To: MAYOR AND CITY COUNCIL
From: CAMERON HARDING, COMMUNITY SERVICES DIRECTOR LUKE SMUDE, ASSISTANT TO THE CITY MANAGER CRISTINE SHIN, SENIOR DEPUTY CITY ATTORNEY
TITLE
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DISCUSSION AND POSSIBLE ACTION REGARDING THE AGREEMENT WITH GARDEN STATE FIREWORKS FOR PRODUCTION OF THE CITY’S 2024 FOURTH OF JULY FIREWORKS DISPLAY
IF THE GARDEN STATE AGREEMENT IS APPROVED, ADOPT BY TITLE ONLY, RESOLUTION NO. CC-2404-023 OF THE CITY COUNCIL OF THE CITY OF REDONDO BEACH, CALIFORNIA, AUTHORIZING A 2023-2024 FISCAL YEAR BUDGET MODIFICATION APPROPRIATING $115,532.84 FROM THE UNALLOCATED TIDELANDS FUNDS FOR THE 2024 FOURTH OF JULY FIREWORKS DISPLAY
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EXECUTIVE SUMMARY
On February 6, 2024, the City Council authorized staff to begin negotiating an agreement with Garden State Fireworks (GSF) to produce the City’s Fourth of July fireworks display in the harbor. During agreement negotiations, three areas of concern were discovered. First, GSF was not registered with the Secretary of State. This issue has since been remedied. Second, while GSF agreed to subcontract for the barge needed to launch the fireworks, GSF has asked the City to assume liability if the barge fails to perform. Meaning the City would not have a clear way to recover costs if the subcontractor did not fulfill its duties. Third, GSF has indicated that it is unable to provide the required insurance policy until it receives a fully executed agreement. Alternatively, it is standard City policy to require the insurance policy upfront and prior to approval of an agreement as a way to verify coverage.
The City Attorney’s Office has conducted extensive review of the contract throughout the negotiation and has provided their feedback regarding the elements of the contract that do not comply with standard City terms.
City Council direction is needed on whether to enter into an agreement with GSF that requires the City to subcontract for the barge but removes GSF’s liability for the barge’s performance; or to enter into an agreement with GSF for solely the fireworks and direct staff to develop a separate agreement with the barge company. Both options are contingent on the City Council’s acceptance of GSF’s request to provide the requisite insurance for review by Risk Management following the execution of the contract.
BACKGROUND
Traditionally, the City of Redondo Beach has hosted and coordinated multiple events on the 4th of July holiday, including a City-sponsored annual fireworks display near Seaside Lagoon. In 2023, the City had to replace its regular fireworks display with a drone light show due to new National Pollutant Discharge Elimination System (NPDES) requirements instituted by the Los Angeles Regional Water Quality Control Board (Board) pertaining to the discharge of fireworks on, or near, the ocean. In an effort to resume the traditional, barge-based fireworks show in 2024, the City Council authorized staff at its February 6th meeting to develop an agreement with GSF to produce the fireworks display, and with Pi Environmental to assist the City in its efforts to comply with NDPES permitting and reporting guidelines.
Staff has worked diligently with representatives from GSF to draft an agreement for City Council approval. The City Attorney’s Office reviewed the draft agreement and identified three potential concerns: (1) lack of registration with the Secretary of State (2) removal of GSF’s liability for failure of its subcontractor, who would provide the barge necessary for the discharge of the fireworks, and (3) inability to provide the required insurance policy prior to approval of the Agreement.
Registration with the Secretary of State
GSF is an experienced fireworks production company that is headquartered in New Jersey. Previously, it did not have an active registration with the California Secretary of State, which is a requirement of Section 2105(a) of the California Corporations Code. This Section outlines that a foreign corporation shall not transact intrastate business without having first obtained a certification of qualification from the Secretary of State. Upon being notified, GSF incorrectly claimed that registration in the State was not required because it was a New Jersey corporation. After multiple discussions, GSF filed the appropriate documentation and registered with the Secretary of State on March 19, 2024.
Subcontractor Performance
Negotiations mirrored the City’s previous agreements with fireworks show production companies in that GSF would subcontract with the barge provider in order to produce the fireworks show in the harbor. While GSF was amenable to this request, it will not contract with the City unless the City removes all liability for any potential non-performance of its subcontractor in providing the barge.
GSF has requested an upfront payment of $70,671, which includes the full rental cost of the barge and a 50% deposit for fireworks services, with the remaining balance of $32,500 due on the day of the event. Normally, contractors are responsible for their subcontractors' failure to perform. Under GSF's proposed terms, however, the City would have no recourse for recovering losses if the subcontractor fails to deliver the contracted barge services. These losses could potentially include the (1) fees paid to GSF in the amount of $103,171, (2) advertising costs, and (3) expenses related to cleanup services for attending vendors.
Alternatively, the City could directly contract with the barge company, adhering to GSF's stipulation that the City assume liability for the barge’s performance. While this arrangement exposes the City to financial risks, it also offers the possibility of recourse against the barge provider in the event of non-performance. Stand-alone agreements with GSF and the barge company could present several logistical and planning difficulties. These include, but are not limited to, the allocation of extra staff on-site when the barge arrives at the Long Beach Harbor to ensure the security, delivery, and GSF’s access to the barge for loading and unloading, as well managing the post-event return and demobilization of the equipment and barge. Additionally, this option could unnecessarily complicate the environmental reporting process by adding another point of contact for pre and post-event inspections. Ultimately, this approach could expend additional staff resources and add complexity to event execution. It should be noted, that the City in past years, has provided fireworks shows under both operating arrangements, and has periodically held two agreements, one with the fireworks vendor and one with the barge company.
Insurance Policy
GSF has informed staff that it is unable to provide the required insurance policy, as outlined in Exhibit D of the proposed Agreement, until it has a fully executed agreement. It is the City’s policy to require insurance documentation prior to approval of an agreement as a means to verify a company’s coverage. Should the City Council be willing to accept the insurance policy following review of the proposed agreement, staff would provide GSF with a partially executed agreement that excludes signature by the City’s Human Resources Director/Risk Manager which would be withheld until the appropriate insurance policy documentation is received.
City Attorney’s Office Review
The City Attorney’s Office has significant concerns about the contract being presented for consideration, with the notable issues being the liability provisions and timing of insurance documentation. Including the concerns of the City Attorney’s Office is designed to assist Council in making a fully informed decision regarding the proposed Agreement.
Initially, the City Attorney's Office proposed a version of the Agreement that maintained GSF’s liability for its subcontractor's performance, which GSF rejected. In response, the Community Services Department proposed an alternative version that would relieve GSF of liability if its subcontractor failed to deliver the barge and allow GSF to retain payment despite such failures. After its review, GSF demanded that the insurance evidence be provided only post-approval and following execution by the Mayor.
In the first iteration of the proposed contract, the City Attorney's Office provided a draft that held GSF liable for its subcontractor’s performance. GSF refused the initial terms, which led to a new proposal by the Community Services Department that removed GSF’s liability for barge delivery failures. Further, as part of its approval, GSF stipulated proof of insurance coverage would be provided after the Agreement’s execution.
The City Attorney’s Office has highlighted two significant issues: the transfer of liability from GSF to the City and the insurance verification process. First, there is shift of liability from GSF to the City, potentially exposing the City to financial risks. These risks include $103,171 in fees paid to GSF, advertising costs, and cleanup expenses for attending vendors, all without adequate recourse for the City. While the proposed terms simplify operational processes, they also increase the City’s financial exposure.
Second, there is the risk of the City making payments to GSF without a thorough review of their insurance coverage. With GSF demanding the first payment of $70,671 by May 1, 2024, and the Financial Services Department scheduled to process the payment on April 17, 2024, the City faces a tight timeframe to review and potentially reject the Agreement if the insurance coverage is found to be insufficient. Should the City remit payment to GSF prior to confirming and approving the insurance coverage, it would have to pursue legal action to recover those funds.
The Redlined City Attorney’s Office Approved Draft Agreement, attached, minimizes the City’s liability risks but is unacceptable to GSF. This version is included for informational purposes to allow the Council to understand more specifically how the proposed Agreement differs from the City’s standard terms.
If the City Council does not approve the proposed agreement, which includes the terms acceptable to GSF, but not approved by the City Attorney’s Office, there will not be a Redondo Beach Fireworks Show in 2024, as there are no alternative vendors available to conduct a fireworks display. To help address the remaining concerns, the Mayor and City Council can approve and execute the proposed agreement with GSF, provided that the Risk Manager’s approval is deferred until the insurance coverage is fully vetted and verified as compliant. As noted above, the City Attorney’s Office has approved the contract proposed by the Community Services Department solely as to form while reiterating its concerns regarding the liability and insurance issues.
Council Direction to Staff
Staff requests the City Council provide direction regarding approval of the proposed Agreement, which contains the terms proposed by GSF wherein the City assumes all liability for the barge company’s failure to perform.
Alternatively, the Council may direct staff to enter into an agreement with GSF for the fireworks display only and also draft an agreement with the barge company directly. Both options require the City Council to waive the up-front provision of the required insurance documentation by GSF.
Should the City Council wish to move forward with a separate, direct agreement with the barge company, staff would return at a subsequent meeting.
Council also has the option to reject the proposed Agreement with the understanding that there would be no fireworks display in Redondo Beach on July 4, 2024.
COORDINATION
The Community Services Department coordinated with the Redondo Beach Fire Department and the City Attorney’s Office to develop this report and the draft Agreement. The City Attorney's Office, however as noted above, does not support the terms of the proposed Agreement. The primary issues are GSF’s demand to be exempt from liability for any failures of its subcontractors should it be required to secure barge services for the event, along with their insistence that insurance documentation be provided following the execution of the Agreement.
FISCAL IMPACT
Funding for this event has been traditionally provided through the Tidelands Fund. The Total allocation of funding would be $115,532.84, which includes the following:
The cost of the barge would remain whether the City contracted it directly or through an agreement with GSF. The proposed Agreement with Pi Environmental was included on the City Council’s April 2, 2024 agenda. The proposed Resolution would appropriate the Tidelands Funds needed to produce the fireworks display.
APPROVED BY:
Mike Witzansky, City Manager
ATTACHMENTS
• Agmt - Proposed Agreement with GSF- City liable for subcontractor (Non-City Attorney Approved)
• Agmt - Redlined City Attorney’s Office Approved Draft Agreement
• Resolution No. CC-2404-023 Authorizing FY 2023-24 Budget Modification