A – Z Escrow Process Presented by: Tracey Paine, State Treasurer’s OfficeTracey Paine, State Treasurer’s Office Cheryl Ormond, State Treasurer’s OfficeCheryl Ormond, State Treasurer’s Office Avelina Saavedra, CSU San BernardinoAvelina Saavedra, CSU San Bernardino Barbara Nicholson, Office of the ChancellorBarbara Nicholson, Office of the Chancellor Haaziq Muhammad, Office of the ChancellorHaaziq Muhammad, Office of the Chancellor

Escrow Function To ensure performance under a contract, the Trustees shall retain no less than 5 % of the contract amount until final completion and acceptance of the project by the Trustees. To ensure performance under a contract, the Trustees shall retain no less than 5 % of the contract amount until final completion and acceptance of the project by the Trustees.

Trustees’ Retention Options 1. Trustees retain a minimum of 5% of all processed partial payment requests in a contract account. Upon completion of the project, the amount in retention shall be paid to the Contractor within 30 calendar days after the recordation date on the Notice of Completion by the county recorder (if no stop notices or claims against the Contractor or project). 2. Trustees may allow Contractor to establish an escrow account with the State Treasurer’s Office (STO), at the request and expense of the Contractor. Securities totaling 5% of the contract amount shall be deposited in installments or in one lump sum. 3. Trustees use a combination of both an escrow with the STO and retention with the Trustees. Both accounts shall equal not less than 5% of the entire contract. See California Public Contract Code Sections –

(Option 1) Trustees Retention This is a $12,000,000 project scheduled to be completed within 730 calendar days. The Contractor shall be paid partial payments monthly.The Contractor shall be paid partial payments monthly. Partial payment requests shall be processed with a minimum of 5% retention.Partial payment requests shall be processed with a minimum of 5% retention. If the partial payment is $500,000, the Contractor receives $475,000, and the Trustees retain $25,000 in contract account.If the partial payment is $500,000, the Contractor receives $475,000, and the Trustees retain $25,000 in contract account. Upon completion, the Trustees should have a minimum of $600,000 retention for this project. If there were change orders that increased the amount of the contract, the retention amount for this project will also increase. If the contract was increased by $550,000 in change orders, the retention amount will increase to $675,000 (5% of the entire contract).Upon completion, the Trustees should have a minimum of $600,000 retention for this project. If there were change orders that increased the amount of the contract, the retention amount for this project will also increase. If the contract was increased by $550,000 in change orders, the retention amount will increase to $675,000 (5% of the entire contract). If an escrow account was NOT established for this project, the Contractor is entitled to only ONE retention payment.If an escrow account was NOT established for this project, the Contractor is entitled to only ONE retention payment.

(Option 2) Escrow with STO The Trustees submit a signature authorization letter and contact information to the STO.The Trustees submit a signature authorization letter and contact information to the STO. A three-party escrow agreement is drawn up between the Trustees of the California State University as the Trustee, the Contractor, and the State Treasurer’s Office as the Escrow Agent.A three-party escrow agreement is drawn up between the Trustees of the California State University as the Trustee, the Contractor, and the State Treasurer’s Office as the Escrow Agent. –All parties must hold a fully executed agreement (this includes the Escrow Agreement, Surety, Power of Attorney, and an All Purpose Acknowledgment), all with original signatures. Except for the signature block, the agreement forms cannot be altered.Except for the signature block, the agreement forms cannot be altered.

Acceptable Securities Per Government Code Section 16430, eligible securities... shall be any of the following: (a) U.S. bonds or interest-bearing notes or obligations, or those for which the faith and credit of the United States are pledged for the payment of principal and interest.(a) U.S. bonds or interest-bearing notes or obligations, or those for which the faith and credit of the United States are pledged for the payment of principal and interest. (b) Bonds or interest-bearing notes on obligations that are guaranteed as to principal and interest by a federal agency of the United States.(b) Bonds or interest-bearing notes on obligations that are guaranteed as to principal and interest by a federal agency of the United States. (c) Bonds and notes of this state, or those for which the faith and credit of this state are pledged for the payment of principal and interest.(c) Bonds and notes of this state, or those for which the faith and credit of this state are pledged for the payment of principal and interest. (d) Bonds or warrants, including, but not limited to, revenue warrants, of any county, city, metropolitan water district, California water district, California water storage district, irrigation district in the state, municipal utility district, or school district of this state.(d) Bonds or warrants, including, but not limited to, revenue warrants, of any county, city, metropolitan water district, California water district, California water storage district, irrigation district in the state, municipal utility district, or school district of this state. (e) Bonds, consolidated bonds, collateral trust debentures, consolidated debentures, or other obligations issued by federal land banks or federal intermediate credit banks(e) Bonds, consolidated bonds, collateral trust debentures, consolidated debentures, or other obligations issued by federal land banks or federal intermediate credit banks (f) Commercial paper of "prime" quality as defined by a nationally recognized organization that rates these securities. Eligible paper is further limited to issuing corporations or trusts approved by the Pooled Money Investment Board that meets specific conditions.(f) Commercial paper of "prime" quality as defined by a nationally recognized organization that rates these securities. Eligible paper is further limited to issuing corporations or trusts approved by the Pooled Money Investment Board that meets specific conditions.

Establishing an Escrow with the STO (continued) If book entry securities are going to be pledged, the Contractor shall pay an annual custodian bank fee of $ to establish and maintain an account with the STO’s custodian bank, Citibank.If book entry securities are going to be pledged, the Contractor shall pay an annual custodian bank fee of $ to establish and maintain an account with the STO’s custodian bank, Citibank. The Contractor shall submit a New Account Request form and a check for $ payable to the State Treasurer’s Office.The Contractor shall submit a New Account Request form and a check for $ payable to the State Treasurer’s Office. For accounts that remain open beyond the current calendar year, an annual renewal fee is due by December 31 st of each year, and will not be prorated for a partial year.For accounts that remain open beyond the current calendar year, an annual renewal fee is due by December 31 st of each year, and will not be prorated for a partial year.

Book Entry Securities Book entry securities are purchased and sold in an automated system and can be obtained from a licensed broker or bank.Book entry securities are purchased and sold in an automated system and can be obtained from a licensed broker or bank. Eligible book entry securities are listed in California Government Code Section Eligible book entry securities are listed in California Government Code Section

Book Entry Securities -- Depositing The STO requires instruction from both the Contractor and the Trustees to deposit, exchange, or release any securities.The STO requires instruction from both the Contractor and the Trustees to deposit, exchange, or release any securities. The Contractor purchases the securities to be deposited, and submits a completed, signed Securities Transaction Request form to the Trustees’ Escrow Representative.The Contractor purchases the securities to be deposited, and submits a completed, signed Securities Transaction Request form to the Trustees’ Escrow Representative. The Trustees’ Escrow Representative reviews and approves the request and transmits it with a Securities Transaction Authorization letter to the STO.The Trustees’ Escrow Representative reviews and approves the request and transmits it with a Securities Transaction Authorization letter to the STO.

Book Entry Securities -- Depositing (continued) The STO completes a Depository Deposit (“D”) form to deposit the book entry security and transmits it to the STO’s custodian bank, Citibank.The STO completes a Depository Deposit (“D”) form to deposit the book entry security and transmits it to the STO’s custodian bank, Citibank. The STO faxes a memo to both the delivering broker or bank and the Contractor, notifying them of the delivery date and instructions.The STO faxes a memo to both the delivering broker or bank and the Contractor, notifying them of the delivery date and instructions. Note: Citibank cannot process any transaction without written authorization from the STO.Note: Citibank cannot process any transaction without written authorization from the STO.

Book Entry Securities -- Depositing (continued) On the delivery date, the Contractor’s broker or bank electronically transmits the book entry securities to Citibank.On the delivery date, the Contractor’s broker or bank electronically transmits the book entry securities to Citibank. After receipt of delivery confirmation from Citibank, the STO sends a confirmed copy of the “D” form to the Trustees’ Escrow Representative and the Contractor.After receipt of delivery confirmation from Citibank, the STO sends a confirmed copy of the “D” form to the Trustees’ Escrow Representative and the Contractor.

Book Entry Securities -- Releasing When a security matures or has been called for redemption, the principal balance is credited to the account as cash.When a security matures or has been called for redemption, the principal balance is credited to the account as cash. The Trustees must first determine whether to require the Contractor to put up a replacement security or to release the cash to the Contractor.The Trustees must first determine whether to require the Contractor to put up a replacement security or to release the cash to the Contractor. If the Trustees require a replacement security, the Contractor must deposit the security before the cash can be released.If the Trustees require a replacement security, the Contractor must deposit the security before the cash can be released.

Book Entry Securities -- Releasing (continued) To release a book entry security, the Contractor shall submit a completed, signed Securities Transaction Request form to the Trustees’ Escrow Representative for approval.To release a book entry security, the Contractor shall submit a completed, signed Securities Transaction Request form to the Trustees’ Escrow Representative for approval. The Trustees’ Escrow Representative submits the request to the Construction Administrator for review and approval. If approved, the Trustees’ Escrow Representative shall transmit along with a Securities Transaction Authorization letter to the STO.The Trustees’ Escrow Representative submits the request to the Construction Administrator for review and approval. If approved, the Trustees’ Escrow Representative shall transmit along with a Securities Transaction Authorization letter to the STO. This request should be received by the STO on or before the day the security matures or has been called for redemption.This request should be received by the STO on or before the day the security matures or has been called for redemption.

Book Entry Securities -- Releasing (continued) The STO completes a Depository Maturity (“DM”) or a Depository Release (“DR”) form to release the book entry security and sends it to Citibank.The STO completes a Depository Maturity (“DM”) or a Depository Release (“DR”) form to release the book entry security and sends it to Citibank. –A “DM” is a document used to release a security on or after the date it matures or is called for early redemption. –A “DR” document is used to release a security before the date it matures or is called for early redemption.

Book Entry Securities -- Releasing (continued) Released book entry securities are electronically transmitted from Citibank to the Contractor’s broker or bank.Released book entry securities are electronically transmitted from Citibank to the Contractor’s broker or bank. Once the STO receives release confirmation from Citibank, the STO sends a confirmed copy of the “DM” or “DR” form to both the Trustees and the Contractor.Once the STO receives release confirmation from Citibank, the STO sends a confirmed copy of the “DM” or “DR” form to both the Trustees and the Contractor.

Physical Securities Physical securities are purchased from a bank or lending institutionPhysical securities are purchased from a bank or lending institution Eligible physical securities:Eligible physical securities: –bank or savings and loan certificates of deposits (CD’s) and –standby letters of credit not recommended by Trustees and STOnot recommended by Trustees and STO

CD’s CD’s must be registered as follows:CD’s must be registered as follows: –State Treasurer’s Office, State of California, Escrow # _____, for California State University, ______. CD’s should be auto-renewable.CD’s should be auto-renewable. Principal amount changes cannot be made to current CD’s without notification to, and written authorization from both the STO and the Trustees.Principal amount changes cannot be made to current CD’s without notification to, and written authorization from both the STO and the Trustees. No written authorization is needed for auto-renewable CD’s, unless there is a principal amount change.No written authorization is needed for auto-renewable CD’s, unless there is a principal amount change.

CD’s (continued) CD’s must possessCD’s must possess –Date, Authorized signature, Bank contact name & phone number. If the CD does not meet these requirements, a bank letter (on official bank letterhead) providing this and the terms of the CD must accompany the CD.If the CD does not meet these requirements, a bank letter (on official bank letterhead) providing this and the terms of the CD must accompany the CD. If any of these requirements are not met, the STO will not accept the CD and will return it to the Contractor.If any of these requirements are not met, the STO will not accept the CD and will return it to the Contractor. The bank shall send monthly statements to the STO.The bank shall send monthly statements to the STO.

Physical Securities -- Depositing Once the Contractor has purchased the securities to be deposited, a completed, signed Securities Transaction Request form is submitted to the Trustees’ Escrow Representative.Once the Contractor has purchased the securities to be deposited, a completed, signed Securities Transaction Request form is submitted to the Trustees’ Escrow Representative. The Trustees’ Escrow Representative reviews and approves the request and transmits it with a Securities Transaction Authorization letter to the STO.The Trustees’ Escrow Representative reviews and approves the request and transmits it with a Securities Transaction Authorization letter to the STO.

Physical Securities – Depositing (continued) The Contractor, or his bank or lending institution, transmits the physical securities to the STO by overnight delivery service, messenger service, or certified mail.The Contractor, or his bank or lending institution, transmits the physical securities to the STO by overnight delivery service, messenger service, or certified mail. The STO completes a Vault Deposit (“V”) form to deposit the physical security into the STO vault.The STO completes a Vault Deposit (“V”) form to deposit the physical security into the STO vault. Once confirmation is received from the vault, the STO sends a copy of the confirmed “V” form to both the Trustees’ Escrow Representative and the Contractor.Once confirmation is received from the vault, the STO sends a copy of the confirmed “V” form to both the Trustees’ Escrow Representative and the Contractor.

Physical Securities -- Releasing To release a physical security, the Contractor shall submit a completed, signed Securities Transaction Request form to the Trustees’ Escrow Representative.To release a physical security, the Contractor shall submit a completed, signed Securities Transaction Request form to the Trustees’ Escrow Representative. The Trustees’ Escrow Representative submits the Securities Transaction Request form to the Construction Administrator for approval and signature; once the form is signed and approved, the Trustees’ Escrow Representative transmits it to the STO along with a Securities Transaction Authorization letter.The Trustees’ Escrow Representative submits the Securities Transaction Request form to the Construction Administrator for approval and signature; once the form is signed and approved, the Trustees’ Escrow Representative transmits it to the STO along with a Securities Transaction Authorization letter.

Physical Securities – Releasing (continued) The STO completes a Vault Release (“VR”) document to release the physical security from the STO vault.The STO completes a Vault Release (“VR”) document to release the physical security from the STO vault. The security and a copy of the confirmed “VR” form are sent via certified mail to the Contractor.The security and a copy of the confirmed “VR” form are sent via certified mail to the Contractor. An additional copy of the confirmed “VR” is sent to the Trustees’ Escrow Representative.An additional copy of the confirmed “VR” is sent to the Trustees’ Escrow Representative.

Monthly Reports Market Valuation Report - completed on a monthly basis for all escrow accounts. A copy is sent to the Trustees by the tenth (10 th ) day of each month.Market Valuation Report - completed on a monthly basis for all escrow accounts. A copy is sent to the Trustees by the tenth (10 th ) day of each month. –If the market value drops below the retention amount paid to the Contractor, STO notifies the Trustees, and the Trustees shall notify the Contractor. –The Contractor must deposit additional securities before any future retention may be paid.

Monthly Reports (continued) Year-To-Date Report – generated by the STO and distributed to the Trustees’ Escrow Representative, who distributes copies to the Construction Administrator and the Contractor.Year-To-Date Report – generated by the STO and distributed to the Trustees’ Escrow Representative, who distributes copies to the Construction Administrator and the Contractor. Investment Summary and Statement of Transactions – generated by Citibank for accounts pledging book entry securities and distributed to the Contractor and Trustees’ Escrow Representative.Investment Summary and Statement of Transactions – generated by Citibank for accounts pledging book entry securities and distributed to the Contractor and Trustees’ Escrow Representative.

Contract Retention Payments The Contractor is entitled to multiple retention payments.The Contractor is entitled to multiple retention payments. The total retention amount available is 5% of the total earned on the referenced payment request.The total retention amount available is 5% of the total earned on the referenced payment request. Payments will not be released until adequate securities are on deposit, and in accordance with the escrow agreement.Payments will not be released until adequate securities are on deposit, and in accordance with the escrow agreement.

Contract Retention Payments (continued) The Contractor completes the Request for Payment of Retention and submits it to the Construction Administrator for review & approval.The Contractor completes the Request for Payment of Retention and submits it to the Construction Administrator for review & approval. The Construction Administrator shall verify that sufficient securities are on deposit and the market value of the securities is adequate.The Construction Administrator shall verify that sufficient securities are on deposit and the market value of the securities is adequate. Upon approval, the Construction Administrator shall sign and transmit the retention payment request to the STO for review and approval.Upon approval, the Construction Administrator shall sign and transmit the retention payment request to the STO for review and approval. Based on the amount of deposit and available retention, the STO approves or rejects the request.Based on the amount of deposit and available retention, the STO approves or rejects the request.

Contract Retention Payments (continued) If approved, the STO signs and forwards the retention request to the Construction AdministratorIf approved, the STO signs and forwards the retention request to the Construction Administrator If there are insufficient securities on deposit, the STO will reject the request and notify the Construction Administrator who is responsible for notifying the Contractor to deposit additional securities.If there are insufficient securities on deposit, the STO will reject the request and notify the Construction Administrator who is responsible for notifying the Contractor to deposit additional securities. If the Contractor needs assistance in completing the Request for Payment, they should contact the Construction Administrator.If the Contractor needs assistance in completing the Request for Payment, they should contact the Construction Administrator.

Closing an Escrow Account When the Notice of Completion has been filed, the Contractor will submit a request to the Construction Administrator to release the securities on deposit at the STO.When the Notice of Completion has been filed, the Contractor will submit a request to the Construction Administrator to release the securities on deposit at the STO. If no there are no claims, ongoing work or other outstanding issues, the Construction Administrator shall direct the Trustees’ Escrow Representative to begin the release process.If no there are no claims, ongoing work or other outstanding issues, the Construction Administrator shall direct the Trustees’ Escrow Representative to begin the release process. The Trustees’ Escrow Representative invoices the Contractor using the Trustees’ Fee Schedule. The payment can be collected in the form of a check or in the form of a deduction from moneys due.The Trustees’ Escrow Representative invoices the Contractor using the Trustees’ Fee Schedule. The payment can be collected in the form of a check or in the form of a deduction from moneys due. The Trustees’ Escrow Representative transmits a project completion authorization letter to the STO stating the securities can be released and the account closed.The Trustees’ Escrow Representative transmits a project completion authorization letter to the STO stating the securities can be released and the account closed.

Closing an Escrow Account (continued) The STO invoices the Contractor using the STO Fee Schedule.The STO invoices the Contractor using the STO Fee Schedule. Once the STO receives the fees in full, the securities are released to the Contractor and the account is closed.Once the STO receives the fees in full, the securities are released to the Contractor and the account is closed. The STO will send copies of the confirmed release form(s) (DR, DM, &/or VR) to the Trustees’ Escrow Representative and the Contractor.The STO will send copies of the confirmed release form(s) (DR, DM, &/or VR) to the Trustees’ Escrow Representative and the Contractor.

(Option 3) Combination of Trustees Withheld Retention and STO Escrow Account Trustees may combine the two retention options. This usually occurs at the end of the project.Trustees may combine the two retention options. This usually occurs at the end of the project. Trustees establish cut-off point when Contractor is not allowed to deposit additional securities into the escrow account with STO. Instead Trustees will process payment request and hold the retention amount in the contract account.Trustees establish cut-off point when Contractor is not allowed to deposit additional securities into the escrow account with STO. Instead Trustees will process payment request and hold the retention amount in the contract account. In this scenario the total of both accounts shall equal no less than 5% of the entire contract.In this scenario the total of both accounts shall equal no less than 5% of the entire contract.

Trustees’ Escrow Fee Schedule for Administering Escrow Agreement The Cost to Establish an Escrow Account is $150.The Cost to Establish an Escrow Account is $150. Includes the Trustees’ costs for developing the escrow agreement, opening the escrow account, and receiving initial securities pledged. The Contractors shall submit this fee when they return the signed escrow agreement counterparts. The fee is the same regardless to number of securities.Includes the Trustees’ costs for developing the escrow agreement, opening the escrow account, and receiving initial securities pledged. The Contractors shall submit this fee when they return the signed escrow agreement counterparts. The fee is the same regardless to number of securities. The Cost to Terminate an Escrow Account is $50.The Cost to Terminate an Escrow Account is $50. Includes costs related to release of securities pledged and closing of escrow account. The fee is the same regardless to number of securities.Includes costs related to release of securities pledged and closing of escrow account. The fee is the same regardless to number of securities. The Cost to Process Payments of Retention is $50.00.The Cost to Process Payments of Retention is $ Includes the costs for processing each release of retention.Includes the costs for processing each release of retention. The Cost to Process a Deposit, Exchange or Withdraw Securities is $50.00.The Cost to Process a Deposit, Exchange or Withdraw Securities is $ Includes costs relating to the deposit of additional securities, exchanges or the withdrawal of securities (cost is $50 for each instrument).Includes costs relating to the deposit of additional securities, exchanges or the withdrawal of securities (cost is $50 for each instrument).

STO’s Escrow Fee Schedule for Administering Escrow Agreement The Cost to Establish an Escrow Account is $120.The Cost to Establish an Escrow Account is $120. Includes STO’s costs for opening the escrow account, receiving initial securities pledged, and the evaluation of securities. The fee is the same regardless to number of securities.Includes STO’s costs for opening the escrow account, receiving initial securities pledged, and the evaluation of securities. The fee is the same regardless to number of securities. The Cost to Terminate an Escrow Account is $90.The Cost to Terminate an Escrow Account is $90. Includes costs related to release of securities pledged and closing of escrow account. The fee is the same regardless to number of securities.Includes costs related to release of securities pledged and closing of escrow account. The fee is the same regardless to number of securities. The Cost to Process Payments of Retention is $45.00.The Cost to Process Payments of Retention is $ Includes the costs for processing each release of retention.Includes the costs for processing each release of retention. The Cost to Process a Deposit, Exchange or Withdraw Securities is $90.00.The Cost to Process a Deposit, Exchange or Withdraw Securities is $ Includes costs relating to the deposit of additional securities, exchanges or the withdrawal of securities (cost is $90 for each instrument).Includes costs relating to the deposit of additional securities, exchanges or the withdrawal of securities (cost is $90 for each instrument).

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