Published in the ECHO Journal, November 2013
The most important function of the board of directors is preservation of the property for the quiet enjoyment of the residents. And the only effective way to do that is to objectively and thoroughly understand the elements of a maintenance plan and its realistic costs. That is accomplished by conducting a Reserve Analysis and developing an Implementation Plan.
California law requires homeowner associations to conduct a reserve study every three years to evaluate all major components of building construction, and provide for their maintenance. The professionally prepared reserve analysis should include specifications for the most cost effective and best materials and systems available at that time. The reserve study should be accomplished by an independent professional, with verifications, licenses, and errors and omissions insurance coverage. Materials and systems available today may not be the best or most technically evolved systems and materials available in the future, so the reserve analysis is required to be reviewed by the board of directors annually. Additionally, it may be necessary to update the Reserve Analysis with previously unforeseen tree-root damage, improvements to accommodate new technology, or construction defects.
Financial feasibility for performing required work on schedule is a critical element. California law also requires a “reserve funding plan” to finance all the maintenance, repair and replacement identified in the reserve study. However, there is no requirement to actually fund the plan, leaving decisions about what maintenance and repair to be performed to the board of directors. Unfortunately, economic pressures tend to influence boards to defer maintenance and keep dues and assessments lower than what the professionally prepared plan provides. Failure to adequately fund reserves almost always ends up costing more than if prudent planning had been executed, and is sometimes a recipe for disaster.
Implementation of the reserve analysis plan begins with identifying an individual whose responsibility it will be to make the contract work go smoothly, timely, and within budget.
The facilitator for implementing the reserve analysis plan should not be a resident or member of the board of directors, because of the potential for conflict of interest, and/or because they lack the professional qualifications to ensure completeness.
Construction Managers (CM) are recommended to manage the contract construction work. They are qualified to:
- Review and update the specification in relation to the immediate needs;
- Prepare the RFP (Request for Proposal) and solicit bids from qualified contractors;
- Investigate contractors’ qualifications;
- Analyze the bids to insure they meet the minimum specifications for materials and labor. Contractors need to provide copies of their current business license, contractor’s license, provide qualified insurance certification, and sign a contract work agreement;
- Coordinate the work with residents, property management, and city permits;
- Inspect the work progress, approve progress payments, and verify all labor and materials liens are properly and timely cleared.
When realistic reserve studies are properly conducted, and reserve accounts are adequately funded, homeowner associations can operate as harmonious communities.
Burt Dean is the owner of Rebello’s Towing Service. Previously he owned an association management company. Burt has been a member of ECHO and frequent contributor for many years.