Finding the Most Efficient Route - Aging Infrastructures: A Case Study

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Presentation at CAI's 2014 Virginia Leadership Retreat. Co-Presenters Peter Miller of Miller Dodson Associates and Jeremy Moss Of Mercer Trigiani created a semi-fictional high rise, the Faulty Towers Condominium, and walked the participants through all steps of a major capital project for a condo that had not properly planned for it. We focused on the roles of consultants, attorneys, and managers. I took the manager role and highlighted the leadership qualities excellent managers exhibit to help clients succeed.

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Finding the Most Efficient Route - Aging Infrastructures: A Case Study

  1. 1. FINDING THE MOST EFFICIENT ROUTE - AGING INFRASTRUCTURES: A CASE STUDY
  2. 2. Intro – Welcome to Faulty Towers • Overview of our Process • Goals of This Exercise • Overview of Situation – Condo regime designed to last in perpetuity, but its physical components not so much – Faulty Towers Building and Project Case Summary 2
  3. 3. Case Study Faulty Towers Condominium 3
  4. 4. Case Study Faulty Towers Condominium: • 17 story building, 208 units • Constructed 1964 • Converted to Condominium 1983 • Windows and patio doors original from conversion. 4
  5. 5. Problem at Hand: Window and Patio Door Failures • Significant leaks and air infiltration; • Causing damage to other components; • Scheduled for replacement in phases; • Full replacement needed now; • Estimated cost = $2 million; • Reserve Funds inadequate to cover project costs. 5
  6. 6. Phase 1: Determining Association Obligation • Who is responsible to maintain, repair and replace? • Is the Association potentially subjected to claims if it fails to act? Does the Board have a duty to act? • How may a maintenance, repair or replacement project be financed? • Increasing assessments; • Levying special or further assessments; and/or • Borrowing funds. 6
  7. 7. Phase 1: Determining Association Obligation Counsel’s Role: • Identify the party obligated to maintain, repair and replace; • Remain sensitive to potential claims for failure to maintain; and • Encourage proper assessment of members. • Why involve counsel from the beginning? 7
  8. 8. Phase 1: Determining Association Obligation Manager’s Role:
  9. 9. Phase 1: Determining Association Obligation Manager’s Role: An effective leader is a Visionary Communicator Catalyst
  10. 10. Phase 1: Determining Association Obligation Manager’s Role: fundamentals, resources, sensitivities Let the data drive the dialogue, set the table for the experts, BIGGER picture Get the group to a baseline of understandings & clarity
  11. 11. Phase 2: Investigation and Reporting If Association is responsible to maintain, repair and replace, Board may engage Consultant, i.e., construction, design or engineering professional to conduct investigation and identify potential repairs. 11
  12. 12. Phase 2: Investigation and Reporting Consultant’s Role: • Consultant is not one person. There may be several professionals– Reserve Analyst, Project Engineers, Architects, and/or Project Managers • Explain the cost benefit analysis - more testing = tighter project budget, less testing = need bigger contingency allowance • Provide preliminary project estimates with big time caveats. 12
  13. 13. Phase 2: Investigation and Reporting Counsel’s Role: • Marshal Association resources: • What kind of funding is available? • Who are the key supporters of the project? • Are there key members in opposition to the project? • Discuss political issues with the Board; • Assist the Board and management with proper disclosures (if required); • Assist Board in opening discussions about project (at Board meetings and town-hall style Association meetings). 13
  14. 14. Phase 2: Investigation and Reporting Manager’s Role: See the conditions (ask questions), begin to see logistics & impact on residents, begin to anticipate…
  15. 15. Phase 2: Investigation and Reporting Manager’s Role: Frame the data for leadership & the community Active & curious participant in the process, help others hit their marks, coordinate the message
  16. 16. Phase 3: Development of Construction and Funding Plan Manager’s Role: Impact on members & your operation, think contingencies, prepare for emotional reactions Competence, calmness, beware the Law of Omitted Data, over communicate, under promise
  17. 17. Phase 3: Development of Construction and Funding Plan Manager’s Role: • Work with team to establish timelines, trackable cash flow projections, • Draft coordinated data sharing plan - Town Hall Meeting(s), pre & post meeting communications • This is where you put the Board in a position to…
  18. 18. Phase 3: Development of Construction and Funding Plan
  19. 19. Phase 3: Development of Construction and Funding Plan Counsel’s Role: • Facilitate Strong Communication Campaign: • Clearly lay out issues to membership; • Explain problems and solutions; • Encourage open reception by community. • Demonstrate Impartiality and Assist with Goal of Repair; • Assist Board in responding to inquiries from Owners; • Share information in writing on behalf of Board (and at Board’s request); • Ensure a single message from the Board. 19
  20. 20. Phase 3: Development of Construction and Funding Plan Consultant’s Role: • Assist Board in selecting appropriate Reconstruction Plan; • Analyze affect of Reconstruction Plan cost on Reserves; • Assist Board in developing a project budget (Funding Plan) • Assist Board in getting support from owners. 20
  21. 21. Phase 4: Funding the Project Funding Options: 1. Use Reserves and Operation Funds 2. Special Assessment 3. Bank Loan 21
  22. 22. Phase 4: Funding the Project • Varies from community to community; • Funding options depend on: • Financial condition of Association; • Operating Accounts; • Reserve Funds. • Magnitude of Project; • Number of Unit Owners. 22
  23. 23. PHASE 4: FUNDING THE PROJECT Option #1 Use Reserves and Operating Budget (May result in increase in Assessments) 23
  24. 24. PHASE 4: FUNDING THE PROJECT Option #2 Special Assessment • May be buttressed by Loan for all money to be available up front; • Allows owners to pay “up front” if able; • Allows other owners to spread payments out over time; 24
  25. 25. PHASE 4: FUNDING THE PROJECT Option #3: Bank Loans 1) Association pays for project over time; 2) Application process has qualification requirements; 3) Consideration of interest and inflation effects. 25
  26. 26. PHASE 4: FUNDING THE PROJECT Consultant’s Role • Help frame practical implications of options. • Loan vs. increased cost of phasing analysis. 26
  27. 27. PHASE 4: FUNDING THE PROJECT Counsel’s Role: • Advising Association about any and all approval requirements; • Advise Board’s about impacts of statutes and case law on the approval of large projects. 27
  28. 28. Phase 4: Funding the Project Manager’s Role: Processes down cold, know when to defer to experts, remember contingencies… Let the data drive the dialogue (see a theme??), frame impact in real terms Frame the options, put them in a place to make a good business decision
  29. 29. Phase 5: Requests for Proposal and Bidding Packages Manager’s Role: See everyone’s highest & best use, become a u.n. translator, value vs. cost Connect the dots, set/communicate expectation, report results in a way the data can be useful Make resources available, coordinate, vet the process in a way that works for the group
  30. 30. Phase 5: Requests for Proposal and Bidding Packages Consultant’s Role • Assemble RFP and assist in Proposal process; • Provide bid results with analysis and recommendation • Take the lead in explaining construction and market realities to the BD 30
  31. 31. Phase 5: Requests for Proposal and Bidding Packages Consultant’s Role (cont.) • At least three bids generally obtained, by not required (may vary based on scope of project). • Lowest bid not always the best; • Board not obligated to accept lowest bid (unless required by governing documents). 31
  32. 32. Phase 5: Requests for Proposal and Bidding Packages Counsel’s Role • Provide approved construction contract should be included in RFP: • AIA or Non-AIA • Important Terms 32
  33. 33. Phase 6: Development of Comprehensive Project Budget • Comprehensive budget based on actual bids; • Board must fit limited amount of funds into parameters of work necessary. • Budget for hidden conditions / contingencies 33
  34. 34. Phase 6: Development of Comprehensive Project Budget Counsel’s Role • Advising Association about any and all approval requirements; • Advise Board’s about impacts of statutes and case law on the approval of large projects. Consultant’s Role • Primary provider of data – actual bids + contingencies • Establish expectation for level of project oversight and include those costs 34
  35. 35. Phase 6: Development of Comprehensive Project Budget Manager’s Role: Remember contingencies (another recurring theme!!), soft costs… Input as needed Make resources available (again), frame data, NEVER throw it! Update /begin to maintaim cash flow projections
  36. 36. Phase 7: Member Approval (if required) Manager’s Role: Competence is a key to maintain confidence By the book, explain the world Coordination with counsel is key – do it exactly right
  37. 37. Phase 7: Member Approval (if required) Manager’s Role: Recurring theme….. Do the hard work on the front side - preserve your backside!
  38. 38. Phase 7: Member Approval (if required) Counsel’s Role: • Review notices, documents, proxies, ballots, timing; • Coordinate timing of the bid acceptance, any lender commitment letters (if loan) and member approval voting; • Drafting voting package for member approval; • Monitor vote and assist with special meeting or written consent compilation; • Advise Board on legal requirements for voting, balloting, certification of votes and announcement of results; • Attend approval meetings. 38
  39. 39. Phase 7: Member Approval (if required) Consultant’s Role • Be available to fill in gaps in information. • Support Board at meetings. • Be available to answer technical questions from members at meetings. 39
  40. 40. Phase 8: Execution of Construction Contract Consultant’s Role • Facilitate contract execution; • Be intermediary between client (Board) and contractor. 40
  41. 41. Phase 8: Execution of Construction Contract Counsel’s Role: • Review and revise contract; • Negotiate any remaining open terms with contractor & architect/engineer or counsel. • Ensure proper execution. 41
  42. 42. Phase 8: Execution of Construction Contract Manager’s Role: Dot connector Keep the info flowing – what does the future look like? Coordinate through to completion
  43. 43. Phase 9: Performing the Project Manager’s Role: • Maintain focus on execution of the plaN • SWEAT THE DETAILS WITHOUT GETTING LOST IN THE WEEDS • VIGILANT FOCUS ON MEMBER PERSPECTIVE IN EVERYTHING • EXPECT CRANKY PEOPLE, FOCUS ON SOLUTIONS
  44. 44. Phase 9: Performing the Project Manager’s Role: • Keep the members informed • Keep the Board informed • Communicate “yes” and “you” • Remind them what you told them without rubbing their nose in it
  45. 45. Phase 9: Performing the Project Manager’s Role: • Active participant in progress meetings AND follow ups • Fix stuff quickly • Document • Detailed project reporting in Board packages • Make sure the money flows
  46. 46. Phase 9: Performing the Project Consultant’s Role • Communicate, communicate, communicate. • Tell bad news quickly; • Importance of excellent progress meeting minutes and field notes (mention tracking work days for liquidated damages); • Be prepared to explain the need and value of change orders, address unexpected conditions. 46
  47. 47. Phase 9: Performing the Project Counsel’s Role • Continue to communicate w/ management; • Continue to be available. 47
  48. 48. Phase 10: Project Wrap-up/ Post Mortem Consultant’s Role • Importance of punch list and close out. • Approval of Retainer Payments • Update Reserve Study? 48
  49. 49. Phase 10: Project Wrap-up/ Post Mortem Manager’s Role: Fat lady ain’t sung yet…this was a good thing. What did we learn? Thanks and celebrate. Highlight the benefits to community and individuals. Punch list input and close out huge. Motivate exhausted Board to thank and celebrate. Close out strong
  50. 50. Conclusion & Q&A 50

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