One question that is raised all the time by prospective clients is how our value compares to our fee. The challenge with answering this question is that we really cannot prove a negative; when a project goes smoothly under our guidance, we can’t show how it would’ve gone without us. However, there are case studies that help answer this question. Below is our most recent cautionary tale.
An HOA was moving forward with a $1 Million roofing project. As they were working with their attorney to finalize the contract with the selected roofing contractor, the management company, the HOA’s attorney, and two new board members all asked why the HOA was looking at doing such a major project without any third-party oversight and project management. The Board of Directors decided that hiring a construction manager made sense, interviewed several firms, and selected Southern Cross Property Consultants.
When the selected roofing contractor was informed that the HOA was going to be using a construction manager, the roofing contractor pushed back stating that he had a long-term relationship with the HOA, had been working on the property for years, and did not see the need to have someone “looking over his shoulder”. Once selected, Southern Cross Property Consultants began the process of “dissecting” the scope of work and made plans to visit the site with the contractor to make sure that everything that needed to be included in their base bid was in fact included. Before this could take place and upon being told that the decision to have a CM was final, the roofing contractor notified the community manager that they had become aware of an issue that “could affect the price” they had provided to the HOA. The community manager scheduled a meeting with the contractor and Southern Cross Property Consultants; in the meeting the contractor revealed that he was unable to provide the promised warranty because he had not included work that would be required for the manufacturer to sign-off on the installation and to furnish the warranty. The additional cost for the required work was $200,000 or a 20% increase over the bid price.
Southern Cross Property Consultants met with the Board and management and stated what was becoming clear to all the Directors; either the roofing contractor had made a huge, careless mistake or he had known about the issue all along, had planned to hit the HOA with this as a change order after the work had started, and now realized that because there was a construction manager on the project this would no longer be possible. Southern Cross Property Consultants recommended validating the scope of work and then re-bidding the project. The Board unanimously agreed. After reviewing the scope of work, it became clear that the roofing contractor had excluded a number of items from their base bid that were critical to a complete and effective roofing system. Each of these items would have hit the project as a change order. After re-bidding the project, the original contractor was no longer the low bidder; in fact, their price for a complete project increased by $600,000 or 60%.
When we presented our bid analysis and recommendations to the Board of Directors, they were amazed at how close they had come to making two huge and costly mistakes. The first would have been trying to undertake a project like this without any third-party oversight and project management. The second was allowing a known contractor to develop the scope of work for a project that they were bidding on. The fact that the contractor, either through incompetence or malfeasance, could have cost the HOA that much money shook the Directors and made them all realize that the way they had approached this project could have been a breach of their fiduciary duty to the HOA. In any event, it would have been hugely costly. And just so we are all clear about this, Southern Cross Property Consultants’ fee was significantly less than the huge increase in cost that could have hit the project as change orders.
It is always best to have an independent, third party professional establish the scope of required work for a project, ensure that bids are apples to apples, and then oversee the project to ensure you are receiving the project you expect and are paying for. Please do not hesitate to reach out if we can be of service.
Matthew C. Boomhower is the founder and president of Southern Cross Property Consultants; a construction management, architecture, and facilities management consulting firm. He is licensed in California as both an Architect and an Attorney. He can be contacted at email@example.com or 858-444-5498.