Capital Improvements Tackling Projects in Phases

What can a board do if its building is faced with extensive capital work while recovering from the real estate slump of the early 1990s? Assessments are unpopular and reserves are low. There's a desire to have construction operations completed as quickly as possible, but an aversion to parting with too much money at one time. One way to solve this dilemna is to phase in the capital programs over an extended time. Undertaking construction in distinct stages offers many advantages as well as potential pitfalls. Armed with the proper information, however, the board can organize the building's construction into phases that best suit their purposes.

Examining the Project

Capital improvements generally get their first moment of reckoning when the board sees the cost estimate for the work. If there's going to be a significant amount taken from the capital reserve fund, or even a shareholder assessment, there will always be at least one board member who asks, Do we really have to do all of this? The answer requires an examination of the nature of the work and whether some aspects can indeed be put off until a later date. Architects and engineers are often brought in to advise on a particular item only to find that it is a symptom of a more widespread problem. For example, a board may know of water damage in certain apartments, while a survey reveals that a more extensive area is affected.

Architects' and engineers' reports often set out their recommendations in terms of priorities. Items are grouped into those needing immediate attention, those that should be completed within the next year or so, and those that can wait somewhat longer. A three-phase program is the obvious result, but this may not be the best solution. Financial commitment, cash flow, disruption, delay, competitiveness and other factors need to be considered as well, and this should be done before contract documents are prepared.

Stretching out the work over several phases allows cash flow requirements to be evened out over an extended period. It also enables a board to evaluate the effectiveness of its architect's or engineer's recommendations. This can be done by having the first phase cover only a small portion of the work. This method can also help keep disruption to a minimum.

Single or Sequential Projects

Capital improvements can be phased two ways: The board can prepare a single contract and have one contractor responsible for providing the entire scope of work; or, the work can be broken up into several sub-projects that can be done in sequence by the same or various contractors.

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