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BACKGROUND In 2002, KB Homes constructed Tract 7374 (Canyon Oaks) located on the Bernal Property at the southern end of Case Street near Valley Avenue (between the Union Pacific Railroad right of Way and the Alameda County Transportation Corridor). The project included 128 single-family homes and the required public streets; Stonecliff Vista Lane, East Creek Court, Oaks Bridge Place, Rocky Creek Place, Knoll Wood Court and Sterling Greens Circle. Construction of three bridges was required to access the project area (Case Avenue Bridge, Stone Cliff Vista Lane Bridge, and an EVA bridge). All necessary public utilities to serve the homes within this subdivision were constructed, including water, storm sewer and sanitary sewer. In accordance with the Subdivision Agreement, KB obtained Performance and Labor and Materials bonds in the amount of $5,635,500 to ensure the construction of the required public improvements. This bond amount was based upon the 2002 estimated cost of the improvements. DISCUSSION The project has been completed and homes have been occupied since 2003. Of the numerous improvements constructed, a portion of one street, the southwest portion of Sterling Green Circle, showed signs of distress due soil settlement. As a result, the subdivision has not been accepted as complete. Over the course of time, KB Homes made several spot repairs to the street improvements, but the settlement continued. KB Homes then hired a soils engineer that performed several field investigations (with review by the City's on-call soils engineer). The KB Homes soils engineer recommended that the improvements be removed, the underlying soil be mechanically compacted, and the street reconstructed. KB Homes performed the recommended work during the summer of 2011. After performing the work, KB Homes requested that the project be accepted as complete and the Performance and Labor and Materials bonds be released. City staff told KB homes that until the repaired area was allowed a period of time to perform, it would not be appropriate to accept the project. KB homes then asked that the bond amount be reduced. Engineering staff, in consultation with the City Attorney's Office, determined that due to the completion of the improvements and performance of the improvements over the last eight years (other than the one section of Sterling Green Circle) the reduction of the bond to $600,000 was reasonable. This amount represents twice the estimated cost of removing and replacing the improvements again should the 2011 repairs fail to perform. The City's Engineering Division is monitoring the performance of the roadway. If the roadway needs further work, KB Homes shall be responsible for repairing the roadway. It is anticipated that by the end of summer 2013, if the roadway is determined to be satisfactory, staff will recommend to the Council that the subdivision be accepted as complete. Only after final acceptance will the $600,000 bond be released. Finally, to clarify the recommendation language "substitution" of the bond, the original bonding company is no longer in the business of issuing new bonds, so KB Homes has Page 2 of 3