By Edward T. Braverman

Edward T. Braverman is senior partner of Braverman & Associates, a Manhattan law firm that specializes in cooperative and condominium housing law.

Poets say that "in the spring, a young man's fancy turns to love"---that is unless the young man is a member of his building's board, and the building is in need of a major capital improvement. If that's the case, there is no time for love. All attention must be focused on selecting the appropriate architect/engineer, bidding the work properly, assuring good workmanship and timely completion, protecting the co-op/condo from major cost overruns, and assuring that the building and its board are protected from costly liability.

And all of that must be accomplished while insuring that the building's occupants are only minimally inconvenienced and keep their personal security. Not an easy task.

At the very inception of a project, all major issues should be contemplated, discussed, and treated with the building's counsel and the building's managing agent. If the major issues are not treated in advance, and protections are not incorporated in formal written agreements, a building can very well find itself enmeshed in a host of knotty problems.

Board members should be aware of the issues surrounding a building's contract documents. Each property is different, so always consult with your attorney. He or she will be able to document the protections necessary to accomplish any major capital improvements.

The Architect/Engineer.

Every long journey must begin with a single step. For major capital improvements, that step is selecting an architect/engineer who will study and evaluate the situation as a basis for preparing the contract and bidding documents. Here the board should work closely with the building's managing agent, who can recommend several architect/engineers with whom the board can meet, and from whom proposals can be solicited. A board should not be Scrooge-like in selecting its architect/engineer.

Some architects/engineers will base their price on a cursory analysis of the work, with the understanding that the contractor will be paid for additional repair items, not listed in the specifications, as they are discovered in the course of construction. This is a "Pandora's Box" for a contractor, and will surely lead to unexpected cost overruns at non-competitive prices. Therefore, a building should advance the extra dollars to the architect/engineer to assure a proper and extensive set of drawings and specifications upon submission for full competitive bidding.

It is important to make sure that the architect/engineer hired for the project has appropriate credentials and a history of doing similar projects for local buildings. Moreover, each architect/engineer's insurance (especially professional liability) should be reviewed. A contract between the building and the architect/engineer should be prepared by counsel in which the duties are spelled out in detail, together with his fees for professional services and disbursements.

The Contractor and the Contract.

With a set of drawings and specifications in hand, a building can solicit bids from reputable contractors. Unless the job is relatively small, the board should obtain at least three bids. The building should rely on its managing agent for recommendations. A board may also wish to speak with other buildings that have done similar work.

Bids based on detailed drawings and specifications assure that each bid represents the same work to be performed---both as to quality and kind. The bids should be delivered to the architect/engineer or to the managing agent and the contract should be awarded to the lowest reputable bidder.

The contract itself is an important document. It must contain all of the provisions and protections that a building needs. Countersigning a "Contractor's Proposal" is ill advised. These proposals are bare bone documents which do not contain the proper protections.

The American Institute of Architects (AIA) is an organization consisting of architects and contractors. The organization produces a host of forms to be used in construction projects. While these forms are far superior to a contractor's proposal, they are particularly weighted in favor of the contractor and architect. The building's counsel should prepare his own document which can give the building the protection it needs, either leveling the playing field or tilting it in favor of the owner.

Pricing Concerns.

Of great concern to both the contractor and the owner is how the job is priced. Pricing can take three forms:

• Unit Price. The contractor agrees to accept payment based upon the units of work he performs. That is to say, so much per square feet for masonry work; so much per lineal foot for crack repair; so much per cubic yard for concrete work. Under this method, the total cost of the job can only be estimated in advance without a firm total price being established at the beginning of the work.
• Lump Sum Price. Under this method, a set sum is provided for completing all work stipulated in the specifications and reasonably contemplated to complete the job. However, should the need for unforeseen work occur, additional prices would be established during the work by the owner and the contractor.
• Combination (Lump Sum and Unit Price). By stipulating a combination of lump sum and unit pricing, a building can re reasonably secure in the total price, with the further assurance that unforeseen work will be performed at the prices established in the contract. Accordingly, the owner will not be required to renegotiate individual extras with a contractor who is already on the job, and is, from a practical point of view, "the only game in town." Extras will be performed at the agreed-upon unit price which was established as a result of competitive bidding. This method of pricing will certainly achieve a better financial result.

Payment Plans.

Every contractor would like to get as much of his money as quickly as he can. Paying a contractor a disproportionate amount initially is known in the trade as "front-loading." Every owner must avoid this. To do so requires the preparation of a "Schedule of Values." This schedule, prepared by the contractor before work begins, should be approved by the architect/engineer. The document must stipulate the percentage of the contract price attributed to each item of work. All of the contractor's billing should be done according to the agreed-upon schedule of values.

In the industry, bills for a construction project are known as requisitions. Each requisition submitted contains the schedule of values and the amount of additional work performed since the last requisition. When the contractor submits his requisition for payment, the architect/engineer should visit the job site and confirm that the work was actually been accomplished.

As leverage to secure final performance, an owner should never advance payment for all of each requisition. A portion should be held back and retained by the owner until final completion of the job (known as "retainage"). The amount of retainage is usually stipulated at 10 percent.

Counsel should carefully stipulate under what circumstances payment can be withheld. Such areas include: failure of the contractor to adequately perform his work; damage to the building; architect's failure to approve completed work; the filing of mechanic's liens by suppliers or subcontractors; and the lack of the building's mortgagees approval (if required by the mortgage).

When to Start, When to Finish.

To insure that the work is completed with the least possible inconvenience to the tenants, the time during which construction takes place should be carefully monitored. The contract between the owner and contractor should therefore contain specific start and stop dates.

This is also important if the work to be performed is to be done outdoors, since it is likely that such work must be completed before a change in the weather. If weather is important, the contract documents should establish that the time of completion is "of the essence" in agreement between the parties. By so stipulating, failing to compete by the stipulated date will be a material breach.

The board should also seriously consider establishing a "liquidated damage" provision for each day that the work is unfinished past its agreed-upon date. However, care should be taken that the established liquidated damages bear a reasonable relationship to the amount of damages specified are unreasonably high, a court will find them to be a penalty and unenforceable.

The contract should also provide for the hours of construction, as well as prohibit working on legal or religious holidays.

Insurance.

No work should ever start at any building without adequate insurance. Even small jobs require major insurance coverage. A hammer falling from a roof during the course of a $10,000 job can produce as much legal liability as one falling from the roof of a $1 million construction project.

While virtually every building maintains its own general liability coverage, it is still important to require that the contractor obtain substantial insurance coverage, naming the building and it's managing agent and architect as "additional insureds." Being named as a "certificate holder" is not enough. Certificate holders get no coverage of their own from the contractor's insurance. The certificate merely indicates that the contractor is insured.

To protect the building's annual premiums against increases caused by claims, the building must be named as an additional insured, thereby providing direct coverage to the co-op/condo should the contractor create liability. The insurance must be written by a carrier licensed to do business within the state of New York and by a company which has an adequate financial rating. The policy should include completed operations coverage to protect against post-construction liability and should be on an "occurrence basis," as opposed to "claims made." The latter ends with the expiration of the policy period, while "occurrence coverage" lasts forever.

Special care should also be taken for work involving toxic material removal. Most general liability policies in the metropolitan area exclude toxic coverage. Accordingly, unless sufficient toxic coverage (for asbestos and similar contaminants) is obtained from the contractor's insurer, a building may find itself without any coverage or protection. An analysis must also be made as to whether special types of construction will require special types of coverage (i.e., excavation requiring collapse insurance).

The building's lawyer should also review the mortgage, as many lenders require that they also be named as an additional insured during the course of construction. Moreover, some mortgages require bank approval for major construction projects. If that's the case, all drawings, specifications and pro forma contracts should be delivered to the bank before signing the contract documents to obtain their prior written approval.

Board Indemnification.

Insurance will give an owner protection from claims made because of a contractor's negligence. However, it is important to secure a promise from the contractor to protect the building against unanticipated loss as a result of any of the contractor's conduct. Such a promise is called an indemnification.

Generally, a contractor's indemnification is "guaranteed" by the contractual coverage portion of his general liability policy. However, it is important to expand this to include any damage sustained as a result of the construction, as not all construction damage (i.e., faulty workmanship) is covered by insurance.

Moreover, the indemnification should provide for reimbursement of the co-op/condo's attorney fees and other cost of litigation. Without indemnification coverage for these fees and expenses, the cost of a subsequent litigated victory could far exceed any recovery that the building might secure.

Security.

One of the foremost issues addressed by boards in building security. Boards often have 24-hour doormen, additional lobby men, video cameras in each elevator and at service entrances, gates with barbed wire protection, and even security guards. However, many owners move forward on construction projects without thinking about the 10 to 30 strangers who will be invading every area of their building.

To assure such control, the construction contract should provide for each employee to be garbed in an identifiable uniform, wear a badge with his name, and be required to sign in each day. These precautions will not only identify those working within the building, but will also preclude "opportunists" dresses as workmen. It would not be a waste of funds to secure the services of an additional, but temporary, lobby man during the course of construction.

It is also extremely important that the building personnel communicate with all the workers. To that end, each construction contract should stipulate that the construction foreman be able to speak English and be able to speak the language or languages spoken by each employee.

Firing the Contractor.

The board must consider in advance when it can fire the contractor. These circumstances must be individually itemized within the contract so that the board can quickly and expeditiously remove a contractor and his equipment for the building site, should such action be necessary. This is particularly important, since a site free of the existing contractor and his equipment will be necessary before a replacement construction company will be willing to "come on board" to finish an incomplete job.

Subcontracts, Assignments, Warranties.

A general contractor is usually hired by the building to perform all the tasks set forth in the architect/engineer's drawings and specifications. Often he has the ability to supply the men, material, and knowledge for the entire job. However, some contractors will bid on the work when they are not themselves fully capable of supplying all of the needed trades.

In such instances, the contractor will be hiring other contractors (called subcontractors) to do one or more tasks. Unless provision is made for review and approval of these subcontractors, a board may very well find itself obligated to let other construction companies into the building with whom it might not otherwise want to do business.

Provisions must be made to either prohibit a contractor from using subcontractors, or provide that subcontractors can be used, but only with the prior approval of the board. In a similar vein, the construction contract must contain a provision prohibiting its assignment.

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