Fact or Fiction

Over the last 30 plus years we have heard many HOA boards of directors and even some community managers state reasons why they decided not to involve a construction manager (CM) in their project. Although many of these reasons may seem appropriate on their face, oftentimes they indicate a lack of understanding of what exactly a construction manager does and the value they bring to a project.  Let’s look at some of these stated “justifications” as to why a board or community manager may think a CM is not necessary for their project.

“Our project is too small to require the services of a CM.” – Certainly not every small project requires the services of a CM.  How small is too small and should size of the project be the determining factor?   It’s true that it may not be appropriate to hire a CM for a small project that is not very technical in nature.  On the other hand, a small project which is very technical, such as changing out a boiler or upgrading an elevator,  may very well benefit from consultation with a CM.   The old adage “it’s what you don’t know that can hurt you” comes to mind here.  Sometimes a seemingly simple project can mushroom into a costly, major ordeal as the result of unforeseen factors such as building department requirements, new codes or regulations, selection of the wrong materials, etc.   It never hurts to take the time for a consultation with a construction manager to determine what issues might become a problem as the project progresses.

“Our Community Manager can handle the CM responsibilities.” – The community manager may be very good at what they do and have years of experience but there are numerous considerations if an association decides to have the community manager take on the role of CM.  Likewise, the community manager should think long and hard about their liability and exposure, as well as that of their management company, by acting as a CM.  A community manager cannot be expected to have the expertise required to oversee a large or complex construction project, not to mention that they likely don’t have the time necessary to make site inspections, review the endless communications between homeowners, contractors and other professionals on the project and deal with the minutiae of the day to day project activities.

A quality CM will have a background in general contracting, architecture or engineering, and hold the associated licenses and should always have professional liability (E&O) insurance. They would also have the knowledge and experience to put together a complete bid package to ensure that all the bids are complete and comparable.  We all know of cases where the community manager or board asks a contractor for a proposal and then uses that proposal as a “Scope of Work” document in order to obtain additional bids.  The reality is that if the board or community manager is not familiar enough with the proposed work and needs to ask a contractor for a scope of work document, they will not likely obtain consistent bids.  Are the materials specified in sufficient detail that all the bidders will be bidding exactly the same materials?  Are they the right materials for this project?  Is there any definition as to method of installation? Typically a contractor’s proposal, if not based on an independent scope of work, is very general in nature.  That scenario gives the bidding contractors flexibility to change materials or methods without violating their proposal, which is a huge advantage to the contractor, but probably won’t match the quality desired and expected by the association.  If that proposal is used as the scope to obtain other proposals they are likely not going to end up equal.  Although this gives the appearance of obtaining the necessary number of bids it is very likely that these bids are not really comparable one to another.  This also opens up the board and community manager to criticism and potential liability.  Hiring a CM to prepare a proper scope of work and establish a proper bid form and procedure to handle any contractor questions so that all bids are based on the same materials and installation methods will assure consistency in the bids and the basis for a quality contract with the selected contractor.

“Our General Contractor will handle the responsibilities of a CM.” – One of the most important functions of a CM is to provide the HOA with an unbiased professional opinion concerning the contractor’s work and responsibilities.   If the contractor is going to be providing these CM services there is a built-in conflict of interest.  Ideally the CM would be brought on board before the contract is prepared and issued to the general contractor, as there are many nuances to a construction contract that if mishandled can lead to cost overruns and schedule delays.  The CM will also review the contractor’s insurance, monthly invoicing and lien releases to verify that they are appropriate and correctly completed.  And the CM will verify the validity and cost of any change orders and the impact on the construction schedule.  Who would the HOA turn to if they are unsure about the information provided by the contractor?  It is best to avoid these conflicts of interest whenever possible.

A CM may also suggest value engineering alternatives – methods and materials that may save the association thousands of dollars. How far down the road might the project be when it is discovered that there may have been a better way?  A good CM would also notice an improper technique or material application on site and help correct it before it is repeated over and over again, possibly creating the next construction defect litigation case.

“Construction projects always cost more than expected.” – It is true that many times there is not adequate planning or understanding of a project before construction starts and most often this leads to unexpected costs.   If the person or persons responsible for pulling the project budget together do not have a great deal of experience and knowledge associated with the various aspects of the project, costs can and do quickly spiral out of control.  The budget is made up of more than just the contractor’s bid.  Typically it would include the cost of permits, possibly an architect or engineer, a hygienist and/or abatement contractor, financing costs and of course the all-important owner contingency.   The contingency amount is determined based on the experience of the person putting the budget together.  Is this is a wood siding, balcony railing, dry rot and replacement project, or is this a repiping project?  The contingence for different types of projects is very different for many reasons which we won’t go into in this article.  However, an experienced CM should know how to advise the association when it comes to completing a proper and well defined budget with an appropriate contingency.  No board or community manager ever wants to go back and face the “political cost” of a budget shortfall and additional assessment.  Projects do not have to cost more than expected if the proper expectations are established during the bidding, budgeting and contract writing process.

A CM offering good, sound advice, helping the HOA avoid costly mistakes, establishing a well thought out budget with an appropriate contingency, using a quality contract can easily save an association more than their fees for the project. Conversely, decisions concerning the use of improper or poor quality materials or installation can cost the association huge sums of money in the form of shortened life expectancy of a product, damage to building interiors from improperly installed waterproofing materials, the selection of the wrong materials altogether, or even the extreme costs and frustration of defect litigation which will involve many experts and attorneys and take months if not years to resolve.

There are many other areas where a quality CM can save the association money by helping to prioritizing repairs, accounting for life/safety, water intrusion and aesthetic issues, so that the repair budget is spent wisely. Assisting in obtaining the required membership votes for project approval by holding town hall meetings with PowerPoint presentations to help inform the members of the need for and cost benefit of the project.  Lastly, a qualified CM will have contacts in the finance world and would be able to assist the association in obtaining a loan to accomplish the work, if that need exists.

Hiring a professional and qualified CM is actually the most prudent and in many cases the least expensive alternative, all the while providing the HOA with the peace of mind that they have independent, professional representation to assist them with their project.~

Dennis Brooks is the president and founder of Design Build Associates, a construction management consulting firm specializing in HOA reconstruction projects with offices in Westlake Village and Irvine.  He can be reached at DennisBrooks@dbuild.com