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The Fluid Fees for Oversight on Capital Projects

Ann Farmer in Building Operations on April 29, 2019

New York City

Project Management II
April 29, 2019

Whether it’s installing a green roof or restoring the facade, big capital projects must be properly coordinated and supervised. Most boards turn to their managing agent for help, and many are surprised to learn that there is an extra charge for the extra help.

“Anytime people get involved overseeing a project,” says Ellen Kornfeld, vice president and partner at the Lovett Group of Companies, “depending on the size of a project or how much time you spend at the building having to coordinate and interface with various professionals, you have to make a determination. If the time exceeds what is realistic, then you may have to charge.”

The size of that charge depends on numerous factors, and it differs from one management company to another. But the first place to look is the board’s contract with its management company.

“You disclose in your schedule of additional fees what your criteria are with regard to capital projects,” says Kornfeld. “[It] might say, ‘Any project over X number of dollars, there will be a percentage put toward the managing agent.’”

Some companies prefer to charge a flat fee rather than a percentage, because this is New York City and every capital project comes with unpleasant surprises. “God forbid that job goes over schedule, or there’s hidden things, or you have extras,” says Steve Greenbaum, the director of property management for Charles H. Greenthal Management, who noted that the company’s flat fee for a $1 million window replacement project in Queens is $25,000. For capital projects costing $250,000 or less, the company charges no fee. Nor does it charge for a specialized project, such as an elevator overhaul. Although it may be a long job and the agent must attend site meetings and handle all the administrative tasks, the manager is not involved on a daily basis, Greenbaum explains. “We’re more involved peripherally,” he says.

Tal Eyal, president of FS Project Management, a division of FirstService Residential, says his company takes a flexible approach to fee arrangements: “When I’m meeting with a new client, I say, ‘What is the structure that you feel most comfortable with?’ ” Eyal has found that some boards opt for a percentage, while others prefer a flat fee. In some situations, a monthly fee – or a hybrid of a monthly charge and a percentage – might be the preferred way to go. “My goal,” says Eyal, “is to align our interests with the owners of the building.”

When capital projects arise, management companies often use their in-house staff of experts to provide support so the building’s managing agent can stay focused on the day-to-day running of the building. FS Project Management uses dedicated construction managers to steer projects. The cost for that service primarily depends on the level of work and how many project managers get involved. “It’s difficult to say,” says Eyal, “but rule of thumb it’s around 6 to 7 percent [of the project budget].” If it’s a huge project, however, that percentage would be lower. Regardless, Eyal believe that construction managers save buildings money by preparing extensive bid-analysis spreadsheets to determine the best construction options, and by closely monitoring projects to prevent unnecessary delays.

Put another way: boards have to spend money to save money.

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