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End of (Service) Life Care: Evaluating Aging Building Infrastructure

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Introduction

Evaluating the performance of aging building elements is not one of the hard sciences; and in the case of electrical, HVAC, plumbing, foundations, below grade waterproofing, and more, it is complicated by the fact they are partially or entirely hidden. This program is for those tasked with helping people make long-term decisions about their building systems and Pete Fowler Construction Services’ approach to applying the scientific method to building rehabilitation decisions.

End of (Service) Life Care: Evaluating Aging Building Infrastructure" begins with a discussion of the importance of this subject, because most people spend 20-50% of their income on housing. Then we get into the details of who should be on the team and exactly what should be done to professionally evaluate the discrete building elements and apply professional judgement about what work should be done and when. We will have a high-level discussion about professional construction contracting discipline and how a broad lack of this in the building rehabilitation industry is causing harm to the most fragile property owners. Finally, we will wrap with a discussion of how to plan for the inevitable future.

Outline

  1. Introduction
  2. End of Life Care
  3. "Don’t ask the barber whether you need a haircut."
  4. Playing Doctor
  5. Operation
  6. Retirement Planning
  7. Conclusion

Learning Objectives

  1. There is an alternative to the terrible way that aging properties are typically assessed and rehabilitated.
  2. Who is on the team in evaluating aging infrastructure is VERY important.
  3. Building performance analysis is about 80% science that should be performed according to industry standards, and 20% art or professional judgement.
  4. Professional construction contracting discipline is 95% science.

Backup Materials

  1. Managing Property Maintenance & Repair by Peter D. Fowler
  2. The DBSKCV Construction Management Method by Peter D. Fowler
  3. Overview of ASTM E2128 by Haughton & Murphy – Interface Magazine
  4. Managing Construction Quality by Peter D. Fowler
  5. AIA A201 2017 General Conditions of the Contract for Construction

Contents

1. Introduction

  • We Know Buildings
  • Team
  • Projects
  • Clients
  • Program Outline
  • Program Introduction
  • Learning Objectives
  • This Might Sound Salesey

2. End of Life Care

3. "Don’t ask the barber whether you need a haircut."

  • Case Study: Soil Subsidence Repair
  • Who? The Most Important Q
  • The Building Doctor
  • Who Is In Charge of What?
  • Who is on the Team?
  • Fee for Service
  • Hiring Discipline
  • RFP Sample for Hiring Professionals
  • Firing an Engineer
  • An Army of Sheep

4. Playing Doctor

  • Case Study: Plumbing in a High-Rise
  • Building Performance Analysis
  • Document & File Management
  • Meetings/Interviews with Key People
  • Building Information Management
  • Inspection
  • Analysis
  • Testing
  • Estimate
  • Property Condition Assessment
  • Element Analysis

5. Operation

  • Case Study: CM with Major Savings by Minimizing COs Using Estimating Skill
  • The Traditional Approach
  • Common Pitfalls
  • Professional Construction Contracting Discipline
  • The DBSKCV Construction Management Method
  • Prescribe: RFP Contents
  • The Golden Rule
  • Don't Sign That contract!
  • Start with One Building or a Small Sample

6. Retirement Planning

  • Case Study: Elevator Closet
  • Comparison of Plan to Actual: Construction Costs & Schedule
  • BLM Matrix
  • As-Builts or PCA Update
  • Standardized Maintenance & Repair Scopes of Work, and RFPs
  • Reserve Study
  • The Most Powerful Force in the Universe
  • Comparison of Plan to Actual: Reserve Study

7. Conclusion

  • Program Outline
  • Learning Objectives
  • Program Introduction Revisited

Presentations

This program was originally presented at the Reserve Analysts (APRA) Symposium 2018 in Nashville, TN.

Here is a link to the complete presentation and backup materials

PFCS Building Rehabilitation Process

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Investigative Expertise + Contracting Discipline = Savings

Pete Fowler Construction Services, Inc. (PFCS) is unique. It's rare that a single firm has both deep technical expertise in building performance analysis AND professional construction estimating, contracting and management discipline. This combination of expertise in both inspection & testing and construction management was created by our being named as expert witnesses thousands of times over the last 20 years. And this building claims & litigation work profoundly informed our understanding of building performance and building economics.

So after spending a lifetime developing professional contracting, construction management, and estimating discipline, we then were blessed with 20 years as expert witnesses paid to investigate construction defects and create the most cost effective solutions. We got paid to refine a science-based investigation framework, and we proved time and again that it worked to figure out what needed to be fixed, what did not, and how to do it. Now we combine (1.) the investigation framework and (2.) the professional contracting discipline for building owners, managers, and receiverships to save money and get the closest thing to a guarantee of quality possible. Our Building Rehabilitation Process help clients make intelligent, fact-based decisions about building design, construction, maintenance, repair, and improvement, while considering the entire service-life and lifetime-costs of the property.

These services generally cost 5-15% of construction cost and they ALWAYS save more than they cost. Sometimes as much as 90% (Really… We have case studies to prove it.). 

How this saves

  • Only do necessary work
  • Competition
  • Accountability (The Golden Rule)
  • Change Management
  • Good construction specifications, executed competently, last longer
  • High quality construction lasts longer
  • Dramatic reduction of risks
  • Leverages the time value of money
  • Less drama

Phase 1. Evaluate Property

1A. Before Inspection

  • First 10 Things
  • Plans
    • Site Plan (From public records if possible, transferred to 11x17)
    • Roof Plan (Buy it online and transfer to 11x17)
    • Floor Plans (Footprint from having purchased the roof plan, transferred to 11x17)  
  • Room Schedule (Printed 11x17)
  • Window & Door Schedule (Printed 11x17)
  • Budget Form (v. 1) (Printed 11x17)

1B. During Inspection

  • Photos & Notes
  • Interviews
  • Update Plans, Schedules & Budget

1C. After Inspection

  • Property Condition Assessment (PCA) / Property Condition Report (PCR)
  • Update all above from inspection documentation
  • Site Plan
  • Roof Plan
  • Floor Plans
  • Room Schedule
  • Window & Door Schedule
  • Budget Form (v. 2)

Phase 2. Define, Budget & Specify

2A. Scope - Budget - Schedule

  • Scope of Work
  • Budget (v. 3)
  • Progress Schedule (v. 1) Form

2B. Making Smart Decisions

  • Project Status Memo
  • Project Status Meeting

2C. Specifications Update, including

  • Plans
  • Schedules

Phase 3. Pre-Construction

3A. Package RFP

  • Invitation to Bid (memo)
  • Plans
  • Schedules
  • Scope & Specifications
  • Schedule of Values / Bid Form
  • Progress Schedule
  • Payment Application Form
  • Contract (form) 
  • Quality Control Hold-Points
  • Subcontract Agreement Form and Requirements

3B. Tendering

  • Identify All Possible Qualified Bidders
  • Receive and Analyze Bids
  • Recommendations Memo
  • Budget (v. 4) Update

3C. Preparing for Takeoff

  • Project Status Memo
  • Project Status Meeting

3D. Contracting, including

  • Plans
  • Schedules
  • Scope & Specifications
  • Schedule of Values
  • Progress Schedule
  • Payment Application Forms
  • Compose and execute prime contract between Owner (or Receiver) and Contractor
  • Quality Control Hold-Points
  • Subcontract Agreement Form and Requirements

Phase 4. Construction & Project Close

4A. Project Kickoff

  • Coordinate Work
  • Project Meetings
  • Project Correspondence

4B. Verify Quality. Compare work to: 

  • Plans
  • Schedules
  • Scope of Work & Specifications
  • Industry & Trade Standards

4C. Construction Management

  • Change Management: 
    • RFI and RFI Log
    • COs and CO Log
  • Payment Processing
    • Schedule of Values
    • Progress Schedule
    • Payment Application
  • Project Status Memos

4D. Project Close

  • Budget (v. 5) vs. Actual
  • Project Close Memo

Window & Door Installation

Introduction

On December 8, 2016 at 10 a.m., Alex Prokop presented a FREE webinar called "Window & Door Installation". Window & Door Installation introduces principles of design, construction, and installation of window and door components. Improper installation of windows and doors is one of the leading sources of building performance failures that lead to construction defect litigation.

We will begin by explaining the basics of modern window & door installation techniques, and how variation from these fundamental principles can lead to problems and defects. Next, we will discuss different types of windows and doors, factors that can complicate their installation, the basics of how materials react together, and the damage that these reactions can cause. Finally, we will review the most applicable codes and standards related to window and door installation, performance, testing and evaluation. 

This program is important for architects, attorneys, insurance adjusters, general contractors, trade contractors and building industry professionals because many factors and players must come together to properly execute durable window and door installations.

Learning Objectives

  • Explain the basics of modern window & door installation techniques
  • Review of window & door types
  • Discussion of most commonly alleged construction defects
  • Discussion of the evolution of building codes
  • Review applicable industry and trade standards
  • Examples of how to analyze construction defects
  • Estimating costs for repairing defects
  • Allocating responsibility to applicable partners

Program Outline

  1. Introduction
  2. Window Installation
  3. Common Window Defects
  4. Door Installation
  5. Common Door Defects
  6. Codes & Standards
  7. Conclusion

This program is approved for one hour of CLE for attorneys in California, Nevada and Oregon, and insurance adjusters registered with the California and Texas Departments of Insurance.

Evaluating Water Leakage of Buildings

Introduction

On September 13th, 2016 at 10:00 A.M., Alex Prokop presented a one-hour webinar called "Evaluating Water Leakage of Buildings". Evaluating Water Leakage of Buildings explains the American Society for Testing and Materials (ASTM International) “Standard Guide for Evaluating Water Leakage of Building Walls (E2128-01a)”, which describes methods for determining and evaluating causes of water leakage of exterior walls.

The objective of the seminar is to gain a “big picture” understanding of how professionals gather, analyze and use building performance data. Also, participants may learn best practices and “the scientific approach” to figuring out building performance problems to have something to contrast against, when faced with people who have drawn erroneous conclusions based on poor investigation techniques.

Learning Objectives

  • Summary of ASTM E2128-01a Standard Guide for Evaluating Water Leakage of Building Walls
  • Continue the Property Analysis Seminar Series so we can all have a “big picture” understanding of how professionals gather, analyze and use building performance data. 
  • Learn best practices and “the scientific approach” to figuring out building performance problems. 
  • Have something to contrast against, when you are faced with people who have drawn erroneous conclusions based on poor investigation techniques.

Program Outline

  1. Introduction
  2. ASTM E2128-01 Sections
  3. Sample Documents
  4. Maintenance and Repairs on a Limited Budget
  5. Selecting and Evaluating Expert Consultants
  6. Deep Thoughts
  7. Conclusion

This program is approved for one hour of CLE for attorneys in California, Nevada and Oregon. This program is not approved with the California Department of Insurance.

Alex Prokop

Comments from Attendees

  • "Good program and easy to understand - practical."
  • "The seminar was well planned out- I found the review of the ASTM Standard particularly helpful and informative."
  • "I particularly liked the overview in the beginning that noted exposure at certain elevations may be an issue and then how that was developed during the presentation with the [concluding] slide that showed that indeed all siding and all windows were not the issues but through testing it was determined exposure was an issue at the second story at certain elevations.  I liked the review for leak patterns, something Pl experts do not seem to do. I appreciated the detailed review of ASTM and in particular ASTM E2128 re water penetration being leakage that exceeds the drainage capacity of wall. Very good summary and explanation. This would be something I would want an expert to share with a jury - EXACTLY as it was explaining (wall is system) during the presentation."
  • "It was a good broad overview."
  • "Very informative. I liked the overview and plan."
  • "Good program, useful info."
  • "Good presentation and the speaker was very knowledgeable."
  • "This was my favorite seminar!"

Resources

Building Insurance, Inspections & Quality: Closing the Loop

Last November, Pete Fowler and Cary White of Ideate Insurance held conference calls and invited participants from the insurance and legal communities that have a vested interest in learning about and sharing experiences with regards to building inspections and project insurance.

Why We Care

Projects are routinely inspected during construction by the superintendent, project manager and in some cases the engineers and architects. Also, City and/or County inspectors will check for code compliance. Some jurisdictions also require third-party inspection for the building envelope. Generally third-party inspections include:  contractor, designer, manufacturer, municipal, financial, quality control and safety. The most important inspection is by the person doing the work.  

We all remember the apartment balcony collapse last June in Berkeley. Had there been better supervision during and post construction, this accident would not have happened. Developers, general and subcontractors should hire professionals to review their plans and conduct inspections. Building owners should hire inspectors to survey their properties. In addition to the loss of life, this tragedy revealed that conventional project insurance is inadequate for a loss like this. 

A wrap insurance policy can provide peace of mind knowing everyone involved in your project is insured properly. A wrap or wrap up insurance policy is a sweeping blanket coverage that protects the owner, the contractors and subcontractors.

When you are the owner or general contractor on a large construction project, you have a lot to think about. Completing the project on time and on budget, keeping your workers safe and making sure all subcontractors are doing quality work are only a few of your concerns. The last thing you want to worry about is whether or not your contractors and subcontractors are carrying the right kind of insurance.

Summary

The BEST builders have a process discipline of doing the preparatory work required for a project to run smoothly. Lots of builders and developers do NOT have the process discipline.  For a bad builder, there is no such thing as enough inspections.

Building Information Management & Modeling

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Really!? Another Stupid Acronym!! 

We have a seminar / webinar called Building Lifecycle Management where we introduced the idea of BIM2: Building Information Management & Modeling. It's something I made up. But I think structured data is even more important than a 3D model. Call me crazy. 

  1. 1D = A list of the Elements and Locations
  2. 2D = Plans and Specifications
  3. 3D = Model
  4. 4D = Time (Think Einsteins Space-Time Continuum)
  5. 5D = Cost
  6. 6D = Building Lifecycle Information. This is where virtually every document (and piece of data) is connected to the applicable Element and Location.

 

Organizing & Managing Building Data

ASTM E2166 is a 6 page standard that outlines a structure for organizing and managing all information related to buildings for the purpose of supporting informed decision making. The organizational structure is based on Uniformat II (ASTM E1557) which is based on construction assemblies ("elements") like foundations, walls, roofs, interior finishes, mechanicals, etc. Key aspects of the practice include making a list of all named spaces (rooms) and associating them with the elements in those locations.

SB800 - CA Builders Right to Repair

Introduction

On April 14th at 10:00 A.M., Pete Fowler presented a one-hour webinar called SB800 - CA Builders Right to Repair.

Senate Bill (SB) 800, the ‘Builders Right to Repair’ bill was signed into law September 20, 2002, and took effect for every living unit sold in California after January 1, 2003. The bill specifies the rights and requirements of a homeowner to bring a construction defect action, contains building standards and functionality requirements for new residential units, and gives a detailed pre-litigation procedure.

SB 800 was developed as a compromise of various factions of the building and legal communities to address the problems of the home building industry. The text of the bill states the intent of the legislature is to improve the procedure for the administration of civil justice in construction defect cases.

Learning Objectives

  • Overview of SB800
  • Understand the basic contents of the law
  • Discuss the importance of the builder and contractors
  • Review Actionable Defects defined by SB800
  • Study the SB800 pre-litigation procedure
  • Contrast SB800 with Traditional CD Litigation
  • Review example Offer to Repair documents

Program Outline

  1. Introduction
  2. Traditional Construction Defect Litigation
  3. SB800 Summary
  4. Actionable Defects
  5. SB800 Procedure
  6. Offer to Repair
  7. Conclusion

This program is approved for one hour of CLE for attorneys in California. Pending approval in Nevada and Oregon. This program is not approved with the California Department of Insurance.

California's 2015 SB 655 Housing Standards: Mold

Summary

California's SB 655, passed in 2015, is an act to add Section 1941.7 to the Civil Code, and to amend Sections 17920 and 17920.3 of the Health and Safety Code, relating to housing standards, specifically dealing with the presence of mold in buildings.

Ranjan Lahiri of Wood, Smith, Henning & Berman is a great lawyer and a client who wrote an excellent summary and analysis of SB 655: GOVERNOR APPROVES BILL THAT ADDS MOLD TO LIST OF UNINHABITABLE CONDITIONS by Ranjan Lahiri. Ranjan writes:

"... the bill adds mold to the list of substandard housing conditions and gives local enforcement agencies specific authority to address mold complaints... 
... a landlord does not have a duty to inspect or repair conditions of mold until he or she receives notice...
...a building is deemed substandard if there exists "visible mold" ... gives a code enforcement officer the authority to declare a rental unit substandard based on the existence of mold... 
... the addition of mold to the list of substandard conditions will make it easier for claimants to establish a prima facia habitability claim based on conditions of mold. However, SB-655 does provide some benefits for defense counsel who defend landlord/tenant mold claims. In many instances, tenants fail to report conditions of mold to their landlord and retain possession of their units while their legal counsel investigate and test the unit to prove up a mold exposure claim. SB-655 clarifies that a landlord's duty to inspect or repair conditions of mold does not arise until the landlord is given notice of the condition by the tenant or the landlord has notice that the tenant is not maintaining the unit. Furthermore, by clarifying that mold can be considered an uninhabitable condition, landlords will be able to better understand their potential liability for visible mold in a unit and be able to take proactive steps to inspect and repair any such conditions."

Resources

(Search "ca sb 655 2015")

  1. Legislative Info
  2. Text of the Law
  3. Text of the Law
  4. Analysis & Comments
  5. Bill Documents
  6. Senate and Assembly Voting History
  7. CA Healthy Housing Coalition
  8. Legislative Tracking
  9. Solano Public Health - Includes A Good Quick Summary
    Summary: Provides that a building lessor is not obligated to repair a dilapidation relating to mold until he or she has notice of it, or the tenant is in violation. Authorizes a landlord to enter a dwelling to repair dilapidation under specified conditions. Specifies visible or otherwise demonstrable mold growth, excepting mold that is minor and found on surfaces that can accumulate moisture as part of their proper and intended use, is a type of inadequate sanitation and a substandard condition. Defines mold.
  10. San Diego Apartment Association Update

What To Do When You Have A Building Leak

What To Do

With the passage of California's 2015 SB 655 "Housing Standards: Mold" it's become more important than ever that when you have a building leak, you should always apply the  Mold Management Method.

If you don't have time or feel like you might not have the expertise for this, just contact us. We can implement this for you.

What It Is

The Mold Management Method was developed from 2002-2004 at the height of the "mold is gold" craze. The Mold Management Method is a quality control checklist for situations where building leakage has caused, or has the potential to cause, mold growth. This checklist was put together and used in multiple technical symposia, sponsored by the National Institute of Building Sciences (NIBS), as a framework to teach the nation's building professionals how to deal with water damage situations where mold was present or possible.

Why Use It

If you have an active leak, the actions you take can either solve the problem permanently and for a reasonable price, or make it even worse and more expensive. The goal is to operate at the highest level of professionalism. Using the Mold Management Method as a checklist will allow you to avoid liability if there is a "PHASE V - DISPUTE RESOLUTION," by (1.) not causing more problems, (2.) solving the problem as quickly and inexpensively as possible, and (3.) professionally documenting your process. As we all know, sometimes expensive building leaks are caused by someone other than the property owner. Applying the steps in Phases I-IV of the Mold Management Method will naturally create a collection of evidence that will aid in proving a case against the responsible parties. That way, those responsible parties (or their insurance companies) will more readily accept responsibility for the economic damages incurred. 

How To Use It

When the phone rings (this is your "Phase I item A. Notice"), start taking notes. Get all of the key information (8 W's): Who, what, when, where, why, how, how much, how many... Does the occupant or person notifying you have photos? If No, then why not!? Then, start down the checklist to make sure you operate at the highest level of professionalism. And keep some kind of journal that shows you hit all the points in the method.

The Mold Management Method: Summary

Phase I - Event

  • A. Notice
  • B. Emergency Repairs
  • C. Initial Investigation
  • D. Documentation of Conditions and Activities
  • E. Report Generation - Initial

Phase II - Detailed Investigation

  • A. Notification of / Communication with Applicable Parties
  • B. Testing / Sampling
  • C. Identify Source(s)
  • D. Analysis & Report Generation (Repair Plans)
  • E. Analysis & Report Generation (Abatement Plans)

Phase III - Remediation

  • A. Planning and Coordination of Remediation (Budget, Schedule, & Contract)
  • B. Notification of Applicable Parties
  • C. Relocation
  • D. Repair of Source
  • E. Abatement
  • F. Clearance & Testing
  • G. Restoration of Construction Assemblies
  • H. Re-Occupy Space

Phase IV - Evaluation

  • A. Updated Reports
  • B. Updated Cost Summaries
  • C. Subrogation Analysis
  • D. Maintenance Recommendations

Phase V - Dispute Resolution

Pre-Litigation

  • A. Evaluate Bodily Injury
  • B. Analyze Insurance
  • C. Allocate Responsibility
  • D. Negotiation

Litigation

  • E. Expert Meetings
  • F. Allocate Responsibility (again)
  • G. Mediation
  • H. Deposition Preparation
  • I. Depositions
  • J. Trial Preparation
  • K. Trial
  • L. Appeals
  • M. Settlement

PFCS Mold Management Resources

Other Moisture and Mold Resources

Portland Metro HOA Lawyers

The generous community association industry speaks out! We work with a lot of homeowner associations, and we get people asking us for referrals regularly. So we asked the experts: Our clients and contacts. 

We sent the following e-mail out to our past and current clients in the Portland area: 

My HOA clients keep asking me for lawyer referrals so, similar to my email and "List of Statisticians" blog post from 2013, I am now asking for referrals to lawyers who have experience and interest in working with HOAs. I will gather the list and their contact information, and share it with everyone who contributes. Of course, I will identify those lawyers who were referred most often. 

These HOA clients of mine seem to be most interested in having a lawyer who is willing to think outside of a one-size-fits-all approach, is willing to push back against a "this is just how we do it around here" attitude, and helps by thinking about spending the HOAs hard-earned money as carefully as she would her own. Most of these HOA's are WAY past the time for construction defect litigation, so that expertise or specialty is of limited benefit to them. 

Thanks in advance for the help. 

The results were outstanding. Our clients & contacts responded with personal referrals to great attorneys they had worked with in the past. 

Here's a brief breakdown of our results: 

  • 1,736 e-mails sent to our clients 
  • 35 responses 
  • 27 referrals 
  • 36 attorneys 
  • 13 with two or more recommendations 
  • 9 law firms 

The most referred attorneys!

These attorneys received several referrals each: 

These attorneys received more than one referral: 

These attorneys were referred by our contacts:

The full list of law firm referrals:

CAI

OWCAM

BOTH

INTERESTING CONVERSATIONS

Of course, any time one sends a message like this, interesting conversations are bound to happen. Here is the text of one of my exchanges that I liked:

If you will allow me a minute on my soapbox- Your email mentions a certain mentality that your HOA clients are looking to overcome. Some of the problem with the “this is how we always do it” mentality is that this same mentality is also pervasive among the attorneys who practice HOA law. There is a broad spectrum of legal, reasonable and effective HOA management and governance practices, but boards are often told it has to be done in a very narrow or specific way. 

I also believe the reason for this mentality is that for years and years very few owners have challenged HOAs in court. It’s expensive, and there has been a void of HOA attorneys who are willing to accept individual owners as clients. As a result, there is a feeling of invincibility that is pervasive in the Community Association trade. I represent individual owners as well as the Associations and I see it in every single case: I will send a demand letter or call the HOA’s attorney to make some reasonable requests (usually as simple as “please follow the law”) and the Board and the HOA always entrench because there is no way they could be doing anything wrong. And I believe they think this way because their attorneys are telling them they are untouchable. For example, some of these attorneys publish marketing materials and instructions for how to run an HOA in compliance with the law. Then, with a straight face these same attorneys will tell me their clients aren’t breaking the law when they fail to do even the most basic of Association functions – in direct contravention of the language of these marketing materials and instructions. Once they entrench, a discussion that should end with these attorneys saying, “you are right- my client should have a reserve study because that’s a legal requirement” turns into a protracted fight that ultimately runs the little guy out of the Association or out of money- which ever happens first. 

Finding an attorney who can help these communities- or individuals- for less than 300 dollars an hour, who understands HOA law and also has an appreciation of the financial, building science, non-profit corporation and political realities of HOA management and governance is difficult. But there are a handful of us out there. 

For what it’s worth. And, thanks. 

And my reply: 

You know the movies where there is a Pentecostal church and the parishioners are jumping up and down and sweating and screaming "Haliejua!" and "You preach it brother! Preach it!!"? Well I was one of the parishioners while reading your message ;-) 

Regards, 
Pete Fowler

Reserve Funding & Risk Mitigation: The Bottom Line

Last month we featured two powerful blog posts from CPA and credentialed reserve funding provider, David T. Schwindt. For those of you who read David’s insights on reserve funding and risk mitigation, I trust you found the information helpful!

In today’s post, I’ll recap the main takeaways from David’s content, as well as provide some added context for what his insights mean for how you manage property maintenance and repair.

Three Key Takeaways from Dave’s Posts…

1. A reserve study has two main components.

They are: (1.) the physical analysis and (2.) the funding (financial) analysis.

The physical analysis is the foundation of the funding analysis, and its accuracy dictates whether the money stored in your reserve funds is an appropriate (or wasteful) amount.

The bottom line: Proper physical analysis of property is a specialized professional discipline, involving a robust approach and industry standards for assessing the condition of your building.

2. Reserve Funding Philosophies range from 0% to 100% contingency.

In his first blog post, David outlined three reserve funding models to illustrate the vast spectrum of funding philosophies:

  1. Baseline Funding – funds only expected costs, and does not account for any contingency funding to cover surprises along the way.
  2. Threshold Funding – funds all expected costs (like the baseline model) plus a threshold contingency amount to cover unexpected costs that arise.
  3. Full Funding – allows funding for twice the amount of expected costs, providing a very large (100%) threshold contingency.
figure1-methods-of-funding_b.jpg

The bottom line: Greater energy, discipline, and professionalism in how you manage property maintenance and repair can reduce the risk of expensive surprises, allow for a lower contingency, and free up capital that would otherwise be tied up in reserve accounts.

3. Best practices can lower the risk of special assessment.

It’s common to hear risk of special assessment correlated with contingency amount:

“If I maintain a larger contingency, there’s less risk of dealing with a lack of funds and, therefore, lower potential for a special assessment.”

But, this correlative relationship leaves out the primary causal portion of the equation: risk of surprises. The greater the risk of surprises (i.e. unexpected costs), the higher the risk of a special assessment. This, in turn, stipulates a larger contingency in the reserve account (i.e. money out of your pocket) to mitigate against special assessment. As you can see, it’s a vicious cycle!

In his second blog post, David shared 7 best practices that increase the effectiveness of a property owner’s building management, mitigate risks associated with saving too little money, reduce the probability of surprises and lower the required contingency. You’ll see them in Figure 2, which shows each best practice correlated with a reduction in contingency funding.

figure2-risk-mitigation-matrix_b.jpg

David’s best practices for risk mitigation are fundamental steps in the management of any building project, especially one with communal ownership like a Homeowner’s Association.

The involvement of a specialized construction professional is essential for:

  1. Properly evaluating your building elements (components), especially the weather resisting exterior envelope, in conformance with the highest standards (like ASTM E2018 and E2128);
  2. Writing a maintenance plan and budget to help building elements last longer with fewer repairs, and structuring it in a way so you can compare your plan and budget to what really gets spent;
  3. Performing ongoing inspections to catch issues before they become worse or cost more to repair, and structuring the information so you can track the performance of critical building elements over time;
  4. Incorporating all building elements into the reserve study to account all future repairs;
  5. Updating the reserve study periodically to account for increase in prices, changes in cash reserves, application of adjusted inflation;
  6. Specifying maintenance and repair work professionally to ensure it will last as long as you expect it to, and getting better quality that will last longer, thereby decreasing the total cost of ownership (TCO), and putting those specifications out to bid so that you get the lowest price the market will bear;
  7. Apply professional construction management discipline to protect your legal rights and manage the work, and, inspecting to verify the high quality work that was contracted for is being installed.

The bottom line: When properly executed, integrated, and delivered, these risk management best practices generate savings that far outweigh the cost of implementation.

Please note: This highly analytical approach to building lifecycle management does come with a price tag. So be prudent, and move forward in a way that is commensurate with the value of your property.

Three Deep Thoughts with Pete Fowler

  1. Three common strategies for managing property maintenance and repair include hope, prayer, and abdication. These are a far cry from the scientific, logical, disciplined and professional process that we recommend, and they will end up costing you significant time, money, and heartache.
  2. A large contingency is an alternative to good management. This is true in almost all aspects of human endeavor, especially business and property management. In fact, a large contingency is appropriate when your physical analysis is inaccurate, blurring the lines between expected costs and expensive surprises. So if you can’t develop managerial discipline and professionalism, then you should maintain a large contingency.
  3. Most people don’t realize how important historical building information is to making great, informed, cost-effective decisions long-term. Owners with organized project, maintenance and repair documentation including plans, construction specifications, inspection reports, bids, contracts, inspection documentation, etc, are in a far better position to make smart decisions, since they know where they have been. With today’s technology, including virtually free electronic storage “in the cloud,” there are no more excuses. And guess what? PFCS has an online, cloud-based, password protected Client Access system to organize and store all your documents and make them easily available and searchable, indefinitely.

Why Lawyers Should Care…

What I told you is that a robust, analytical reserve study can be leveraged for a total cost of ownership (TCO) analysis for the period being studied (usually 30 years). Be sure to check back next week for our blog post on why lawyers should care about reserve funding and risk management!


Ready to Eliminate Surprises and Overfunding?

Pete Fowler Construction Services (PFCS) can help get you there. Our team of expert consultants specializes in creating real, practical solutions for owners, associations and managers. We help you make intelligent decisions by examining your property, diagnosing problems, specifying the right maintenance and repairs, and applying construction management discipline to your project (including bidding and writing contracts to protect the owners, performing quality control inspections, managing change orders and processing invoices). We provide actionable insight and expertise to right your project, and clear up any messes that others may have created along the way.

To learn more, visit our website or give us a call at our Southern California Office (949) 240-9971 or Portland Office (503) 660-8670.

 

THE RESERVE FUNDING SERIES

Part II: Best Practices in Reserve Funding & Risk Mitigation

In Part I of this blog series, we “got a grip” on reserve funding with the help of our guest contributor, David Schwindt. David covered what reserve studies are, how they’re developed, and what it means for your finances.

As you know, homeowners and community associations absolutely need to put money aside for future expenditures and repairs. But the fact is, funding a 100% contingency is a conservative approach and, in many cases, can be wasteful.

In this post, David dives further into best practices for reducing the risk of “surprises” and painful special assessments to ensure that you’re not overfunding your contingency.

This concludes David’s contribution to our blog series on reserve funding & risk mitigation. Feel free to post any questions in the comments section below, and be sure to check back for my follow up post, where I’ll add my two cents and discuss the importance of comprehensive physical analysis in striking and maintaining a sensible contingency balance.

Thanks for reading!

-- Pete Fowler, PFCS President

Reserve Funding and Risk Mitigation, Part II: Best Practices

By David T. Schwindt, CPA RS PRA, Guest Blogger

Risk of Special Assessment

Many reserve study professionals present statistics that show the risk of a special assessment based on the percent funded. For instance, if an association is 50% funded, these statistics indicate there would be an 11.6% chance of a special assessment. The higher the percent funded, the lower the potential for a special assessment.

Please be aware that these statistics have been compiled by a reserve study provider and not vetted by CAI. However, if the contention is that the more extra cash an association has in the bank, the less likely the association will be to special assess due to surprises, then the underlying theory appears reasonable.

Best Practices

If our funding goal is to fund for all expected expenditures and to allow funding for surprises, how can we mitigate the risk of surprises thus lowering the contingency amount?

Many reserve study providers recommend a percent funded of at least 70%. Figure 2 shows that if associations follow a set of best practices in maintaining common area components, the percent funded could be much lower because the likelihood of a surprise is diminished. Note that this matrix addresses the fully-funded percentage but can also be used as a tool to determine the required threshold using the threshold method.

Let’s revisit Figure 2, which illustrates the relationship between a number of reserve study best practices and the probability of surprises.

figure2-risk-mitigation-matrix_b.jpg

Let’s examine these best practices through the lens of some of the surprises that associations experience. The following list includes but is not limited to events that may require additional cash:

  1. The design, materials or workmanship on original construction is not adequate thus requiring repairs, remediation or this may result in a significant reduction in the estimated useful life of components. A complete building envelope inspection by a construction professional may catch issues early on that may reduce the cost of repairs and may allow the association to bring an action against the developer or contractor. This investigation may include intrusive openings around decks, windows, roofs and siding.
  2. The association does not adequately maintain the components which may lead to unexpected repairs or significantly reduced estimated useful lives. A written maintenance plan consistently followed by the association may help components last longer with fewer repairs.
  3. The association does not perform ongoing inspections of components. Ongoing inspections may catch issues before they become worse and cost more to repair.
  4. The reserve study does not include all components that need to be funded. Missing components may include plumbing and irrigation systems, water/sewer lines, rot, windows and doors, deck assemblies, asphalt, major landscaping projects, concrete issues including spalling/rusted rebar and replacement of siding and trim. Failure to include all components in the reserve study will likely lead to a special assessment to pay for unbudgeted repairs.
  5. The reserve study is not updated annually to account for increase in prices, changes in cash reserves, application of adjusted inflation in funding model and/or change in estimated useful lives. Failure to update the reserve study on an annual basis may lead to unbudgeted expenditures.
  6. The RFP (request for proposal) for repair and replacement projects is not written correctly resulting in specifications that are either inadequate or do not address issues. Using a construction professional to assist with RFPs can help assure that repair/replacement projects are performed by qualified professionals and includes all needed costs and procedures.
  7. The association does not use a construction consultant on major projects to assure that work is performed properly. The danger of not using a consultant increases the chance of substandard materials and workmanship and the possibility of requiring re-repairing/replacing the components or may significantly reduce estimated useful lives.

The Bottom Line

Associations that adopt best practice procedures and spend a little more each year on maintenance, inspections, reserve study updates and construction oversight can reduce the amount that is assessed to overfund the replacement reserve bank account to pay for unexpected costs.

As always, associations should look to the credentialed reserve study provider for guidance.


David T. Schwindt is a CPA and credentialed reserve study provider and is the owner of Schwindt & Co. Schwindt & Co provides accounting, tax and reserve study services to over 500 Associations in the Pacific Northwest. To learn more, visit www.schwindtco.com


Ready to eliminate surprises and overfunding?

Pete Fowler Construction Services (PFCS) can help get you there. Our team of expert consultants specializes in creating real, practical solutions for owners, associations and managers. We help you make intelligent decisions by examining your property, diagnosing problems, specifying the right maintenance and repairs, and applying construction management discipline to your project (including bidding and writing contracts to protect the owners, performing quality control inspections, managing change orders and processing invoices). We provide actionable insight and expertise to right your project, and clear up any messes that others may have created along the way.

To learn more, visit our website or give us a call at our Southern California Office (949) 240-9971 or Portland Office (503) 660-8670.

 

THE RESERVE FUNDING SERIES

Part I: Getting a Grip on Reserve Funding

Introduction

And thank you for reading the kick-off blog post of our 2014 educational series!

At PFCS, our mission is to empower our community with actionable information – and the programming we’ve put together for this year’s educational series is designed to do just that. So be sure to stay tuned for future blog posts and webinars!

Today’s Post

I’ve decided to kick off our thought leadership efforts with a deep-dive into reserve funding and contingencies! (hold the eye roll, please)

Building owners and associations absolutely need to put money aside for future expenditures and repairs. But the fact is, funding a 100% contingency is a conservative approach and, in many cases, can be wasteful. With the right approach you can hone in on your future costs, mitigate risks, and strike a reasonable contingency balance.

Dave-T-Schwindt-blog1.jpg

Skeptical? Don’t worry, I’ve called in the cavalry. Who better to explain the nuances (and best practices) of reserve funding and risk mitigation than David T. Schwindt?

David is the owner of Schwindt & Co and provides accounting, tax and reserve study services to over 500 Associations in the Pacific Northwest. His expertise and insights are invaluable to building owners and associations struggling to understand reserve funding and risk mitigation – so listen up!

Part I of this four-part series will cover reserve studies and funding models – what they are, how they’re developed, and what it means for your finances. In Part II, David will dive further into reducing the risk of ‘surprises,’ special assessments, and the need to overfund your contingency.

Feel free to post your questions in the comments section below, and be sure to check back for Part II. Thanks for reading!

-- Pete Fowler, PFCS President

Reserve Funding and the Risk Mitigation Matrix

By David T. Schwindt, CPA RS PRA, Guest Blogger

What are Reserve Studies?

Reserve studies involve two distinct phases – the physical analysis and the funding analysis.

  • The physical analysis includes, but is not limited to, determining the association’s legal responsibility of repairing, replacing and maintaining association property (components) and identifying components and their condition, cost and useful life.
  • The funding analysis includes preparing a funding model that considers the cost and frequency of repairs/replacements/maintenance procedures. This funding model generally includes provisions for inflation on future expenditures, interest earned on reserves and income taxes.

Funding Theory

The theory behind funding is simple: determine how much money the association should set aside in the replacement reserve bank account each year so there is always enough money to pay for needed repair, replacement and maintenance expenses - and assess accordingly.

Since this funding model is based on numerous assumptions, many association professionals prefer to include a contingency amount in the funding model.

Although the theory of funding is relatively simple, the calculation of the required contribution to reserves is complicated by the various methods of funding and the determination of the appropriate contingency. For purposes of this article, contingency is defined as “the amount of cash set aside in the replacement reserve over and above the calculated amount needed to fund 100% of needed expenditures.” In other words, it is extra cash to fund unbudgeted expenditures or “surprises.”

Three Types of Funding Models

Community Association Institute (CAI) Reserve Specialist and Association of Professional Reserve Analyst standards include three acceptable funding models – baseline, threshold and the fully-funded model. (Note that there are other terms that describe these models; for sake of simplicity I am using the above terms).

Each of these models calls for a different level of contingency funding, which relates directly to their ability to mitigate risk. Figure 1 illustrates the level of contingency built into each model:

figure1-methods-of-funding_b.jpg

Baseline Funding Models

The baseline method includes a funding model that funds all expected costs over a specified period, in many cases thirty years. Although this model funds the replacement reserve bank account for all expected costs, it does not include a contingency amount should any components cost more than expected.

Proponents of this method only want to fund expected costs to maintain, repair and replace common area components. Note that this model is the bare minimum of funding and assumes there will be no surprises.

Over a thirty year period, the baseline funding model would show a cash flow projection that funds all expenditures and at some point the cash balance in the replacement fund bank account would drop close to a zero balance and then start building cash for the next major expenditure. The year the cash balance drops close to zero is risky to the association since there is no extra cash to pay for surprises.

Threshold Funding Models

The threshold method includes a funding model which funds all expected costs (much like the baseline method) but also includes a contingency amount for surprises. Reserve study specialists refer to this contingency as the “threshold.”

The threshold method would provide an amount that the projected replacement reserve cash balance would not fall below, say $100,000. This $100,000 is called the threshold and provides needed funds to pay for surprises. Proponents of this method realize that over a thirty year period, unexpected costs may arise and it may be prudent to have extra cash to pay for these surprises. The challenge for reserve study providers is determining the amount of the threshold or extra cash.

Fully-funded Models

The fully-funded method uses a formula for computing the threshold that mirrors the method used for computing depreciation.

The fully-funded formula computes a threshold that, in some cases, allows funding for twice the amount of expected costs. Knowing that the fully-funded method, if 100% funded, provides for a very large threshold, reserve study providers often use a funding target of less than 100%.

Please note that the higher the percent funded, the more extra cash is kept in the replacement reserve bank account as a contingency, over and above the amount necessary to pay for all expected repairs and replacements.

Proponents of this method realize associations have ‘surprises’ and it is prudent to have as much cash as you can as a contingency to provide for these costs.

Best Practices for Overfunding

These three funding models (baseline, threshold, and fully-funded) cover the spectrum of contingency funding that any association should consider for their reserve account. However, none of them offer a single, prescriptive best practice for reserve funding.

Figure 2 summarizes the takeaway of the next post in this series – which covers reserve study best practices for mitigating risk and reducing the need to overfund your contingency.

figure2-risk-mitigation-matrix_b.jpg

As you can see from the matrix, proactive steps, including adequate and accurate physical analysis, can be taken to reduce the need for an overfunded contingency while simultaneously preventing unexpected surprises and maximizing the ROI of your building investment.

Be sure to check back for Part II, where David will dive into these best practices for reducing the risk of ‘surprises,’ special assessments, and the need to overfund your contingency.

To read David’s profile and learn more about Schwindt & Co, visit www.schwindtco.com.

The Reserve Funding Series

Evaluating Water Leakage of Buildings

Introduction

On September 21, 2012 Paul Kushner and Alex Prokop presented a 1-hour webinar called Evaluating Water Leakage of Buildings.  Paul and Alex explained the American Society for Testing and Materials (ASTM International) “Standard Guide for Evaluating Water Leakage of Building Walls (E2128-01a)”, which describes methods for determining and evaluating causes of water leakage of exterior walls.

This was the seventh in our Construction Defect Seminar/Webinar Series which were presented throughout 2012. A complete list of the dates for the remainder of the series is listed on the Events page of our website. The programs are recorded and available to PFCS clients free of charge. If you are a client and would like access to this program, or if you would like to schedule a PFCS Expert to deliver a presentation live at your conference or in your office, please contact marketing@petefowler.com.

Program Outline

  1. Introduction
  2. ASTM E2128-01 Sections
  3. Sample Documents
  4. Maintenance and Repairs on a Limited Budget
  5. Selecting and Evaluating Expert Consultants
  6. Deep Thoughts and Hot Buttons
  7. Conclusion & Recommendations

Comments from Attendees

  • "I thought the webinar was excellent. Lots of great information and very well presented. The materials were clear, concise and informative. I am looking forward the next webinar in the series."
  • "The presenter was well prepared and easy to understand. Very thorough as well."
  • "It was very informative and helped direct me to certain standards for water testing and inspection I will use going forward - very helpful!"
  • "Informative. Good foundation for water intrusion issues."
  • "Great presentation. I especially appreciated the discussion of ASTM E-2128. I plan to use this standard in defending window leak claims in all my cases."
  • “Very helpful and provided information that I can use as a reference."

Click here to see previous posts about this program.

OWCAM Expo

On January 20, 2012 PFCS had a great time participating in the 2012 OWCAM Expo Annual Trade Show in Vancouver, WA. In the spirit of this year’s "Cruising in Paradise" theme (remember this is January in the Pacific Northwest!) Pete Fowler and Adrian Bullmore dressed the part. The Expo is an annual venue for community managers and vendors to network amongst peers and to participate in educational sessions.

We spent the day catching up with old friends, making new friends and raffled off a fabulous bottle of Gaston Chiquet Traditional Champagne at the end of the day.

The Oregon Washington Community Association Managers, (OWCAM) was founded in 2002 to educate and serve Community Association Managers and service vendors in Oregon and Washington.

CAI's Essentials Workshop

On February 4, 2012, the Oregon Chapter of the Community Association Institute presented a one day Workshop in Portland, Oregon. The "Essentials" program is a comprehensive course about the history, organization and financial structure of community associations, including problem solving techniques to help run your community better. Pete Fowler spoke on property maintenance

Evaluating Water Leakage of Buildings Using ASTM E 2128

Introduction

PFCS  presented a 1-hour webinar to explain the American Society for Testing and Materials (ASTM International) “Standard Guide for Evaluating Water Leakage of Building Walls (E2128-01a)”, which describes methods for determining and evaluating causes of water leakage of exterior walls. This program is the second in a Property Analysis series. The objective of the Property Analysis Seminar Series is to gain a“big picture” understanding of how professionals gather, analyze and use building performance data. Also participants may learn best practices and “the scientific approach” to figuring out building performance problems to have something to contrast against, when faced with people who have drawn erroneous conclusions based on poor investigation techniques.

Property Analysis Seminar / Webinar Series

Programs in this series:

  1. Property Condition Assessment Using ASTM E2018-08
  2. Evaluating Water Leakage of Buildings Using ASTM E 2128
  3. Managing Property Maintenance, Repair and Improvement
  4. Contracts for Property Maintenance, Repair and Improvement
  5. How to Save (Your Community) A Million Bucks!  Prioritizing Maintenance and Repairs on a Limited Budget

For more information or to attend an upcoming seminar/webinar call us or email us at marketing@petefowler.com.

Methodology for Evaluation of Water Infiltration in Buildings

Introduction

Pete Fowlerwas invited to present at theOregon State Bar Construction Law Section for a Construction Defect Claims Series. The OSB Construction Law Section and Smith Freed & Eberhard sponsored the free lunch series for attorney continuing education credits. Pete Fowler presented the topic of Methodology for Evaluation Water Infiltration in Buildings. The program included building envelope evaluations, construction defect analysis and prevention, and expert witness services.

This program is also part of a Property Analysis Seminar/Webinar Seriespresented by PFCS . The objective of the Property Analysis Seminar Series is to gain a“big picture” understanding of how professionals gather, analyze and use building performance data. Also participants may learn best practices and “the scientific approach” to figuring out building performance problems to have something to contrast against, when faced with people who have drawn erroneous conclusions based on poor investigation techniques.

Click here to view presentation

Property Analysis Seminar/Webinar Series

Programs in this series:

  1. Property Condition Assessment Using ASTM E2018-08
  2. Evaluating Water Leakage of Buildings Using ASTM E 2128-01a
  3. Prioritizing Maintenance and Repairs on a Limited Budget
  4. Contracts for Property Maintenance, Repair and Improvement.
  5. Managing Property Maintenance, Repair and Improvement.

For more information or to attend an upcoming seminar/webinar call us or email us atmarketing@petefowler.com.

Property Condition Assessments Using ASTM E2018

Making Good Decisions

Managing property maintenance, improvement and repair is hard. Making good decisions in managing the building lifecycle takes hard work, professionalism and good information. From our founding, PFCS has been helping clients to understand their buildings and to make informed decisions. We have developed an integrated suite of services designed to give property managers and owners the information they need. The first and most important step in making good decisions about a building project is to get a “Baseline Property Condition Assessment.”

Components of a Property Condition Assessment (PCA) 

  1. Document & Building Information Management: We collect, organize, and permanently store all project information created or received by PFCS in the context of our investigation and evaluation. The data and information are saved in a password protected information system that you can access via PFCS Client Access (watch the video here).
  2. Meetings/Interviews with Key People: Our Team Members keep notes and report on key information we collect in the context of our professional investigation. 
  3. Inspection: After collecting and analyzing key information, we conduct a thorough, rigorous, on-site investigation. We take many hundreds of photographs per day of inspection using a proprietary application that allows categorizing by location, building element, issue, plain english descriptions, and much more. These photographs are uploaded to our proprietary information system within 24-hours and can be viewed via our password protected Client Access site. 
  4. Analysis: Our analysis method has been honed over the years through tens-of-thousands of structures inspected, millions in construction specification and management, and having been named as expert witnesses on thousands of construction and property related claims & litigation. Each building element is investigated and evaluated. 
  5. Estimate: Some PCAs include estimating the probable costs for repair or maintenance of some building assemblies. The PFCS Team includes several professional construction cost estimators with more than 20 years experience each. 
  6. Property Condition Report (PCR): A PCR is typically 50 or more pages and organized by building element (foundations, exterior siding, decks, roofs, electrical, site drainage, etc.). The report includes photographs, descriptions, observations and conclusions for each major element. And the Executive Summary includes explicit recommendations for managing the life of the building professionally. 

Seminar or Webinar

We have a 1-hour seminar or webinar to explain the American Society for Testing and Materials (ASTM International) “Standard Guide for Property Condition Assessment” (E2018-08), which represents a universally recognized set of practices for professionally collecting and evaluating data regarding the performance of buildings.

Program Outline

  1. Introduction
  2. ASTM E2018-08 Sections
  3. Sample Work
  4. Additional Building Performance Assessment Activities
  5. Building Life-Cycle Management
  6. Deep Thoughts and Hot Buttons
  7. Conclusion & Recommendations

Property Analysis Seminar / Webinar Series

Programs in this series:

  1. Property Condition Assessment Using ASTM E2018-08
  2. Evaluating Water Leakage of Buildings Using ASTM E 2128
  3. Managing Property Maintenance, Repair and Improvement
  4. Contracts for Property Maintenance, Repair and Improvement
  5. How to Save (Your Community) A Million Bucks!  Prioritizing Maintenance and Repairs on a Limited Budget

For more information or to attend an upcoming seminar/webinar call us or email us at marketing@petefowler.com.

This post was updated 8/31/2018