Each year CNYC presents a day-long housing conference featuring dozens of workshops and seminars that cover virtually every aspect of managing and operating housing cooperatives and condominiums. At last year's conference, Steven Varone, AIA, president of Rand Engineering & Architecture, conducted a workshop designed to help participants successfully manage major capital projects. His report based on the presentation appears below. CNYC’s 24th annual Housing Conference will take place on Sunday, November 14, 2004, at Hunter College.

Major projects such as replacing a roof or installing windows involve a number of people, many decisions, and a lot of money. As a board undertakes a building-wide project, it should keep in mind several key elements to ensure that the project runs smoothly.

A Contract Is Essential
The American Institute of Architects has developed a standard form agreement between an owner and a contractor called AIA A101. The form is straightforward: In about 15 minutes, you fill in the contractor name, overall price, unit prices, specifications, drawings, date, and schedule based on the specification you have agreed upon. An indispensable companion document, A201, includes the guts of the agreement-penalties, payment schedule, and insurance requirements.

Form 101 was developed in 1987, but it’s recommended that you use the 1997 update, which is friendlier to owners and eliminates key controversial clauses. For example, one clause in the 1987 version stipulates that if the owner fires the contractor for proper cause, the contractor has a right to lost profit, which could lead to some ugly contention. How, for example, do you fairly negotiate “lost profit” with a contractor you just fired? Therefore, if this item appears in the contract, it should be crossed out.

Don’t let a contractor tell you that contract documentation is unnecessary paperwork. Even if you have only the A101, you are 10 times more protected than if you let a contractor write a proposal that you blithely sign at the bottom. Remember, the contractor drafts the agreement to his advantage and will include terms favorable to him. It’s not that contractors are corrupt, but they won’t put in clauses to protect you. Therefore, you should have your attorney and your engineer review any contract document before you sign.

Change Orders
Before a contractor begins any work not listed in the base contract, you should get a written change order. Don’t rely on a lackadaisical “we’ll figure this all out in the end” approach. Instead, the contract should include some kind of contingency that covers unforeseen changes.

If a contractor does work without a signed change order, it puts you in the awkward situation of deciding whether you should pay him based on your own good graces. Before it gets to that point, a field worker should quickly write up the specific change-e.g.: replace 100 square feet of brick for $5,000 – and have all parties sign it.

Payment Terms
Not only is it essential to clearly spell out payment terms, you also want to stay “ahead of the contractor.” That is, if the contractor goes out of business or walks off the job, you want to make sure you haven’t already paid him for work he didn’t complete. Pay the contractor as little as possible-or nothing at all, if you can – at the start of a job. Most contractors will begin a waterproofing or roofing project without requiring a down payment because most of their initial cost is labor.

For other types of projects, however, such as replacing windows, you won’t be able to get a zero-down agreement because the contractor has to order the windows in advance. For a window project, a recommended payment schedule might be 10% down, 10% when the windows are delivered, 70% when they are installed, and finally 10% when the project is completed. By holding money to the end of the project (this is called retainage), you give the contractor incentive to come back and take care of punch list items that your engineer compiles of the final details to be completed.

Bonding and Insurance
The more costly the project, the more important it becomes to have bonding. A bond guarantees that the work will be completed at the quoted price. So if the contractor fails to complete the project, the surety company issuing the bond will cover the cost of bringing in another contractor to finish the work. The different kinds of bonds include a performance bond, a payment bond, and a labor and materials bond. Bonds typically cost anywhere from one to three percent of the contract, depending on the size of the project. Ask your attorney to help you calculate the amount of bond coverage needed.
Make sure your contractor has proper and sufficient insurance coverage. A typical rule of thumb is that contractors be insured for at least $2 million for each occurrence and $5 million aggregate, but you should check with your insurance broker as to the appropriate limits for your building.

Closely examine the contractor’s insurance certificate to make sure it lists the cooperative corporation or condominium association, the property management firm, and the engineering/architectural firm as additional insured parties. The contractor’s insurance policy should be written on an occurrence-made basis, not a claims-made basis. An occurrence-made policy covers losses that happened during the policy period, regardless of when the claim is reported. A claims-made policy covers losses only if the policy is still in place when the claim is made. For example, if your building suffers damages during the project and the board files a claim after the contractor has gone out of business (and thus is no longer covered by the policy), you would be covered under an occurrence-made policy but not under a claims-made one. The contractor will also need automobile coverage for equipment accidents and to cover vehicles damaged on the street outside your building.

Before signing off on insurance, send the contractor’s policy to your own insurance broker to make sure if it follows the rules of the building and adequately protects you. Your broker will also know whether the policy is with an A-rated company, and whether the terms of the policy are in your building’s best interest.

Time Is Money
Your contract should set a very specific timeline for the project. When are they going to be doing brick work? The roofing? When are they going to deliver the boiler? When are they going to be manufacturing your windows? All this information should be laid out in a chart, clearly stating the start and finish date of each task.

To help ensure that your project stays on schedule, include a clause in your contract specifying progress payments for each milestone in the timeline. Make sure the contractor updates the schedule at each milestone and payment. If they are getting paid once a month, then you should get a timeline updated monthly. Even if the schedule hasn’t changed, you want to have verification of that. There is no scheduling clause in the standard AIA contract, so one should be added one to your contract.

To help keep a project from dragging on and on, include liquidated damages in your contract. If your project is supposed to be completed in 16 weeks and goes beyond that time, begin deducting a designated dollar amount each day until the project is finished. (The larger the project, the bigger the amount.) You may encounter some resistance from contractors, who hate having such a clause hanging over their heads. You can be flexible about when you start enforcing damages, but it’s recommend that you set a date when you can finally say enough is enough.

To add incentive for your contractor, your attorney may recommend having a corresponding bonus clause. If the contractor finishes in fewer than 12 weeks, for example, you would pay a specified bonus amount.

Putting weather delays in contracts should be avoided because everyone on the project becomes a weatherman. Too much time can be spent trying to remember how many drops of rain have fallen on a given day. Instead, make sure the schedule includes a cushion: If the specific type of project should take 16 weeks of construction and physical labor including no rain, then put 20 weeks in your schedule. Then you can state that the building will start assessing damages at 24 weeks.

Project Supervision
Before work begins, make sure you know the role that each person on the project team will play. A project engineer or architect hired to make twice weekly site visits, for example, should not be thought of as a full-time supervisor. Typically, the engineer/architect visits the site to observe that the work generally complies with the intent of the contract. The contractor should designate someone to be on hand as the project manager to supervise the work on a regular basis. Too many contractors, however, do not include full-time supervision in their price, despite their insistence that they have. The engineer’s/architect’s specifications should state that the contractor must provide a full-time supervisor to be on the site to oversee the day-to-day progress of the contractor.

A working foreman is acceptable as long as he knows his job inside and out and has the specifications and drawings with him at the site at all times. But a supervisor should not be spreading himself around by flitting between four or five different projects. Popping in to a site and asking if everything is OK, and then moving on to the next site is not proper supervision. It’s well worth paying for a full-time foreman to get the proper level of oversight.

Remember that the prime contractor is responsible for everything that goes on at your site. The subcontractor works through the prime, and although they are separate companies and should each have their own insurance, you shouldn’t work out problems with the sub. You should be dealing with the prime and the prime only. Subcontractor issues should be seamless to you.

Too Many Chiefs
One person from the board should act as the key contact person for all parties. It only wastes time and causes confusion to have two, three, four or more board members calling the engineer or contractor. The more the board maintains a unified voice, the better.

Don’t forget to notify residents well in advance about work that will disrupt them or that will require their cooperation. Usually this is your property manager’s responsibility. It’s not fair to the engineer or contractor to bear the brunt of residents’ anger over work in the building that they didn’t know about.

Initiation Conference
Before work begins, hold a project initiation conference where all the parties sit in a room and review the goals of the project. Discuss details such as 24-hour emergency numbers and where you’ll be storing materials. Get the insurance certificates and the permits. Where are notices going to be posted? What is the security protocol to get into the building? What materials submissions will you have on this project? When are they due? The project initiation conference should nail down all these details so that everyone is on the same page.

Once every two weeks, hold a project meeting with the same parties: the same board representative, property manager, contractor, superintendent, and engineer/architect. Go over what has happened in the past couple of weeks and address problems before they fester. If you don’t set up a formal framework for the project, things can quickly get out of control.