By: Helsing Admin
Boards of Directors are often resistant to hiring a Construction Manager on larger construction projects. In large part it appears to be that they do not understand what the construction manager does for them, and therefore they feel it is a wasted cost. Unfortunately, the risk of entering into any construction project without technical expertise leaves the community at risk – so the hard decision is determining when it is reasonable to use a construction manager, and when it is reasonable not to use one.
In our opinion, you should use a construction manager anytime you cannot redo the construction project (if it has issues) for less than the construction manager would have cost you. That certainly means large projects like re-roofing, repainting an entire complex, large seal coat projects, geotechnical work and similar projects. In those instances, not using a construction manager puts the association at risk. When considering other projects like repainting wrought iron around the pool, touch-up painting, repairing a small number of concrete issues, and similar work, the cost of a construction manager may not be justified. (As an important aside, the number budgeted for large construction projects in most reserve studies is adequate to provide for a construction manager.) There is no firm answer to this dilemma, but in making their decisions Boards do need to understand what the construction manager will be doing for them, and also consider who (if anyone) is going to perform those functions if they choose not to hire a construction manager.
In Common Interest developments the construction manager is NOT responsible for the direct oversight of the construction project. That is typically the responsibility of the contractors themselves. The construction manager will typically make multiple visits to the site in order to do inspections for progress payments, authorize work orders, spot check that the work is being done to the specifications, and follow-up on Board or homeowner concerns. He typically is not the site foreman or the construction supervisor. However, he is there often enough that the Board needs to ask themselves who will perform this function if they do not hire a construction manager, and what would be that person’s needed qualifications.
In addition to those site duties, the Board should understand the other functions the construction manager performs and in like manner decide who would do them and what qualifications would be required.
– Specifications – Specifications are required for every major project in your community for which the association has maintenance responsibility. Larger construction projects, however, have unique needs that would not all be needed in smaller projects. Here are the items that should be considered:
o What are the technical parts of the specification? What gauge of metal? What preparation work needs to be done? Is the specification going to void the manufacturer’s warrantee? The list of items is long and varies by project.
o Where will the staging area be for the contractor?
o Where can a contractor place a portable toilet for their workers?
o Where will the workers park while on site?
o Who owns the materials before they are used in the project, the contractor or HOA? (Big difference here if they are stolen)
o From where can the contractor draw water and electrical power?
o Who will notice homeowners and tow improperly parked vehicles that are obstructing the work?
o What will be the payment schedule? How will retainage be paid?
– Bid package – Once a specification has been established, the construction manager will complete a bid package and send it to qualified bidders. They will then typically do a pre-bid walk with all bidding contractors to review the property and field any questions that they may have. This will ensure that all contractors receive the same information and that bids can be compared “apples-to-apples”. Once bids have been received, a construction manager will prepare a comparison of all bids, and meet with the Board so they can select a contractor and award the contract.
– Project Preparation and Commencement – The construction manager will then facilitate the steps leading up to a project beginning. This typically includes noticing homeowners of critical dates and requirements that affect them, working with the contractors to ensure billing information, ensuring that lien rights notifications are properly received and recorded, confirming that the contractor’s bonds and insurance are in place, and finally giving a notice to proceed once all is in order. After a project begins it will be the construction manager who reviews the work as it is completed and provides the authorization to pay the progress payments per contract. A large part of the payment process is ensuring that all sub-contractors and suppliers give partial and total lien releases prior to final payment. Mechanic’s lien law allows any sub-contractor or supplier to lien the individual homes if they are not paid – even if the primary contractor was paid and simply failed to pay subs and suppliers. The payment schedule (by contract) provides for a process to ensure that enough money is left on the table at any given time to protect the association should this occur.
– Project Completion – The construction manager pays the final retainage once any punch lists have been completed and all subcontractors and suppliers have been paid. Typically the association will then be handed a final report which will provide the history of the job for the association’s files.
The list of items to be considered is quite lengthy and as you can see from the above needs to be done by someone with experience. It is not a Community Association management function, and the few firms like ours that also do construction management will typically not do it for associations they manage. Homeowners and Boards tend to blur the duties of the construction manager and the association manager and the contract requirements are very different. So, in short – if you can do the project over again for less than it would cost to deal with all the issues laid out above then a construction manager is not needed. Construction management starts at a minimum of about $5,000 for a very small project and can go up to the $100,000+ range. The larger the construction project, however, the lower the construction manager cost as a percentage of the total contract, with very large projects averaging 1% to 3% of the construction costs. For smaller projects, the construction manager’s cost may be as high as 10% to 15% of the construction cost, but still probably well worth it. As they approach 50% of the construction project cost, the Board does need to start considering cost vs. risk.
Articles are for advertising and general information by The Helsing Group, Inc. They are not intended to provide legal advice, but rather reflect our opinions as Community Association managers and Consultants. Readers should not act on issues raised in our newsletters or websites without consulting legal counsel.
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