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Oakmont News, Opinion & More

OVA Struggles to Control Escalating ERC Costs

At the November 13 OVA board meeting the membership was given an update on the ERC construction project.  Two weeks prior to the meeting it had been announced that additional costs of $413,975 by a change order were being added to the budget.  Then at the board meeting this amount was supplemented by an additional $102,000 in contingency funds, bringing the latest cost overrun potentially to $515,975 and the total construction costs to $2,778,000.

Add to this the interest and fees on the $1.6 million loan that OVA is using to finance the project and the total cost is over $3 million.

A little over a year ago in October 2017, Building Construction Committee Chair Iris Harrell gave a cost estimate for the project of $1.5 million.  In April of this year a contract was signed with Nordby Construction for $1.734 million. Approved expenditures increased in June to just under $2.3 million, which included four change orders before a shovel even hit the dirt.  With the latest change order No. 6 approved this month the project cost has risen to well over a million dollars above the contract price from six months ago and double the estimate from a year ago.  

Four years ago when plans for a West Rec remodel were being discussed one board member noted that “every one of the last six or seven major projects came in over estimates.”  With the news of yet another OVA construction project being over budget, it raises the question as to whether those entrusted with managing these projects have learned from past experiences and errors in budgeting.

Plans to remodel the West Rec Center building and pool area were estimated at $885,000 in 2014 and early 2015.  The final cost was $1.365 million, an overrun of 54%.

Expensive and unplanned ADA requirements, problems with underground water, electrical and gas lines, as well as unforeseen problems inside the building led to the WRC cost overruns.  And these are the same issues that are again being claimed as justification for cost overruns on the ERC project as if they were unexpected or unforeseen.

“We now know that remodeling an older building could ultimately lead to a more extensive renovation, instead of just being a simple remodel.  This is a big cost difference between a remodel and a renovation,” said former OVA Manager Cassie Turner, quoted in the Oakmont News in August 2015. Turner also said the lessons learned from the West Rec project make it clear that “we need to keep our financial resources up for unexpected maintenance and repairs as a consequence of having older buildings.”  

Director Tom Kendrick at the November 13 board meeting said, “As you dig you find stuff. And one of the things that was disappointing about this project is that some of what we found was not what we were hoping for.”

An OVA member with many years of experience in construction project management pointed out that “any contractor or engineer knows that if you remove a depth of two feet of soil, compaction work will be required when you reinstall new soil.  This should have been estimated in the original scope of work and budget.”

In addition, “the huge costs for replacing all the underground utilities should have been in the initial budget.  The contractor saved significant excavation costs by being able to excavate without protecting the underground utilities.”  New additional costs of $142,506 are included in the current change order for further demolition, paving, grading and excavation. The original contract in April had already included more than $660,000 for these and other site work costs.

“We must realize that a good project manager tries to avoid change orders as the contractor can basically ‘name their price.’  We are on change order number 6 on this project. Looking over the items they all should have been included in the initial scope.”

What can we do to guard against these serious cost overruns in the future?  The following suggestions were made by two construction project management specialists who were interviewed for this article:

~~ It appears that the process used to define the scope of work and to budget for construction projects is flawed. The Board should not approve projects that are not clearly defined. Prior to approval by the Board, the project should be 90% defined in design and scope before taking bids and submitting plans to the city for permits.  This will limit the number and size of change orders, which are expensive and add significantly to costs of the project.

~~ Contingency funds should be used strictly for unknowns, such as weather delays and unforeseen circumstances, not for changes in scope. In the ERC project the underground work in the pool area should have been in the original scope and budget, especially since OVA and Nordby Construction encountered similar issues during the WRC pool project. 

 ~~ Soliciting at least three competitive bids should also be the defined practice for expensive construction projects.  In this circumstance, a decision was made over a year ago to solicit a single preconstruction services contract to get the ERC project started as soon as possible in light of the perceived demands for construction services after the fires in Sonoma County.  Soliciting single bids for large constructions projects should not become a regular practice.

~~ For future projects over $1 million OVA should contract with an independent construction manager to oversee the project.  Earlier this year OVA signed a contract with Nordby Construction, the building contractor, in the amount of $146,000 to provide its own “job site management” on the current ERC project.  To avoid possible conflicts of interest and to control costs a Project Management Professional (PMP) Certified project manager should be brought on board prior to signing a design contract. They could assist the BOD in the project scope definition, contract bidding and the awarding of both design and construction contracts.

There is an old proverb that goes “All that is old is new again.”  It is often used in the context of old fashions or opinions becoming fashionable again.  If we could apply this phrase here, it would be encouraging to use it solely as a description of the ongoing maintenance and upgrade of our aging OVA facilities. Making things new again is an admirable pursuit and falls within the fiduciary duty of those entrusted with overseeing a homeowner association’s assets and facilities. However, it is dismaying when it suggests that old mistakes are repeated and lessons are not learned.

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17 Comments

  1. Yvonne Frauenfelder on November 28, 2018 at 5:56 am

    In his well documented article Michael Connolly writes:

    “It appears that the process used to define the scope of work and to budget for construction projects is flawed. The Board should not approve projects that are not clearly defined. Prior to approval by the Board, the project should be 90% defined in design and scope before taking bids and submitting plans to the city for permits.  This will limit the number and size of change orders, which are expensive and add significantly to costs of the project.”

    October 2017 East Rec Center remodel is pegged at $1.5 million.

    October 2018 costs have doubled to more than $3 million. (Interest on loan included)

  2. Bruce Bon on November 28, 2018 at 8:33 am

    So the contractor and/or the BCC “overlooked” the very likely consequences of finding “unexpected” complications under the ground or behind the walls. The contingency budget was grossly inadequate, and apparently no lessons were learned from the experience of the WRC. I can think of only two reasons for such things — incompetence or purposeful bait-and-switch tactics. Both require remedy, such as proposed in this article, before any future projects are initiated.

    Thanks, Michael, for your thorough investigative reporting.

  3. jim sannar on November 28, 2018 at 9:06 am

    $ 2,778,000 divided by 4800 payers equals $578

    • Greg Gewalt on November 28, 2018 at 9:53 am

      Or $6.50 per month of the $8 (2019 dues increase) to cover the ERC loan and interest.

  4. Lisa Symonds on November 28, 2018 at 10:54 am

    And the changes continue. The Nov 13 presentation showed a new shade canopy over the windows on the northeast side of building justified because the windows opened incorrectly letting rain in. This weeks progress report announced oops, we now need to remove one of the windows as we did not realize a structural beam required for upstairs goes through the window. This will unbalance the remaining windows on the exterior view, require the shade canopy be revised; another change order. A design engineer should have foreseen the need for this structural beam at time they decided to expand the opening upstairs. This week’s progress report also noted delays due to construction due to rain which ultimately could lead to delayed use of the ERC and higher contractor costs still to come as we enter the wet season. All justifying the need for independent professional project management oversight to protect our finances.

  5. James Foreman on November 28, 2018 at 11:00 am

    Another great article here, and it says a lot about how things are being managed on this project. It seems that the BOD is just “matter of fact” about this, so have they owned this overrun at all? I can only imagine what the new BOD members would say if the last BOD had done this.

    I do a lot of project management for large Tech projects I am involved in, and I can tell you that when a Project Manager is not doing their job, or lacks experience, the projects are late, way over budget and problems pop-up all the time. Many times they cut corners by not having a PM at all.

    When projects are managed with best practices, regular follow-up and the SOW (Scope of Work) is taken seriously from the get go the project usually is successful. I like the fact that Michael included solutions in his article here. I hope they are voiced at the next meeting and are taken seriously. Kind of amazing how much money this has expanded to after so much work was done to consider the options.

  6. Don McPherson on November 28, 2018 at 11:49 am

    Another superb reporting job, Michael. Thank you.

    This contribution demonstrates again both the need for and the value of The Observer as the only available serious news and opinion source.

  7. Jim Ouimette on November 28, 2018 at 12:41 pm

    Excellent project look-back Michael. Lots of good data in your article, plus some good common sense suggestions from people with experience.

  8. Steven Radice on November 28, 2018 at 3:07 pm

    That’s a lot of money.

  9. Thomas Hall on November 28, 2018 at 4:17 pm

    Assuming the Building Construction Committee was also involved in “estimating” the cost of the WRC too, the initial problem is clearly the committee. The entire committee should resign after the completion of the ERC project. The job is simply not getting done correctly. While increases as a result of the current, post-fire construction environment would certainly be expected to result in some increases, we find ourselves outside any reasonable amount that can be assigned to that event. With the Berger Center project looming it is time to upgrade the competence of those entrusted with executing either the remodel or new construction. As for the overrun, it is now time to do a one time assessment. Borrowing more money will simply extend the pain over a longer period of time. It could certainly be concluded that years of deferred maintenance have contributed significantly to this situation. Time to be better stewards of the assets of the village.

    • Michael Connolly on November 28, 2018 at 5:17 pm

      Thomas, the BCC has been the title of the committee for less than a year. This committee evolved out of the Construction Management Committee (CMC), which evolved out of the Construction Oversight Committee (COC). To my knowledge, there was no such construction committee at the time of the WRC renovation. It appears that the Association Manager worked with the Board and the Finance Committee on the WRC project. If anyone has further details hopefully they will comment.

  10. Janette on November 28, 2018 at 11:34 pm

    Great work Michael ! Thank you for all of the time you put in for this article.

    I’m not a project manager, but I spent several years in the South Bay selling new housing and condo projects.
    I worked closely with small
    development companies have spent countless days on many building sites.

    I’ve also gone through the process several times of extensive remodeling in my own home.

    I’m just saying that I’m no expert, but when I heard the $1.5 million estimate a year ago, I laughed and rolled my eyes. “It’s going to be twice that much. Who are they kidding?”

    The Board made BIG mistakes surrounding the lead up to this project. Rooky moves. For example, doesn’t EVERYONE know that change orders are expensive and should be avoided?

    And the community needs to vote before large contracts are signed. We are the ones paying the bills. Also, a PM is another no-brainer on expensive projects.

    Thanks for listening to me rant a bit, but it’s so frustrating.

  11. Julie M Cade on November 29, 2018 at 11:05 am

    Here’s a quote from my post on Next Door dated February 13, 2018.
    https://nextdoor.com/news_feed/?post=76454649

    “The significant dollar expenditures on capital projects in the recent years have resulted in exorbitant cost overruns, well beyond any normally estimated 10-15% levels. Reasons have been given but none reassure me that any future projects will not also have similar issues…

    I have little confidence that any volunteer board, regardless of their good intentions, have the necessary expertise to manage complicated and costly construction projects. Even with our prior manager’s years of experience, and with no disrespect to our newest one, we should be wary of authorizing big dollar outputs without the necessary oversight and expertise to bring jobs in on budget.

    …the construction cost overruns of the past four years would be, should be, unacceptable and that we should take prudent steps to ensure that future projects are kept to budget. Ms. Harrell’s credentials may be great but it feels to me that we need to pay to hire an outside, unbiased professional to oversee the work ahead. We pay for cost estimators, architects, and contractors, who all have a piece of a project, but we need an employee charged with the entire set of projects. My opinion is based on the past results here, as well as my own career experiences. Lest you think I am a project manager, I am not, but good ones are out there, and we should look at them.”

    I stand by this position and if OVA had spent money on an outside, unbiased, project manager, and insisted that there be competitive bids before starting the East Rec project, we would probably not be in this position of continuing cost increases. When I questioned Iris Harrell at her presentation last spring as to why no bids were gotten and what kind of protection OVA had against increased costs, she said the vendor, Nordby, would not be given additional work; their continuing work depended on them being within budget. Nordby, Harrell, and the BOD have failed in keeping their commitments to manage project costs.

    We must change our by-laws to mandate voter approval for large expenditures or this scenario will continue. We cannot afford for BOD’s and volunteer project managers to keep wasting our money.

  12. Yvonne Frauenfelder on November 29, 2018 at 3:09 pm

    “… we need to pay to hire an outside, unbiased professional to oversee the work ahead. We pay for cost estimators, architects, and contractors, who all have a piece of a project, but we need an employee charged with the entire set of projects.” (Julie Cade – February 13, 2018- Nextdoor)

    Julie presciently and early called for an outside and independent professional individual to oversee the East Recreation Center rehabilitation. In disregard of this expert recommendation, the Board signed off on a $146,000 Nordby Construction “IN-HOUSE” site manager.

    Michael Connolly in his timely exposé advocates: “To avoid possible conflicts of interest and to control costs a Project Management Professional (PMP) Certified project manager should be brought on board prior to signing a design contract. They could assist the BOD in the project scope definition, contract bidding and the awarding of both design and construction contracts.”

  13. Linda Wildman on November 29, 2018 at 6:54 pm

    Wow, sounds like we need better limits and control over the BOD. Now it makes me question how many bids did we have in the first place?

  14. Yvonne Frauenfelder on November 30, 2018 at 5:18 am

     “Soliciting at least three competitive bids should also be the defined practice for expensive construction projects.  In this circumstance, a decision was made over a year ago to solicit a single preconstruction services contract to get the ERC project started as soon as possible in light of the perceived demands for construction services after the fires in Sonoma County.” (Michael Connolly)

    Nordby was the contractor for the West Rec Center and they also provided the cost estimates for the Berger project.

  15. Susan l Ramsey on January 8, 2019 at 11:55 am

    Any “seasoned” project manager would know the importance of obtaining
    competitive bids when managing a project of this size. It is the only way to
    assure that you are getting the best value and quality.
    Ridiculous!

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