New York's Cooperative and Condominium Community

Habitat Magazine Business of Management 2021




Problem Solved: Avoiding Common Pitfalls on Capital Projects

New York City

Capital projects, budgets, scope of work, bids, co-op and condo boards.

A budget that will pay for the scope of work should be the first step on every capital project.

Oct. 26, 2021

As part of our Problem Solved series, Habitat spoke with Stephen Varone, founder and president at RAND Engineering & Architecture.

A common first mistake.

I think that the most common mistake when a board undertakes a capital project is not thinking through exactly how much that project is going to cost. A board will say to us, "What's your price for specs?" Or, "What's your price for drawings?" And there's no discussion of what the project will actually cost. So whether it’s from a lack of foresight or a lack of time because it's an emergency, the planning never happens on the cost of the project.

A budget, then a disconnect.

If they have a budget, then we need to be on the same page on the scope of work to make sure that that budget is adequate to pay for what they want to do. There's often a disconnect between what they say they want to do and what that budget will actually buy. And that's often because their information is outdated. They may have gotten a quote from years ago that's now outdated because of market conditions or other factors. 

If a board says to us, "We need something designed and filed and built," we will say to them, "The first step is for us to put together a budget and connect that budget to the scope that we believe you're telling us you want to implement." That way we don't spend time designing a project that they don't have the funds to implement. In an ideal scenario, we issue a budget report to them, they approve that budget, and then we use that budget to develop the design documents for bid solicitation.

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When value engineering comes into play.

The standard understanding on architectural agreements is that the board tells its architect or engineer, "We have X dollars to implement this project." Then the architect says, "OK, let me work up a budget for you. Yes, I think that project can get done for that price." If you then put the project out for bid, and no legitimate bid comes in within that range, then in the standard American Institute of Architects agreement, that professional owes you an attempt to add what's called value engineering to try and get the budget down to what you expressed is available. And that value engineering effort should be at no cost to the board. There are cases where you can't do it, and the project might have to be abandoned, but you make the attempt. So the standard value engineering question is this: What can we eliminate while still keeping the project code compliant and addressing as many of the reasons they're undertaking their project as possible? A typical project will have a combination of things: things that have to be done, either for code or for obsolescence; things you want to do; and things that are advisable to do once the contractor is mobilized because now is the most cost-effective time to do it – if funding permits.

Here’s a perfect example: you’re doing a roof replacement, and your dream is to have a deck on top of that roof. If the funding doesn't permit that, you can pull back on the deck and still do the roof replacement. You’ve stopped leaks and you’re code compliant, but the deck will have to come later. So that would be a classic example of value engineering when someone's eyes were larger than their budget.

Full circle, back to the budget.

Everything flows from the budget. That's the way to start out on the right page with your professional. So if you have a budget and a scope of work and the bids come in within that number, you know you've done your job. If you don't have a budget, there's the danger that you just keep fishing around for a better price. Which is fishing for problems.

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