2004 July

UNDERTAKING LARGE CAPITAL PROJECTS

By Timothy Wentzell, P.E.

As condominium associations age, one of the most daunting tasks facing the Board of Directors is the repair or replacement of large infrastructure items such as roofs, siding, decks, roadways, and parking lots.  These are projects that the Association has not normally been dealing with, as its primary function up to this point has been conducting regular maintenance and minor repairs.  As the Association ages, these undertakings become far more significant and a far larger drain on Association resources.  Therefore, it is imperative for the Association Board and its property manager to understand the appropriate processes in order to realize optimum value in these large construction projects.  The first item for the Board to determine is the appropriate timing and scope of the project to be undertaken.  This may require getting expert advise to determine what the appropriate repair technique would be and when this task should be undertaken.

Next in the project, it is imperative to prepare bid and performance specifications that clearly delineate the tasks to be undertaken, scope of the project, how the pricing is to be submitted for the project, the required insurance submittals, completion dates, penalties for late completion, and dispute resolution methods, such that projects of this magnitude can be undertaken in a clear and definitive manner.

The largest mistakes that I see Associations make is assuming that projects of this magnitude can be initiated by requesting input from contractors with regard to what could and should be done to remediate the project and their suggested pricing .  The problem with this approach is that every contractor is offering slightly different advice.  Their proposals are also differing in regard to magnitude and pricing.  As contractors know everyone is submitting a different basis for the project, they are focusing their effort on convincing the Association that their repair technique is appropriate, as opposed to “sharpening their pencil” to give the Board the best pricing on the project.

When the scope of what is to be done is not clearly delineated,including acceptance standards, completion dates, and penalties for late completion, then the Association has little leverage for resolving disputes if the project does not go as planned.

The second most common mistake is falling into the trap of advancing funds to the contractor before the work is completed.  It is our firm belief that Associations should not deal with a contractor who cannot afford to undertake the project.  Associations typically have a clear record of paying bills, and there is no reason to advance funds to the contractor.  When this is done, the contractor invariably loses incentive to complete the project and, in fact, has a dis-incentive, since he has already received payment in excess of the work completed.  It is appropriate in large construction projects to make partial payments as the project is completed, but these partial payments should not be in excess of the amount of work completed.  A retainage should always be kept back until the project is complete and the Board is satisfied with all aspects of the project.  This gives the Association the leverage at all times to make sure the project is being completed to its satisfaction.

Another question that Associations have to deal with is how to solicit bids from the appropriate contractors.  If the Association, along with its property manager, feels they have a large enough pool of contractors from whom to solicit proposals, they can simply send them a Request for Proposals, along with the specifications.  However, in many cases, the Association needs to publicize its project to feel comfortable that it has reached all of the appropriate contractors in order to receive the most advantageous pricing.  Some Associations merely go through the Yellow Pages or elect to do a legal notice in a local newspaper, which can broaden the pool of contractors.  One way I have found to publicize a project is through publication agencies that do this on a regular basis, such as Dodge Letters or Brown’s Reports.  These agencies publish a newsletter that is paid for by subscribing contractors to publicize commercial, residential, and municipal projects being put out to bid.  This is helpful in reaching a reasonably large selection of contractors who would be experienced in the type of project being undertaken.

After the bids are received, references from prior projects similar in scope should be checked, insurance and licenses verified, etc., and a contract should be issued to the contractor.  This contract should clearly state that the project is to be in complete accordance with the specifications and the pricing in the contractor’s proposal.  The Association should not merely sign the contractor’s bid form, as in many cases this does not make reference to the specifications, and the specification requirements are not legally invoked in the contractual relationship.

If a clear bid and performance specification is completed, and there is a dispute with regard to the performance of the contract or a warranty claim surfaces, there is a clear document delineating what should be completed.  Any dispute can be more easily resolved, because of the specification requirements delineating both how the project is to be completed and the acceptance standards for that completion.

Certainly any large project can have unexpected problems occur during the construction period that will need to be dealt with promptly in order to complete a successful project on time and budget.  By having a clear delineation of the requirements for the project, a large capital undertaking is far more likely to be completed in a successful manner.

Timothy Wentzell, P.E. is a principal of Connecticut Property Engineering, which specializes in providing engineering services to common interest associations.  He has completed over 300 different condominium projects, including such tasks as reserve studies (life-cycle analysis), ice damming problem reviews, design and specifications for such projects as pool deck replacements, roof replacements, boiler replacements and/or heating system conversions, vinyl siding installation, paving, deck replacements, and investigation of drainage problems and other structural problems.