In the wake of the recent bank failures, the phrase “too big to fail,” popularized during the 2008 banking crisis, has surfaced once again. It conveys the somewhat ominous warning that the failure of one company could provide a catalyst for greater distress throughout the economy. That warning also applies to large scale capital projects at many condominium associations. These projects may be ‘too big to fail,’ because their failure could severely damage the association.

The aging of existing condominium buildings and the focus on deferred maintenance spurred by the collapse of the Miami Surfside building, has led many associations to undertake large-scale building envelope projects. These projects are enormously expensive, complicated and time consuming and they can become very divisive for communities where multiple projects are often competing for funds. Envelope projects are difficult to begin, but once begun, they can be even more difficult to “do-over” or change course.

Nothing will make a building envelope project less complicated or less stressful, but there are some things boards can and should do to help ensure their success. Before undertaking any large-scale project, boards should:

An engineer should do this inspection to assess what work is required, determine the scope of the project and define its specifications. Do not rely on a contractor to assess what is needed. An engineer will have a more objective view of the work required because the engineer won’t be paid for it. That objectivity will help ensure that the money spent on the project targets the problems it is designed to solve. Also, boards can require contractors to base their bids on the scope of work the engineer develops, making it easier for the boards to compare competing proposals.

Are the areas identified by the engineer common area or part of the units? Depending on the maintenance obligations defined in the documents, some components, such as doors and windows, may require both association funding for common areas and direct owner funding for components for which they are responsible. Boards should identify any actions requiring a vote of the unit owners ahead of time, and know the authority of the board to mandate repairs if required.

The single biggest complaint owners have about large projects is the board’s failure to communicate adequately about them. Right or wrong, owners often feel they are only learning of the project when the board is about to do an assessment. The more informational meetings boards can hold to discuss the project and the more information they can share about its planning, the more likely owners are to support it. It is important to make owners feel like part of the process and not like obstacles for the board to maneuver around.

Before undertaking any major capital project, boards should determine how it will be funded, and, equally important, whether the funding for the project is coming at the expense of others. Will the funding come from association reserves? If not, will time permit raising the money through supplemental assessments (don’t call them special assessments) or increases in monthly fees? Will a bank loan be required? Make sure you plan both for the present and the future. The community may face another emergency after this project has been completed, or even while it is still under way. It is important to anticipate unanticipated costs, and if possible, have contingency financing plans in place in case they are needed.

Spending the time and resources needed to develop and negotiate a clear contract that protects the association’s interests is crucial to setting the table for the project’s success. The contract should describe clearly, and in detail, the work required, specifying when it will be performed, to what standards and by whom. The contract should also address (among many other issues) how change orders are to be handled.

The association should hire an independent professional to inspect the work as it is performed and to monitor progress, from the beginning of the project to its completion. Professional monitoring will help ensure that the contract deadlines are met and mistakes are caught early in the project.

This article highlights briefly some of the issues boards should consider before beginning any major capital project. It is a brief introduction to what should be a lengthy planning process, best undertaken with the help of the association’s attorney and other professionals.

Contact Mark Einhorn for assistance with your building envelope process.

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