Community Associations Update - January 2012

Date: January 17, 2012

Construction Renovation Contracts 101: Six Key Considerations for Proactive Boards and Managers
By: Martha L. Perkins
One of the most challenging responsibilities for association board members and the association manager is renovation contracts.  It is a fact of life that community associations must periodically perform small and large construction renovations—everything from lobby updates to balcony repairs and garage resurfacing, from window and roof replacements to new HVAC system installations.  Before signing a construction renovation contract, boards and managers should understand the potential risks and be prepared to minimize them.  Here is a checklist that will help you safeguard the association’s funds:
1.    Due Diligence in Selection of Architect and/or Engineer

An architect or engineer who is experienced in association renovations plays a crucial role in the success of a renovation project.  A competent design professional will assist the board in developing the design concepts, preparing a thorough set of project plans and specifications, selecting good contractors, and overseeing construction.   A proactive board or manager should either have prior successful experience with the design professional or conduct due diligence on the design firm.
2.    Experienced Construction Attorney
Associations should retain the services of a knowledgeable and experienced attorney to help guide the association through the project, in particular reviewing and negotiating the contracts.  This is particularly important for major renovation projects.  Often attorneys representing associations know a lot about condominium governance but little about the complexities of construction law.  It is critical to retain counsel who is knowledgeable about both condominium law and construction law.
The most important reason to retain an attorney to assist the association with a renovation project is for the attorney to write and negotiate the contracts.  This includes the contracts with both the design professional and the contractor.  For a $2,000 lobby touch-up, the association probably does not need to consult an attorney.  For a renovation contract over $100,000, it makes good sense to consult an attorney.  In the gray areas between those numbers, the board will need to make a reasoned judgment call.
3.    Crucial Bid Process
The bid process is an important step in a successful renovation project.  A good design professional should assist the board in preparing a list of contractors asked to bid on the project.  The board and the manager should ensure that the bid list only has experienced, competent, and professional bidders on the list.  The association should question the design professional closely about his experience working with each bidder and check references.
Associations frequently ask when it is necessary to obtain three or more bids. Obtaining multiple bids is nearly always a good idea because they tend to drive the contract price down.  Comparing bids is a good idea because, if a bid is much higher or lower than the others, that contractor may misunderstand the scope of work or has anticipated different problems on the project.  Or the contractor may just be taking a lower margin.
It is a mistake to think that the lowest bid is always the best bargain for the association. Sometimes contractors bid low in order to be awarded the contract and then they plan to “change-order” the contract to death to increase their margins.  Such contractors usually have poor reputations, and due diligence will often uncover such undesirable entities.
4.    Understand and Negotiate the Construction Contract Terms

It cannot be emphasized enough:  the written contracts between the association and its architect and engineer and between the association and the contractor define the legal agreements and understandings between the parties.  Contracts terms should be reviewed, understood, and negotiated so that the association -- and its funds -- are appropriately protected.   Each project is unique and requires unique contracts; one-size contract forms do not fit all projects.
Contractors often present owners with standard form contracts for major association renovation contracts, which the association might accept without even a minimal review.  These form contracts are often drafted for general use in the construction industry and favor the architect or contractor rather than the owner.  Sometimes the forms presented do not apply properly to the specific project and a contractor who tries to customize it for the particular project may inadvertently create inconsistencies with the fine print.  The upshot for the association is that it is not properly protected.  Your contractor is not your lawyer; your own layer can draft the supplementary terms and conditions in order to protect the association interests.
A contract between the association and the contractor should address, among other things, the following issues:  names of the parties to the contract; scope of work; start and completion dates, contract amount, and payment terms; retainage; handling of change orders; submission of payment documents; schedule; warranties; insurance and bonds; indemnification; dispute resolution; attorneys’ fees; and termination.  These contract provisions, properly drafted, are critical for helping to protect the association from improper and unanticipated risks.
The long and the short of renovation contracts is that an association must review, understand and negotiate the terms and conditions of such contracts to ensure that the association is reasonably and properly protected.
5.    Performance and Payment Bonds:  What Are They?

The world of performance and payment bonds seems to the uninitiated to be shrouded in mystery.  Both documents provide certain protections to the association.

  • A performance bond guarantees to an owner that the project will be completed, even if the contractor defaults.  A contractor might, for instance, go bankrupt, walk away from the project for some reason, or perform so poorly that the association terminates the contract.
  • A payment bond guarantees that certain subcontractors and suppliers on a project will be paid.  The general contractor receives payment from the owner and then pays its subcontractors and suppliers.  But what if the general contractor fails to pay them?   They will file liens against the owner.  The payment bond guarantees that those subcontractors and suppliers will be paid for work performed or materials supplied on the project.

Your agreement with the contractor may call for these bonds.  Typically, the contractor obtains the bonds from his surety company through his bonding agent and the owner pays the premium.  The bonds are usually in the amount of 100% of the contract price.  So, if the renovation contract is for $500,000, the bonds will be issued in the amount of $500,000.  The cost of the bonds is between 1-3% of the contract price.
When should an association require performance and payment bonds for a renovation contract?  There are no hard-and-fast rules on this question.  The answer depends largely on the cost and complexity of the renovation project; the higher the cost of and the more complex the project, the stronger the argument to require bonds from the contractor.  The board must weigh the benefits versus the costs of the bonds.  For contracts under $100,000, a board usually does not require bonds.  For contracts over $500,000, the board should seriously consider requiring bonds.  For contracts between those amounts, the board must make a judgment call. 
6.    Association’s Project Representative as Communicator
A clear line of communication between the owner, design professional, and contractor is essential to the smooth progress of a project.  Because the association is run by a board members, few of whom are experts in construction projects, it usual for the board to designate an “owner’s representative.”  The owner’s representative needs to (1) understand the project and the specifications; (2) have the authority to make project decisions on behalf of the association; (3) document and organize a project file—whether hard copies and/or electronic.  In the event of a dispute between the association and the contractor, a well-documented and -organized file can clarify many disputes, with little cost or time expended.  Often, the project representative will be someone from the association’s management company, if it has the on-staff expertise to do the job well.  If not, the association should consider hiring a professional to represent the association’s interests throughout the construction process.
A major renovation project at an association doesn’t happen often.  While it is exciting for owners, it is also fraught with potential risks and ensuing legal disputes.  Take the time to do it right so that the project goes more smoothly to completion, without major disappointments and exhausting construction disputes.

Getting Ready for the Pool Season
By: Thomas Mugavero
In a few months, community associations around the region will be opening up their pools in preparation for the summer season.   Running an association pool, of course, comes with a host of issues, including: training and certifying lifeguards; maintaining, repairing and replacing the equipment itself; and enforcing the rules and regulations for using the pool.   This article will focus on two separate issues: the Virginia Graeme-Baker Act and the responsibilities of community associations under the federal and state non-discrimination statutes.
A.    The Virginia Graeme Baker Act (“VGBA”), 15 U.S.C. §8001 et seq.
This Act arose out of a tragic accident involving the seven-year-old granddaughter of former U.S. Secretary of State James Baker.  Briefly, the girl was trapped in the filtration system of a hot tub and was being sucked down to the bottom of the tub.  A number of adults jumped into the hot tub to try and pry her free, but the filtration suction power was too great, and they had to break the drain to release her.  Virginia Graeme Baker was later declared dead at the hospital.
In response, Congress passed the VGBA, which mandates, among other things, drain covers that allow for a maximum flow rate and have been tested for body entrapment and hair entrapment or entanglement.  In addition, all public pools and spas must be equipped with anti-entrapment devices or systems that comply with the current ASME/ANSI A112.19.8 performance standards.  Where a public pool or spa has a single main drain that is not “unblockable” (i.e., one whose size or shape is such “that a human body cannot sufficiently block [it] to create a suction entrapment hazard”), the pool or spa must also be equipped with additional protection to prevent suction entrapment, such as a Suction-Limiting Vent System, a Gravity Drainage System, or an Automatic Pump Shut-Off System.
This brief discussion is meant merely to highlight the purpose of the VGBA and provide a brief overview of its requirements.  Clearly, we cannot fully describe here all the requirements of the VGBA, nor can we provide all the technical details of a compliant pool or spa drainage system.  There are, however, a few important points to remember.  First, the VGBA mandate includes pools even if they are open only to residents of a multi-unit apartment building/complex, residential real estate development, or other multi-family residential area (15 U.S.C. § 8003(2)).  Second, local jurisdictions may have additional or more stringent requirements for pool drainage equipment – the federal VGBA provides a minimum standard.  Third, a violation of the VGBA is considered a violation of the federal Consumer Product Safety Act, and so all of that Act’s penalties could apply, including imposition of civil penalties.  Finally, a violation of the VGBA may provide the basis for tort liability for damages.
We recommend, therefore, that the community association determine exactly what types of pool drainage system it currently uses and determine whether the system is in compliance with VGBA.  If the system is not compliant, the pool should be closed until the Board determines whether a rework is possible.   Above all, a reputable pool contractor should be retained to review all aspects of the drainage system and make the appropriate recommendations.
B.    Discrimination and Fair Access Statutes
These statutes include:

  1. The Fair Housing Act (“FHA”) (42 U.S.C. §1301), which protects the residents of the association – since the pool is an amenity of life in the community association, every resident must be able to take advantage of that amenity equally, regardless of race, color, religion, sex, familial status, handicap or national origin.
  2. The federal Civil Rights Act, and particularly 42 U.S.C. §2000A, which prohibits exclusion from public accommodations on the basis of “race, color, religion, or national origin”; and
  3. The Americans With Disabilities Act (“ADA”), particularly 42 U.S.C. §12182, which guarantees disabled individuals equal access to all “public accommodations.”  
  4. Local State Statutes.  In many cases, these are patterned on the federal statutes, but in some states they differ.  In either case, they need to be understood and followed.

While it might seem counter-intuitive that a private, community association pool could be considered a “public accommodation”, that term is defined broadly enough to encompass any situation where members of the public might be granted access.  A truly “private” facility for purposes of both the Civil Rights Act and the ADA is one in which guests and outsiders rarely, or never, are allowed access.  For example, if each association resident is allowed a certain number of guest passes, or if the pool and party rooms are rented out for parties and social events, the association pool would be considered a “public accommodation.”   Because the definition of “public accommodation” is so broad, most associations will probably be covered by all of these non-discrimination statutes.
Most recently, three issues have become common problems for associations:

  1. “Adults Only” regulations.  This includes limiting access by young children to the pool in general (i.e., never without an adult) or setting aside specific times when children cannot use the pool.  Unless the regulations have clear and compelling safety justifications, they may be seen as discriminating against those residents with young children, and thus violating the FHA.
  2. Religion-mandated Clothing: Some religious faiths or other belief systems direct their adherents either to follow specific requirements of dress or grooming (for example, the Sikh requirement for beards and long hair covered by a turban), or to avoid immodest dress.  Depending on the circumstances, the religious custom may be viewed as a violation of pool regulations.  The issue that we have seen most recently has been the “burkini”, a women’s swimsuit style that resembles a loose-fitting wetsuit with a hood and covers the whole body except the face, the hands and the feet (thus meeting the Islamic modesty standards).  There have been cases where women wearing burkinis have been turned away from their association pools, thereby effectively discriminating against them on the basis of their religious beliefs.
  3. Handicapped Access: Under both the FHA and the ADA, disabled individuals are entitled to the same access to the pool as their able-bodied neighbors.  Existing pool layouts should be reviewed to see where barriers might be eliminated or avoided – where ramps might be installed, curbs cut to allow wheelchair access, or counters and tables lowered.  In addition, where major alterations to the association pool might be planned, the ADA Requirements were amended in 2010 to require pool lifts, sloped entries, and transfer stations for new or renovated public pools.  These amendments should be reviewed with both your attorneys and construction contractors before any renovation work is started.

Should a plaintiff prove a violation of any of these statutes, the court may award not only compensatory damages, but also in some cases civil penalties and injunctive relief.  In addition, the court could require the association to renovate the pool area and would probably require the association to pay the plaintiff’s attorneys fees.
C.    Conclusion
Before the pool opens on Memorial Day weekend, we recommend that the Board conduct a review of:  the drainage system, to ensure compliance with VGBA; the rules and regulations of the pool, to look for any potential fair housing or discrimination issues; and the pool area itself, for any barriers to handicapped access.
Again, this list is not comprehensive, but highlights some of the potential liabilities that an association faces when operating a community pool.  Overall, the time and expense of conducting these reviews, and carefully planning for the pool season, is still going to be far less than the costs and effort required to defend against a lawsuit for damages.  It remains of paramount importance for the Board to do everything necessary to guard against these potential liabilities.