Most people living in a co-op or condominium building don’t have much experience with managing major construction projects. They may have skills that can be very helpful to their board—such as financial acumen, to name just one—but not construction experience. If the building is lucky, there may be one person on the board who has some familiarity with the process of working with contractors and others on a major renovation. Sometimes there is actually a contractor or an architect on the board, but that’s fairly rare.
One of the questions I am most frequently asked by boards at my co-op and condo seminars is, “What should we do first?” when it comes to managing major construction projects. I am going to discuss that in this article, as well as what comes second and third.
The Key is Planning
The very first thing a co-op or condominium board should do when contemplating a major renovation or capital improvement project is reach out to their managing agent to start the process of contacting architects and engineers about the work they “think” they will need to have done.
I put “think” in quotes because while building administrators may have some general idea of what needs to be done (the roof is leaking, or the parapet walls have deteriorated), a survey really must be done by a professional to give a true picture of the necessary work. This report is not only critical for purposes of assessing the scope of work, but it forms a “foundation” for all the other things that will follow. In other words, if the foundation is solid, the other areas will be solid. If the foundation is shaky and the report is not detailed or thorough enough, everything else will be “off.”
When boards that have not worked with me come to me for advice towards the end of a project and tell me that their costs have doubled from the original projected budget, I always ask to see the initial report. While there may be unforeseen deterioration hidden in the walls, there may also not have been a thorough enough assessment so that the board could plan better for the cost of the project.
The initial reporting phase is also a good time for the board to establish a budget for what they feel they can afford to spend on a given project, as opposed to what they will need to spend to get the work done. If the project is vast, there will almost certainly need to be some refinancing done, and that takes some time to organize and close on. The work might even have to be done in stages in order to make it financially feasible. There might also need to be an assessment to build up a cash reserve.
Many buildings retain engineers and architects for a project without having an attorney familiar with construction law review the agreements made with these and other professionals. When I review these agreements, I always see items that can be better negotiated to reduce the likelihood of fee disputes down the road.
After payment structuring, the next biggest issue is how much and how often will the architect or engineer will visit the building while the work is underway relative to what they are being paid. This needs to be addressed in the contract right at the beginning.
Depending on the magnitude of the project, there may also be a construction manager. Obviously they “manage” the project, but they also often provide some of the construction services themselves and frequently subcontract out a lot. On smaller projects, the managing agent—or even a board member—may carry out that role.
After the design professional completes the drawings and specifications, the building will go out to solicit bids. But hold everything. It is important for the board’s legal counsel to review specifications before they are sent out to bid—not for the technical aspect of the work, but for some of the language in it. Many design professionals fill the specifications with contract language. One recent set of specifications presented to me had four different conflicting indemnification provisions, as well as termination language. If the bids are based on the specifications and drawings, it can be difficult for a board to ask to change them later on. Also, the specifications often contain a blank draft of the contract for the contractor.
Assuming that the bids come in and a contractor is selected, the next thing is for the building’s attorney to draft the contract with the contractor. Sometimes the bids come in so high that the board has to reassess how much work they can have done and break it up into phases. Once again, having a dialogue between the board/management team and their legal counsel is invaluable for both sides in helping the attorney to cover as many points as they can cover to anticipate problems that could arise during the project. All tasks on the job need to be properly assigned. The building does not want to have people pointing their fingers at one another and saying “I thought you were going to take care of that” after a crisis has erupted.
Sometimes boards only think of contacting an attorney when they either need a contract with a contractor drawn up, or want to have one reviewed. If they do that, they are losing out on a lot of valuable informational give-and-take. When boards and their managing agents communicate regularly about their projects with their legal counsel, their attorney can offer suggestions for improving things before problems arise and help sort them out along the way. Co-ops need to plan well in advance of their projects and work with knowledgeable legal counsel to help to have the best project possible.
C. Jaye Berger, Esq., of the Law Offices C. Jaye Berger, is a Manhattan attorney specializing in real estate, co-op, condo, construction law and litigation.