HANDLING CAPITAL-PROJECT CHANGE ORDERS

Many co-op / condo capital projects run over budget and are plagued with seemingly endless change orders because the firm hired to prepare the scope of work, the budget projection and the construction documents for bidding don't spend enough time doing investigative site work during the discovery phase. This leads to problems and to money spent addressing overlooked conditions that should have been spotted.

Don't Duplicate Work

On a typical exterior project, the engineer/architect will ride several scaffold drops to conduct a hands-on examination of representative façade elements and analyze perhaps up to six investigative probes into the façade and roof to determine underlying conditions. This provides a good idea of the overall condition of the building and the extent of repairs needed. (Of course, even the best design work is dependent on the engineer/architect properly administering the construction once the repair work begins.)
Conducting extra site work beyond this isn't always practical or cost-effective, however, since it will likely duplicate work that will be performed in the construction phase. Excessive discovery work during the design phase could add tens of thousands of dollars in engineering and contractor fees to the project while providing little useful information.

Set Aside a Contingency

Every project should include an extra amount called the contingency for legitimately unforeseen circumstances that will need change orders. Our typical recommended contingency is 20 percent of the base bid price. Think of this contingency as part of the overall project budget. A project with a $200,000 base bid and a $40,000 contingency allowance should be budgeted at $240,000, not $200,000. Maintaining a 20 percent contingency enables your co-op or condo board to have funds ready for unanticipated situations or conditions.

The contingency should take into account items that cannot always be detected during the initial site work. For example, structural steel deteriorated from longstanding water penetration may not be evident when viewing the face brick, and investigative probes may not find all of the corroded sections. For another example, missing waterproofing membrane is usually not apparent until brickwork is removed during construction. Older buildings filled with architectural detail may have decorative elements with loose anchorages, and it's often not financially feasible to sound out all elements before the construction phase.

Such items may not be part of the original scope of work, but once they are uncovered they must be addressed to restore the building's watertightness and to  keep the façade in a safe condition. Older, neglected buildings, and/or buildings inadequately repaired previously are more likely to have hidden problems that go undetected until construction work begins, so the possibility of change orders on those projects will be higher.

Unexpected problems aside, a contingency also gives a co-op board or condo board the option to add items or features during the course of construction. Working with a cost cushion enables the board to choose a better-quality (but more expensive) waterproofing material than originally specified, for example, or to add a traffic-bearing coating to the roof even if it were not part of the original construction documents. Such opportunities are available only if a contingency has been built in.

Perfect Pitch

The contingency allowance, however, is not intended to cover major changes to the scope of work that should have been accounted for during the design phase. On a roofing project, proper investigation of the underlying roof deck is critical when developing the scope of work and budget.

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