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Subject: Should a board member be in trouble when project goes beyond budget?
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Author Messages
GregM14
(South Carolina)

Posts:17


09/22/2020 5:36 AM  
Our board is finishing a big project, and it turns out that the project is about 25% more expensive than originally projected when the board approved the project. Little things came up during the project resulting in the overruns.

Should the board member who is running the project be "in trouble" with the board, or are cost overruns like this pretty typical of board projects, especially since they are volunteer run?

The project turned out nice and no mistakes were made except for underestimating some of the costs.
GregM14
(South Carolina)

Posts:17


09/22/2020 6:35 AM  
Just realized that I am looking at this wrong.

A board member is not an employee of other board members or the association. Thus, they don't "get in trouble" for things like going overbudget on a project as long as the overrun is approved by the board. Once the initial amount of money runs out, the board can decide to pause the project or approve the overrun.

Rather, if a board member overruns a project budget and that is upsetting to the homeowners, someone else can run against the board member and they can be removed from their position as a board member.

That makes more sense to me.
SheliaH
(Indiana)

Posts:3512


09/22/2020 6:38 AM  
Everyone makes mistakes, and although this board member have have overseen the project, everyone else had access to the information (or should have) and They could have asked questions.

You say "little things" came up during the project, but didn't say what they were. If additional problems were discovered as the project got underway, there's no way anyone could predict they'd have a big impact. Perhaps not enough attention was paid to the contract - did the board start adding things or switch gears, and the contract DIDN'T address how changes were to be handled? That can also add to the price - and all board members should have reviewed the contract before it was signed.

If you're on the board, and especially if you're the one taking the heat, learn from this. Review everything that came up and consider if it could have been avoided. For all you know, the contractor was the problem. Sure they did a good job, but perhaps they underbid the project. Whether they did that on purpose, who can tell.

Sometimes you do all the due diligence you can and things still don't work out. That's no one's fault because shit happens. Chalk it up to lesson learned - and apply it in the future.

DouglasK1
(Florida)

Posts:1538


09/22/2020 6:49 AM  
Ideally, any overruns should have been presented to the board for board review and vote unless the original approval allowed otherwise. My last association sometimes approved projects for 5-10% over the quoted amount because we expected minor changes of scope based on what the contractor found.

I think the only trouble a board member could get into would be "double secret probation".

Escaped former treasurer and director of a self managed association.
GeorgeS21
(Florida)

Posts:3279


09/22/2020 7:01 AM  
And, further, if a project starts to show signs of increasing cost - ie more than was approved by the Board - then, the Board must either move to stop the activity, or approve additional funds. The Board owns the "money tap."
TimB4
(Virginia)

Posts:17008


09/22/2020 7:05 AM  
Yep, answered your own question.


I will say that the way to minimize overruns is to:

a) Get exact bids for the work.

b) If exact bids can't be obtained, the board should only authorize an amount up to $xxxxx (based on similar work done in the past) and then if more funds are needed, additional approval is required.

KellyM3
(North Carolina)

Posts:1559


09/22/2020 7:43 AM  
Posted By GregM14 on 09/22/2020 6:35 AM
Just realized that I am looking at this wrong.

A board member is not an employee of other board members or the association. Thus, they don't "get in trouble" for things like going overbudget on a project as long as the overrun is approved by the board. Once the initial amount of money runs out, the board can decide to pause the project or approve the overrun.

Rather, if a board member overruns a project budget and that is upsetting to the homeowners, someone else can run against the board member and they can be removed from their position as a board member.

That makes more sense to me.




The validity of a project's cost overruns and subsequent change orders are determined by the HOA project supervisor and ultimately the HOA board. Repair jobs or "handyman" jobs can be spec'd and priced tightly. Large contractor-grade renovations can experience the uncovering of hidden issues not expected.

If homeowners get "mad," they can run the project. I've no problem retiring at this point.
GregM14
(South Carolina)

Posts:17


09/22/2020 8:02 AM  
Oh, one example of a "little thing" that drove cost higher.

We installed new concrete stairs at a park. Landscape architect spec'd out a single steel railing on one side of the stairs. Seemed simple.

Then I realized that little kids will be walking up and down the stairs, and we need a middle railing for them. Cost went up a bit.

Got an estimate before we went ahead with the stairs for $2500 for aluminum. Seemed ok.

Then after the stairs went in, realized that we need two railings (one on each side) because the stairs are steep. Checked with a couple more vendors, and was pointed out that aluminum railings won't hold up and we need to go with galvanized steel.

Final total cost was $7400, or about 3x what was originally estimated. However, finished product will be safe for park users, low liability for board, and look nice.
AugustinD


Posts:4160


09/22/2020 8:03 AM  
Posted By GregM14 on 09/22/2020 6:35 AM
Just realized that I am looking at this wrong.

A board member is not an employee of other board members or the association. Thus, they don't "get in trouble" for things like going overbudget on a project as long as the overrun is approved by the board. Once the initial amount of money runs out, the board can decide to pause the project or approve the overrun.

Rather, if a board member overruns a project budget and that is upsetting to the homeowners, someone else can run against the board member and they can be removed from their position as a board member.

That makes more sense to me.
Hats off to you for figuring this out . The only thing I have to add is that, in large projects anywhere (for a city, the federal government, counties, housing developments, HOAs, and so on), cost overruns are common. One does the best one can on a board.
DouglasK1
(Florida)

Posts:1538


09/22/2020 10:48 AM  
Posted By GregM14 on 09/22/2020 8:02 AM
Oh, one example of a "little thing" that drove cost higher.

We installed new concrete stairs at a park. Landscape architect spec'd out a single steel railing on one side of the stairs. Seemed simple.

Then I realized that little kids will be walking up and down the stairs, and we need a middle railing for them. Cost went up a bit.

Got an estimate before we went ahead with the stairs for $2500 for aluminum. Seemed ok.

Then after the stairs went in, realized that we need two railings (one on each side) because the stairs are steep. Checked with a couple more vendors, and was pointed out that aluminum railings won't hold up and we need to go with galvanized steel.

Final total cost was $7400, or about 3x what was originally estimated. However, finished product will be safe for park users, low liability for board, and look nice.



As long as the board approved the changes, or gave some measure of authority to the director overseeing the project, no problem.

Escaped former treasurer and director of a self managed association.
JohnC46
(South Carolina)

Posts:10017


09/22/2020 10:56 AM  
Greg

Why do you feel someone has to be hung out to dry over this? Maybe the whole BOD should be including you if you are on the BOD.
GenoS
(Florida)

Posts:4133


09/22/2020 11:55 AM  
I think the entire board who approved the underfunded project should bear the responsibility, not just the one person who came up with a bad estimate. If someone wants, they can run for the board in the next election and try to get the one who made the bad call out. I wouldn't bother with a recall unless the guy was diverting money into his own (or his friends') pockets.
MelissaP1
(Alabama)

Posts:9649


09/22/2020 2:02 PM  
It is typical for most to factor in an "overages" amount of around 25% on large projects. 10 % on smaller projects are not unusual as well. It really depends on the size of the project. There is usually overages. Doesn't make anyone guilty of bad management. You just can not foresee the total of the project.

I would be more upset over lack of planning a built in overages amount than having the actual overages.

Former HOA President
GeorgeS21
(Florida)

Posts:3279


09/22/2020 2:18 PM  
This reads like Greg was the one running the project ... ??

If the project went 25% over the amount provided by the board, then there is a big issue.

Need some more info.
GenoS
(Florida)

Posts:4133


09/22/2020 9:57 PM  
It could also be a big ticket reserve item where there was no expert or professional input on the estimated replacement cost. i.e. no reserve study because "we can do it ourselves".
GregM14
(South Carolina)

Posts:17


10/01/2020 12:26 PM  
Just as an update -

The final bills came in, and the project was $2,000 higher than expected estimated prior to any dirt being turned. For a project costing $83,000 and a renovation project that had a lot of unknowns and ifs in the construction, a small cost increase of 3% is very very reasonable.

So, no, this board member running the project should definitely not be in hot water at all. The project was done on time, nearly on budget, and homeowner satisfaction with the results is very high.
GeorgeS21
(Florida)

Posts:3279


10/01/2020 4:52 PM  
What amount did the Board approve?
GregM14
(South Carolina)

Posts:17


10/01/2020 4:58 PM  
Posted By GeorgeS21 on 10/01/2020 4:52 PM
What amount did the Board approve?




We authorized a total of around $67,000 including all of the things that popped up during construction. So we were about $7,000 to $10,000 less than the cap approved by the board.
GregM14
(South Carolina)

Posts:17


10/01/2020 4:59 PM  
Oops, I meant a total of around $93,000 to $95,000 total for all of the renovations.
GeorgeS21
(Florida)

Posts:3279


10/01/2020 5:24 PM  
Sounds great, then!

I tend to provide motions with the amount, some percentage overage, then noting the cap.
KellyM3
(North Carolina)

Posts:1559


10/04/2020 7:24 AM  
Posted By GregM14 on 10/01/2020 12:26 PM
Just as an update -

The final bills came in, and the project was $2,000 higher than expected estimated prior to any dirt being turned. For a project costing $83,000 and a renovation project that had a lot of unknowns and ifs in the construction, a small cost increase of 3% is very very reasonable.

So, no, this board member running the project should definitely not be in hot water at all. The project was done on time, nearly on budget, and homeowner satisfaction with the results is very high.




Thanks for the update, Greg. A 3% overage on an $83,000 reflects good project management in my opinion.

MarshallT
(New York)

Posts:108


10/08/2020 5:54 AM  
Hi,

The board member can't really get in trouble for this; projects go over budget all of the time.

If this is something that continues to happen, you could look at replacing the board member, but hopefully this was a rare and honest mistake.
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