At Facilities Advisors we have always recommended that associations perform regular preventive maintenance activities and inspections. Others within our industry also recommend performing regular maintenance but we have observed that their advice is generally so vague as to be ineffective. While the performance of preventive maintenance activities is being widely touted, few within the industry are recommending that formal maintenance plans be created. Without the maintenance plan being in place first, any maintenance activities will likely be much less effective.
- Most people in the industry are recommending regular reserve studies as if this will resolve the problem. While this is a good recommendation, one must be careful to understand the limitations of the reserve study process. The reserve study is a budget that is intended to cover Major Repair and Replacement (MRR) activities only, and should be a reflection of the maintenance plan. Unfortunately, in too many cases the reserve study (a) fails to consider whether or not adequate preventive maintenance activities have been performed, and (b) fails to include all long-lived components, such as plumbing inside the walls. These long-lived components are generally excluded because most reserve preparers believe they do not meet the “four-part test” of the standards they follow, as the remaining life of these components is not predictable. In fact, the four-part test acts as an artificial limitation in the reserve study process.
Recognize that (a) without a maintenance plan and (b) by excluding long-lived components, the reserve study, under the standards followed by many reserve preparers, has effectively been designed as an incomplete process and, as a result, will result in underfunding of reserves and will likely result in special assessments at some future date.
The maintenance plan guides the association regarding what maintenance procedures should be performed. The irony of our community association industry is amazing. We are an indutry where the primary obligation of the association is to maintain the common areas of the association including condominium buildings. But these buildings don't come with a maintenance plan. Compare this to when you buy a new car, where the manufacturer provides you with a complete owner’s manual recommending scheduled maintenance for the theoretical life of the car. The owner normally doesn’t need to fully understand the mechanics or electronics in modern cars but does need to take the car to experts for service on a regular basis. A high-rise condominium is far more expensive and complex than a car, but it doesn’t come with an owner’s manual. The governing body and management of a condo association are generally not qualified to identify what maintenance activities should be performed. In practice, this frequently creates large gaps in the maintenance process. A comprehensive maintenance plan fills this gap by effectively creating an owner’s manual for the condominium building.
Following this same “car” comparison, let’s see how that applies to the reserve study process. The reserve study financial projection is based on a limited scope, diligent, visual observation of components. When applying this concept to the car, the reserve preparer can observe the paint, the tires, and the upholstery, and can pop the hood to observe the belts and hoses. While these are all important observations, they cannot tell the reserve preparer if the oil was changed when scheduled. This is a significant problem because changing the oil is arguably the most important maintenance activity; if it is not performed, catastrophic engine failure can result. Without knowledge of a formal maintenance plan, the reserve study is based on assumptions of activities performed - and those assumptions can be significantly inaccurate.
To avoid incorrect assumptions in the reserve study process ICBI (International Capital Budgeting Institute) developed the concept of the “Reserve Management Plan” level of service for reserve studies (the process we follow) a collaborative process between the reserve preparer and the association. In this process the association provides the reserve preparer with their actual information on reserve expenditure timing and costs, shares vendor or contractor recommendations, bids or estimates with the reserve preparer, and informs the reserve preparer of their own plans for future expenditures. This allows the reserve preparer to consider this unique association information in applying his or her own professional analysis in preparing the reserve study. The reserve preparer never surrenders their independence in this process, they simply use the information obtained as part of the process. The result is normally a more accurate reserve study. This is contrasted with the “Independent Reserve Study” approach used by most reserve preparers (all those who are not ICBI members) which reflects only the reserve preparer’s opinion without the benefit of or consideration of the association’s unique information.
Too many associations have relied on reserve studies as guidance for their maintenance activities rather than creating formal maintenance plans. It’s imperative that associations understand that a reserve study is not a maintenance plan. A reserve study is simply a budget that is supposed to be based on a maintenance plan that includes both operating and reserve (MRR) preventive maintenance activities. The reserve study only considers the MRR activities and, as stated above, standards followed by many reserve preparers causes them to exclude certain long-lived components or activities that don’t have a predictable remaining life.
We recommend that all associations engage a competent professional to prepare a formal, customized maintenance plan. Creating a maintenance plan is a one-time process that will probably cost more than a reserve study. While it is generally not possible to directly calculate the return on this investment, savings in long-term maintenance costs will undoubtedly be many times the cost of creating the plan. This maintenance plan will help guide associations in performing appropriate maintenance activities and can possibly help prevent future catastrophic building failures.
It will still be necessary to perform reserve studies even after formal maintenance plans are developed, but the proper on-site component analysis of the reserve study then shifts from creating the component list to verifying and evaluating components in light of the maintenance plan. The on-site analysis may also include recommending modifications to the existing maintenance plan as experience may indicate that some initial assumptions, usually based on industry averages or warranties, do not directly apply to a specific association.
Let us prepare a formal maintenance plan for your association. Please contact Facilities Advisors CEO Gary Porter at (702) 605-2394 or