By Mike Barclay, Reconstruction Experts
The spring months of May and June typically bring severe weather to Colorado. Hail can cause catastrophic damage to an HOA community. Often after a storm, many community association managers are left wondering how to handle a claim. The common thought is to "get 3 bids." Getting 3 bids is fine for a conventional HOA construction project, but NOT for an insurance claim. Bidding out insurance work is a disservice to your HOA.
When an HOA suffers an insurance loss- such as fire, flood, or storm damage- the best solution for the community association manager is to help the HOA select a qualified general contractor and forego the bidding procedure. By requesting 2 or 3 bids from different contractors, the manager runs the risk of undercutting the scope of work to which they are entitled. Scope of work is a crucial element when describing how insurance companies compensate policy holders to restore their property to pre-loss condition, as stated in most policies. Most people don't understand or aren't aware that insurance companies all use the same software to determine pricing. It’s called Xactimate. Xactimate has a predetermined agreed upon price for every aspect of restoration, dictated per region, which is updated regularly to reflect current market value of labor and materials. What this means is price doesn’t matter when it comes to your claim. Scope of work, however, does. When it comes to price, the HOA only needs to cover their deductible. Sometimes HOAs think they can bid out their insurance work and pocket the “extra” money. This is fraud.
A good general contractor will focus on creating the most comprehensive repair plan, while the competitive bid process focuses on price and quickly becomes a race to the “bottom-of-the-barrel.” When contractors know they will be placed in a competitive bidding situation, they will tend to keep their scopes to a bare minimum to keep the price low and win the job. The most frequent means of keeping a scope lean is by repairing items that would normally be replaced, and these items should have been included in the comprehensive scope of work. Scope gap and/or scope lean could easily cause premature failure and construction defect issues in the future.
When selecting your contractor, ask 2-3 general contractors to present/interview with your HOA Board of Directors. Simply ask the contractors the following questions:
1. What’s your experience with HOA hail claims?
2. What’s your insurance coverage?
3. How would you approach our project?
4. Do you have HOA references?
These simple questions will help your board choose the most qualified contractor.
The storm on May 8, 2017 caused $1.4 billion in damages in Colorado according to the Denver Post. An estimated 200,000 claims were filed. This made it Colorado’s costliest storm ever. Be wary of out-of-state “storm chasers” looking to get a piece of the pie. When a large hail event hits Colorado, many contractors from surrounding states head our way. Often these contractors are not qualified to handle large HOA insurance claims and perform subpar work that leads to roof leaks. And once they get their money, they are gone. Often they do not honor their promised warranties and HOAs are left footing the bill to fix their shoddy work. Bottom line, your best bet is to keep it local.
Community association managers need to be aware that insurance fraud has many faces. Common types of fraud are:
1. The contractor offers to pay for the HOA’s deductible
2. The contractor offers to trade advertising for the cost of deductible
3. The contractor offers a coupon or voucher towards the HOA’s deductible
4. The contractor offers to split their profit with HOA
5. Contractor promises kickbacks
6. HOA bids out project and pockets the rest of the money
Beyond finding the right contractor, focusing on a comprehensive scope and not falling victim to fraud, community association managers also have juggle helping their HOAs fund their deductibles. Most insurance companies that offer insurance to HOAs no longer offer flat fee deductibles of $10K, $20K, etc. Instead, the deductibles are percentage based. They can be 2%, 5% and even 10% of the insurance company’s estimated replacement value of the entire property. This is not to be confused with the amount of the claim or the market value of the property. Many times a homeowner’s HO6 Policy will cover their portion of the deductible. Many community association managers regularly urge homeowners to purchase HO6 coverage.
Insurance loss- such as fire, flood, or storm damage is a certainly a reality for Colorado association managers and HOAs. The next time one of your communities is dealing with a claim, remember- qualify and select your contractor and focus on a comprehensive scope and not 3 bids. In a time when deductibles are high, your HOA will thank you for getting them everything they deserve.
Mike Barclay is the Colorado Regional Vice President for Reconstruction Experts, and has over 20 years of reconstruction and restoration experience. Mike manages the overall success of the Colorado Branches by pushing Reconstruction Experts towards the highest level of professionalism and expertise.