Tips For Associations Planning Large Repair And Construction Projects
Maintaining the association’s common elements is one of the primary responsibilities – – and headaches – – for associations and their Board of Directors. The duty is so important, in fact, it comes up multiple times in the Condominium Act (Florida Statute Section 718.111(4) to maintain, repair, lease, and replace the common elements; Section 718.111(3) to maintain, manage and operate the condominium property).
But just because you were elected to the Board of Directors, does not mean you signed up for, let alone are qualified to plan and manage, a multimillion dollar repair project at the building. The issue may have started with unit owner complaints of peeling paint on the balcony railings, cracked stucco on the exterior of the building, maybe even structural cracks in the parking garage, or any number of other issues that are easily observable with no prior experience. The Board and property manager act swiftly and responsibly by hiring a licensed engineering firm to investigate the reported issues and prepare a report for the Association. The report conclusively states that extensive exterior stucco repairs and re-painting of the building are needed. Now what?
Assemble a Talented Team.
The importance of the project team cannot be over-emphasized. This goes beyond hiring a reputable general contractor. This starts having a quarterback. Complex and expensive repair projects should start with hiring a construction manager or design professional (architect or engineer) that can manage the process from the start to finish, serve as the Board’s eyes and ears at the project, and cover the day to day and week to week tasks and problems that arise so the building’s community association manager can focus on managing the building and the residents – – not the intricacies of a construction project and the endless paperwork and issues.
I am biased, but hiring a talented lawyer with experience in both community association law and construction contracts is important. Lawyers can be expensive and associations will look for items to cut costs, especially on “soft costs” such as legal work. This is often a mistake. Getting your lawyer involved early in the project planning, bidding, and contracting phase will very often end up reducing the overall legal fees spent and help fast-track the project’s start date. Why? The legal issues involved in a complex or expensive repair project involve both a macro and micro view. The association should not merely engage legal counsel to “review” the proposed final contract. Other than identifying the common elements issues that need to be repaired, perhaps the other most important issue is how will the Association pay for the project?
How Do We Pay For This?
There is only one pot of honey – – the assessments paid by the unit owners and collected by the Association. Within this, there is the regular assessment paying the common expenses of the current budget, there is a special assessment that can be adopted from time to time, and there are the statutory reserve funds for making repairs. The source of funds might seem like a simple issue; the project involves repairs to the common elements so the association should just use its reserve funds. Maybe. If the association has not voted and adopted “pooled reserves”, then the association is only allowed to expend the specifically designated funds for the “line item” it matches up with. For example, reserve funds for roof repairs cannot be used for painting the building. Or maybe the association has voted to waive the funding of the reserves the last few years when adopting the annual budgets, so they come up with an alternative idea – – pay for the repair project with a loan and then let the association (via the unit owners) repay the loan over a longer period of time. Sounds reasonable on paper but many associations are not allowed to obtain a loan without first getting the approval (vote) of the unit owners. It is rare for the Board of Directors, without the unit owners, to have the power to approve a loan transaction. Going the loan route often should be a dual track – – and involve following the required procedures for a special meeting and vote on the loan, and the same for the adoption of a special assessment to repay the loan. Most lenders in this specific market will not fund and close the loan until the association has either: (1) adopted a special assessment to repay the loan; or (2) the association has adopted a budget with specifically designated funds sufficient to cover the debt service for the applicable year and then commits to eventually passing a special assessment or a new budget with regular assessment increases the following year to cover the debt service. If this was not already getting complicated enough, keep in might that some associations want to use a mix of funding sources – – some funds from reserves, some part paid by special assessment or via loan. This mixed bag requires legal counsel and accounting/management to confirm the items that can legally be paid with the reserve funds and carve out the non-reserve items (that are still part of the project) that must be paid with special assessment or loan funds.
The Association has obtained the engineer’s report and even a proposed scope of work and repair specifications for our hypothetical stucco repair and painting project. At this point in the process, the Board should consider allowing the construction manager and lawyer to coordinate and prepare a request for bids/proposals (RFP). The RFP will be sent to prospective contractors to bid on the scope of work. The RFP should include a “uniform bid response form” that each contractor must fill out. The Association should be able to compare the bids on an “apples to apples” basis. Contractors should not be allowed to bid and submit their own form proposal with different categories, different pricing groups, sub-totals, etc. This will make it much more difficult for the construction manager to create a “bid comparison summary” for the Board to review and select the proposed repair contractor.
Of equal importance, the RFP should include the lawyer’s required contract terms or even the proposed contract. The mediocre RFPs may generally reference the AIA contract form that will be required for the repair contract and association. These forms do not address issues that are critical to occupied associations undergoing repair projects (i.e., protection of units, limited common elements; staging and logistics plan; repair duties for damaged property; sub-contractor issues; extreme weather and hurricane mobilization and building protection issues; indemnification requirements; lender requirements and funding; prevailing party attorneys’ fees; proposed warranty forms; consistent deadlines and timing/performance issues, delay damages, insurance requirements for all contractors and sub-contractors; consistent dispute resolution terms across all contracts – – including the design professional hired at the outset of the project, and much more). So the association and construction manager should make sure legal counsel has a chance to review and supplement the RFP so bidders are aware of the contract requirements upfront – – and can provide any objections or proposed compromise terms during the bidding stage. The timing of this is important because the association has less leverage to negotiate a repair contract and require more owner favorable terms when the project has already been bid, the Board has already selected a repair contractor, and the permits to start the project are being held up because the basis unmodified contract (or worse yet, the contractor’s own one-sided contract form) is presented to the association’s lawyer at the last minute to “review and approve.” The key terms and requirements of the repair contract and project overall should be negotiated by legal counsel (with assistance from the construction manager) when there are at least two bidders still on the table.
Additional items for legal consultation:
- Material Alteration Approval Requirements (i.e. – for funding method, for alterations and improvements, etc.)
- Conflicts of Interest (special requirements exist due to statutory changes and legal counsel should get involved as soon as a potential conflict is identified).
- Project Related Accounting Issues (i.e. – correct application of special assessments or reserves, proper bookkeeping, etc.)
- Loan Compliance
Delays – The number one complaint by residents and board members
- Pro-association contract provisions can only help so much. The project manager must stay on top of these issues throughout the project.
- Partial weather days often turn into lost workdays: the project specifications from the engineer (incorporated into the contract) should detail what constitutes a “weather day” – – too often, some morning rain results in the workers walking off the job for the day.
- Disputed weather days/contract extensions should never be kicked down the road for the end of the project! Especially with liquidated damages or early completion bonus at stake.
- Timing of project vs. Rainy/hurricane season.
- Type of work and effect of wet conditions (waterproofing materials, stucco, painting, etc.)
- Document the moisture levels and weather records.
- The contract should require GC to timely and promptly make claims for weather days and additional time (with supporting documentation).
- What if there is a hurricane/tropical storm coming our way? De-mobilization/re-mobilization, extra charges? Protection of the property and work areas.
About the Author: David Podein is a partner with Haber Law and has been with the firm since 2009. He concentrates his practice in the areas of real estate, condominium/community association representation, secured financing, and related business matters.