interest rates. Consequently, in order to avoid the earlier interest charges, some communities have opted not to request the retainage in a disbursement request until it actually needs to be paid to the contractor. However, this action also has caused disputes from contractors who believe that their retained monies should have been drawn and deposited into an interest bearing account.

Unfortunately, Act 524 is subject to more than one interpretation. The Act exempts projects using state or federal grants from the requirement to deposit retained funds into an interest bearing account. It is silent on the applicability of this option to state or federal loans (subsidized by federal grants). Consequently, it is difficult to render an interpretation of this Act that would have sufficient validity to withstand a legal challenge.

While the decision is yours, communities and consultants should consider the impacts of how they may choose to handle retainage. The fostering of a good working relationship with your contractor may outweigh any monetary benefits derived from deferring retainage draws. Whatever option you choose to implement should be discussed with your contractor at the preconstruction meeting.

Construction Contracts With Certain Public Agencies Act 524 of 1980