When it comes to work in, on, or around a residential building, there’s really no such thing as a small job. Whether a minor fix or a major capital improvement, there are a slew of factors that determine the success of a project, particularly when it comes to the facade and exterior maintenance.
Generally, it's the property manager who takes the lead in hiring contractors for everything from paint touch-ups to full-on roof replacements. There are scores of different contractors, all with different specialties and reputations. Some are great at managing all the aspects of work and safety, and some are not. “Hiring the contractor for the exterior of the building is the most important step of the process. After that, you can monitor the process,” says Mary Wangler, CAM, a property manager at Wesley Realty Group in Evanston.
Just like most other walks of life, a lot of who your contractor will be for simpler projects involves established relationships and reputations. “We start with a relatively large master list of vendors,” says Michael Carnahan, co-owner of RedBrick Management in Lombard. “At a minimum, we need to have a certificate of insurance and a W-9 on file. Then it’s [based on] our experience with them, and if we don't have prior experience, it’s checking their references. Sometimes, if we take over a new property and the association really likes their landscaper or a particular contractor, we’ll continue working with them, and if it’s a good experience we might use them for work at other properties.”
For larger projects, finding a contractor includes a few extra steps. “If we were going to bid out a bigger job, we would consult our vendor list,” says Carnahan. “We discuss the vendor list, as far as who’s doing well and who isn't. We consult directories where we can get vendors that are specific to HOA's and condos. Sometimes a board member knows a vendor that they want to bring to the table.”
Part of the bidding process involves securing the requisite permitting and licenses. “If you're going to be doing facade, you’re going to be pulling a permit with the city of Chicago,” says Richard Holtzman, president of Prairie Shores Property Management, LLC in Chicago. “Those companies that submit bids should be licensed, as well as experienced. You’ll have the requirement of protective cover of streets below, which in turn requires retaining the services of a canopy company. Those are things you have to plan for as far as cost and preparation when you start.”
One of the major caveats involved with larger-scale exterior projects involves getting approval from the city or local municipality. Property managers will often negotiate this point with contractors, who have more experience with the process. “Usually facade companies have their own 'expeditors,' ” says Holtzman. “There’s different ways of pulling a permit. Anyone can walk in and submit plans, and have them go through various review stages with the city, but it can take weeks to get that done. It’s always advisable to use an expeditor, which you negotiate for with the contractor. Most of them have their own, and they walk the plans through the process, so if there are questions from the city, they address them immediately, and the process doesn’t slow down,”
Property managers also need to keep aesthetics in mind, especially if the building is older. “With a lot of historic buildings, there’s a real art to it,” says Wangler. “If you’re talking about replacing cedar boards, or replacing stucco, or doing tuckpointing you have to be careful. If you want a tuckpointer, you want someone who has experience in historic restoration.”
When it comes to older architecture, newer, cheaper materials can look very out of place. “There are some aspects to exterior work that require a lot of judgment, and a lot of material calls,” Wangler continues. “If you’re not paying attention or don’t know what to look for when they’re quoting, you might have materials that make the building look completely different.”
Property managers also become the main conduit of communication between contracted workers and unit owners. With the nature of exterior work, a lot of projects can disrupt everyday life for building residents. “For example, you don't want to have someone getting dressed inside, and there’s workers outside on the scaffolding,” says Holtzman. “So we create what’s called an action list. It's updated online every day, and unit owners can log in and see the status of the project so they’re fully informed. Depending on the size of the project, we may do something similar in the lobby of the building.” Updated websites with a fairly complete picture of scheduled work go a long way in keeping owners and residents informed of what's going on, and at least providing a warning of what they may be walking into when they get up in the morning and make it to the lobby.
“Even if windows are closed, there’s dust and dirt that can enter, so you want people to cover their personal property, or take pictures and things down if there’s drilling and tuckpointing. The vibration can cause damage inside. It’s important for management to monitor these things to keep the unit owners fully informed,” says Holtzman.
By properly vetting contractors before you hire them, and signing them to meticulously-detailed contracts, your building can ward off lawsuits—or at least mitigate damages if an incident does wind up in the courtroom. “Everybody’s going to have to carry a minimum amount of insurance,” says Carnahan. “Going above and beyond minimums might [mean adding] safety procedures. If you're doing a balcony renovation, discuss safety plans near the area, or the minimum safety standards that workers have. Of course we want companies who are going to be safe. We don’t want to have claims on any of our insurance policies.”
There are innumerable reasons why every general contractor, subcontractor or any other hired professional working in the building should be licensed. “You ask them to provide licenses,” says Wangler. “We don’t pay anyone unless we have their insurance policy and their W-9. Sometimes in a quote, they’ll quote providing the permit, and sometimes they’ll ask you to get the permit. It helps with a sophisticated project to have someone who’s worked in that particular area before on-hand. You’d want someone familiar with who the inspectors are and what the requirements are. If you have a contractor familiar with the codes, it makes the job smoother.”
Smaller co-ops and condos—especially those that are self-managed and perhaps less savvy in dealing with contractors—should demand to see the contractor’s license, not just take his or her word for it. Some contractors open for business have tried to fake their credentials by simply sticking a sign on their door, when they're not actually licensed with any department or recognized as a contractor.
Legal pros say that especially with larger projects, co-op corporations and condo associations should load contracts with an extensive listing of insurance requirements and limitations to the building’s liability. First, the contract must indicate the extent of the general liability insurance coverage the contractor must maintain. Second, it should require workers compensation insurance. There's also another possible layer of additional liability insurance. In addition, the contract needs to stipulate that the property owner—in this case, the cooperative corporation or condominium association—is additionally insured on the insurance policy.
Given the complexity of insurance and legal issues involved in contracted work in a residential building—and the high stakes—it's vital that a qualified attorney review all major contracts, so as to catch any sneaky fine print in the policy that could take protection away from the building.
For example, there could be a clause in small print that says the additional insurance endorsement applies only if the contract specifically calls for it. The contract should also include a “hold harmless agreement” ensuring that the contractor is going to hold the owner and the property manager harmless for any negligence on their part.
To be 100 percent sure the property is protected, insurance professionals recommend demanding an actual copy of the contract or policy, not just a certificate of insurance, and running the contract by the building's insurance broker.
If the contractor’s insurance doesn't include coverage for injuries to their employees, the insurance company won't pay the damages. In theory, the co-op or condo can go after the contractor.
When undertaking a lengthy project, the manager should keep a close watch on the contractor’s policy expiration dates. According to Holtzman, “Management monitors the progress of the work so that payout requests, lien waivers, so the payments don’t get ahead of the contractor’s work. If there’s a loan involved, the loan terms will dictate how those payments are made.”
If the building discovers that the contractor's insurance has expired, work must be suspended immediately. At that point, the pros say you might give the contractor a few days to produce an active policy. If they fail to produce that, send them packing.
Attorneys recommend including a termination clause in the contract to protect the building in case you discover mid-project that the contractor misrepresented their coverage from the outset. “Sometimes, say in a huge project like a roof, you have a 10% contingency that you leave out a couple months after the job is done just to make sure nothing goes wrong,” says Wangler.
In addition to provisions in the contract determining the scope of the contractor’s insurance, attorneys want to see an indemnification rider. If the contractor ends up doing something that is a result of negligence or intentional wrongdoing, you want to obtain indemnification.
The American Institute of Architects (AIA) issues contract forms that can be filled in by both parties for small jobs and used as the base document for larger jobs, to which riders can be negotiated and added. Beyond saving the building time and money, the AIA contracts are advantageous because they are informed by legal precedence.
One thing boards do not have to worry about is shareholders second-guessing their choice of contractors or the terms of contracts. The individual shareholder has no right to look at the documentation of the contractor, so when they are selected, the individual unit owners are basically allocating the responsibility of vetting and hiring them to the board alone.
In the end, even though a co-op or condo board member has a fiduciary duty to be at least conversant about the process of vetting and dealing with contractors, unless that board member happens to be an insurance or construction attorney, really knowing the intricacies of the relationship and its various potential pitfalls is a pretty tall order. Fortunately, there are legal and insurance professionals whose sole job it is to protect their clients—boards and buildings just like yours—from those headaches.
Steven Cutler is a freelance writer and a frequent contributor to The Chicagoland Cooperator. Editorial Assistant Tom Lisi contributed to this article.