HIDDEN FEES, P.2

One problem is that the amorphous term "project management" can mean different things. It's generally done by an architect / engineer or a specially hired project manager with an engineering background, whom a board retains to be on site every day to oversee the work, answer questions, facilitate fixes and report back to the board. But it can also mean being the point person who facilitates communication among the board, the residents, and the architect/engineer.

Peter Lehr, director of management at Kaled Management, says his company charges no capital-improvement fee if the client has retained the services of a consultant to design and construction-manage a project. "Then I see my role strictly as attending site meetings and making sure the consultant and the contractor are both living up to their contracts." On the other hand, "If a board says, ‘We want you to manage the project,' then I'll negotiate a fee and it'll be a percentage" of the job's total cost, one common though not universal method of billing.

Some managers are critical of the percentage-of-job fee structure. "What is my incentive to keep down costs in that case?" asks Weber. "That's putting the fox in charge of the henhouse. My incentive is to get you the best price and cut my fee? To me that's a conflict of interest."

Rudd agrees. "If they're involved in planning and bidding the project and they're being paid a percentage, they could theoretically manipulate the bid to get more money. Does everyone do that? Of course not. Are most of my competitors honorable? I would hope so. I would expect so. But it's still a disincentive when somebody is creating bids on a job." 

Lehr, whose management company is one of many that take the percentage approach, says such concerns are misplaced. "When you go out and do competitive bidding, you've got numbers closely spaced out and a couple way high and way low, and the job is worth what the middle ground is saying. My client is going to pick the actual vendor. I have no control over that."

As for the possibility of cost overruns, which generate a fee percentage, Lehr stresses that companies have to consider the long-term relationship. "You don't want to run your number up," he says. "You want to do the right thing for your client."

"Other than making sure the work is being done on schedule and on budget, the manager's job is more to communicate to residents — what's being done when, and if there's a setback, what's being done to fix it,"says Wilson, whose Blue Woods generally doesn't charge a project-management fee "Management definitely has to be involved and it takes time, but it's not like you have to be standing on the scaffold three hours a day."

Rudd, who says managing capital improvements comes as part of his base fee, describes his company's definition of the job this way: "We oversee the project on behalf of the building and report back to the building's board. We attend every job meeting, as does the architect, who keeps the minutes and produces them every week. … [M]eeting with the building staff and talking to the board about alterations and coordinating with the architect, that's part of my regular job as a managing agent."

Ask and Tell

So what can a board do? Ask questions, of course — but what and how many? A board can't think of every possible scenario where a management company might have unexpected fees. A mileage charge to drive to your building? A fee to attend the monthly meeting if there's a thunderstorm that night? What can you ask about without it becoming overbearing?

"Good boards do ask questions," says Rudd. "We've gotten so many of the same ones that we've actually put together a FAQ ["Frequently Asked Questions"] sheet that we send out." Some boards, he says, send highly detailed "Request for Proposal" (RFP) forms. "Sometimes we'll get an RFP that's seven pages long."

And sometimes, overreliance on a checklist of questions can be overkill. "I've sat through interviews," says Wilson, "where they've gotten hold of this one script I've heard before — they found it on the Internet or something." That scenario, he says, leaves "no real room to explain things because they're on to the next question. I much prefer having a couple of meetings with them so they get a sense of what we do, and for us to get a sense of what's going on in the building and what we can do to try to help them."

It all comes down to expectations: A board can't foresee every contingency for which it might be charged and a management company can't foresee every unexpected obstacle that takes time and effort above and beyond. Simply be aware that companies may charge extra for things a board might consider the normal cost of doing business — and when you insist that a company be reasonable, reassure that you will be also.

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