When Diligence is Due

By Robert Kruckeberg

Board Vice President/Secretary, 1264 Owners Corp.

I love living in my top-floor apartment in a 22-unit cooperative on Manhattan’s Upper West Side. But I hated serving on the board – at least initially. I became a board director about eight years ago, and I remember my first meeting. It seemed interminable. The agenda was vague, small matters occupied an inordinate amount of time, and a few people dominated the discussion. I was only halfway through that meeting, and I was already regretting my decision to get involved. In fact, after just over a year of fairly marginal participation, I felt that I wasn’t making a significant contribution and left the board. In any case, things seemed to be going quite well for the building. A J-51 tax abatement allowed for low maintenance and a gradual increase of reserve funds. The building was running well, seemed to be in good repair, and was meticulously clean, thanks to our fastidious super.

A few years later, a different picture started to emerge. Leaks appeared in various apartments after severe weather. Some areas of the building started to show clear signs of degradation. A new board president became concerned and began to realize that although our building seemed well maintained, there was really no long-term plan in place to address needed capital repair work. As an owner of one of the leaky apartments, I was also becoming a bit nervous about the real condition of our building. The new president uncovered an old engineering survey that outlined numerous capital repair projects that should have been part of an ongoing plan but weren’t. At this point, I was encouraged to run for the board and became a director for the second time.

Board meetings were now quite interesting, given the need to solve the specific problem of working out a capital repair plan. I was asked to focus on this aspect of the building because I was already involved in solving the leak problem and also have a science and engineering background. Our first objective was to prioritize needs for major capital repairs. We then worked with consultants to obtain contractor bids and set timelines for repair projects, most of which focused on repairing or replacing brickwork near the roof level at the back of the building.

Throughout this process, I became the de facto liaison between the board and outside construction professionals. I quickly learned that there was a critical need for conducting due diligence regarding capital repair projects, especially given that our building is small, with a very tight budget, and that many construction professionals often have greater incentive to focus on larger buildings with deeper pockets.

As a shareholder, tenant, and active board member, I was able to keep tabs on progress. One small project required contractors to replace brickwork using specified wall ties. One day, I happened to notice that a pile of wall ties was nowhere near the workers replacing bricks. When I asked about this, I realized that the contractor’s field supervisor for that day spoke very poor English and couldn’t even understand my question. I had to contact both contractor and engineer to clarify the issue, and they took action to ensure that the workers were using appropriate materials. Sometimes these small, but vital details slip through the cracks and, without more active oversight, might result in serious problems and perhaps even litigation down the road.

Oftentimes, a critical responsibility is to provide financial oversight of variances caused by changes in project specifications. For example, our board once received a proposal to rebuild a parapet wall, adding to the cost of the original project. The proposal included a set price for the entire wall. However, the proposal said nothing about wall flashings and coping stones, items that are often bid out separately. Working with contractors and engineers, I was able to clarify the precise cost of the wall, including the above waterproofing components, thereby avoiding additional surprise bills.

Due diligence on cost overruns is also important when it comes to fees charged by professional consultants. Our building has received bills from engineers indicating each and every minute of time spent in phone conversations regarding capital repairs. Yet, the bill is often not tied to the content of the conversation, some of which cannot be considered, in fairness, to be billable. In two different cases, engineers indicated structural measurements that seemed incorrect. Both times, I contacted the engineer and was able to confirm the inaccuracy. And each time, the engineer quickly took corrective action. However, in both cases, when the consultation invoice arrived, we had been billed for time spent resolving a problem that the engineer had himself created. As this seemed unreasonable, I contacted the respective firm for each bill, and was able to reduce the invoice according to actual services rendered by the consultant. I learned that sometimes invoices get automatically generated simply based on time in contact but are easily corrected if disputed.

So, in the end, it really helps to follow up on those little details, especially when the corporation is small and the needs are many. And, if you do, your life on the board will never be dull. I promise.