As a board of directors for a condo association, townhome association, or HOA, one of your biggest responsibilities is to ensure capital projects are properly funded and implemented. Unfortunately, this is an area that tends to create some of the most challenging problems for associations – especially since capital projects involve large amounts of money. The problems that typically arise around capital projects include but are not limited to the following:
- Insufficient capital planning and reserves, which creates the need for a special assessment and usually results in angry homeowners and increased homeowner stress levels
- Lack of a bid specification or scope of work, which creates confusion when soliciting bids, comparing bids, and selecting an appropriate vendor
- Hiring of an under qualified vendor in order to “SAVE” money, which often backfires and ends up costing the association MUCH more $$$$
- Poor or lack of oversight by the board, whether it’s micromanaging or taking a “hands off” approach
- Fear of pulling the trigger on raising assessments and taking action, which results in “kicking the can” down the road until the capital project is an EMERGENCY (and therefore usually much more expensive)
- No clear identification of a project manager who will oversee the day to day project repairs, creating confusion within the community, delays in project completion, and a much higher chance of costly mistakes
- Fiscal irresponsibility; board and/or management approving final payment before a quality control check and/or a punchlist remediation phase is completed
As a result of these typical capital planning problems that plague community associations, I have decided to share 6 simple steps that will GUARANTEE a smooth and successful capital project implementation each and every time.
- Capital planning. One of the most important steps that an association should take is to properly fund the capital reserve account. In order to do so, the board must take the time to plan ahead. One way to do this is to pay for a reserve study, which is the recommended approach. In the absence of a reserve study, there should be at minimum some sort of basic 5 year capital plan that the board or property management can put together. In addition, at the budget approval meeting, the capital plan for the following calendar year should be discussed. The board should determine ahead of time if the capital projects are going to be “fully funded,” “partially funded,” or “underfunded.” This determination will help the board decide the proper assessment levels when passing the annual budget.
- Bid Specification Creation. Once the capital plan is approved and the funds are in place, the board should start the bid spec creation process. This is a vital process, as it identifies the scope of work. Only once the exact scope of work is identified does it makes sense to start the solicitation of bids. The person creating the bid spec should be qualified and have the knowledge and understanding of the project requirements.
Bid Solicitation, Analysis, and Comparison. Once the scope of work is identified and the board signs off on it, the bid solicitation phase should begin. The key part in this step is to ensure that only QUALIFIED vendors are asked to bid on the scope of work. Assuming only qualified vendors are asked to bid and the bid spec is fairly detailed, the bids should all fall within a fairly close range of costs.- Vendor Selection. Once the bids are submitted by the vendors, the bids should be compared and entered into similar formats to allow the board of directors to perform a comparative analysis. This is essential in order to make a good decision, especially since capital projects involve larger amounts of money. The board may even elect to invite the vendors who are considered finalists to attend an upcoming board meeting, especially if the project is larger in scale and scope.
- Project Oversight. Once the vendor is selected, the project enters into the execution and implementation phase. During this phase, communication with the homeowners is CRITICAL. Communication is important before the project starts, during the entire project, and at the end of the project to ensure that all homeowners are given an opportunity to provide feedback. This is especially important if work was done within a homeowner’s space, such as window replacements. In addition, it is important to have clarity on who the project manager (PM) is during this phase. The PM should meet with the vendor before work starts, while the project is underway, and also at the end to resolve loose ends.
- Punch List Resolution and Final Payment. This end phase is actually one of the most important phases in the entire process. This is the phase where all loose ends are addressed. The key is to have the PM walk around the property and/or around the project site, and review the scope of work in reference to the work that has been completed. In actuality, the PM should have been monitoring the project all along to ensure that the project was done in accordance to acceptable building construction practices, but associations don’t always have the funds to hire an architect to watch and monitor a project. Once the PM checks out the workmanship, a punchlist is developed that documents any remaining issues that the vendor needs to address before final payment (typically 10% to 20% of the overall project cost) is released.
SUMMARY
Capital projects are expensive so it only makes sense to handle them in the best way possible. By following these 6 key steps, you are certain to complete each and every capital project successfully and headache free.
About the Author
Salvatore J. Sciacca aka “Condoboss” is one of the nation’s leading experts in the community property management industry and is also recognized for his stress relieving blogs and insight on personal and organizational transformation. He is also the President and Founder of Chicago Property Services, Chicago’s #1 community property management company specializing in management and operations of condos/townhomes/HOA’s of 100 units and under. Salvatore is also the founder of managmycommunity.com (MMC), which is a state-of-the-art online support portal for community associations.
With over 20 years of industry experience, Salvatore is recognized for his extensive knowledge of capital planning, preventative maintenance, cost-saving measures and community building techniques. He holds industry stature as a Certified Manager of Community Associations (CMCA), the designation of Association Management Specialist (AMS) and is fully licensed as a manager (License #: 261.001386) through the State of IL.
Salvatore has also traveled extensively around the world and has meditated with Buddhist monks in Nepal and met the world’s happiest man, Matthieu Ricard. He’s passions include cooking, traveling, meditating and hiking. He is also the founder and executive director of the Chicagoland Italian American Professionals organization.
Salvatore can be reached at: 312.455.0107 x102 or at ssciacca@chicagopropertyservices.com.