The Phase I Elevator Decision

Serving on the Board of an H&R Block subsidiary with Henry Bloch (which is how his name was actually spelled), I got some good advice:  “You see, Wayne,” he said, “there are two things that Boards hate.  One is a surprise.  The other is an ultimatum.”

“And what you just proposed is both,” he observed after I finished my presentation.  “So, don’t be surprised if we are unhappy.”

I was reminded of that quip when Phase I Owners expressed concern and unhappiness after they learned that the HOA had authorized the “modernization” of all four elevators in Phase I in 2023 at a cost of $320,000.  I get it.  It is a shock, an unwelcome one.  It shocked me, too, when I learned it was needed.  It shocked the HOA Board when they first heard, and it shocked the Vigilance Committees for Phase I – both the 2022 Vigilance Committee and the current 2023 Vigilance Committee.

I told the rank-and-file Owners who recently raised questions and concerns that I’d share the full saga, and I predicted they’d agree with the decision when they had the full story.  This post is that report.

Here is the story in seven steps:

  1. Memo to the 2022 Vigilance Committee (link), dated October 11, 2022.
    Please read that memo closely as it concisely lays out the problem and the recommended solution.  The Vigilance Committee agreed to support the proposal at the Assembly, and we told Otis that we were likely to agree to their proposal.  Based on that expectation, and as further inducement and goodwill, they secured a “loaner” part in the aftermarket to fix the broken northwest elevator (which is reported inside this October 11th memo).
  2. November Assembly, November 5, 2022.
    First, David and I BOTH had misread the Otis proposal and mistakenly understood the price to be $133k for all four elevators.  The November 19th Memo (see the next item) explains how the mistake was made.  At the Assembly I had listed $133k for the Phase I Elevators on the slide for “major projects” to be approved at the Assembly.  However, I failed to actually bring up the “Reserves Spending approval” items for a vote.  So it wasn’t formally approved.
  3. Discovery of the Pricing Error, November 18, 2022.
    After November 5, David used what he assumed was the approval of the proposal to negotiate additional concessions, and Otis visited our HOA Office on November 18th to sign the contracts and pick up the initial deposit.  At that point, David realized the pricing mistake (explained in the November 19th Memo, below) and immediately called me.  We told Otis that we needed to reconsider things, and I immediately wrote a follow up memo to the HOA Board and the new Vigilance Committee for Phase I – see next item.
  4. Memo to the 2023 Vigilance Committee and HOA Board (link), November 19, 2022. Please read that memo closely as it concisely lays out the pricing error and the alternatives to be considered.  Luckily, we had a previously planned joint meeting of the HOA Board and the Vigilance Committees of all three Phases scheduled for December 2, 2022.  That agenda was originally meant to “discuss the 2023 plan” but this elevator decision was able to be addressed in a full meeting.  I felt very lucky to have advice and input from not only the full HOA Board, but also the 12 leaders from the Vigilance Committees representing the full Ownership group.  Between November 19th and December 2nd, the HOA investigated the alternatives available from Karu, checked references from customers who had replaced elevators with non-Otis brands and checked references from properties who had “modernized” their Otis elevators a few years earlier.  David gathered this information for consideration at the December 2nd meeting.
  5. Joint HOA - Vigilance Committees Meeting, December 2, 2022.  Needless to say, spending $343k from the existing $527k Phase I Reserves (as of 11/30/22) was deeply uncomfortable.  After much discussion, the Vigilance Committee decided to stick with Otis and asked the HOA to press Otis to allow us to commit to the contract at the quoted discounted pricing but space out the payment and the work over two years instead of one.
  6. December Negotiations. David took those marching orders and banged on Otis heavily over the next 10 days or so.  I summarized the results of that negotiation to the Phase I Vigilance Committee in this email and summarized the three options in this video annotation of this spreadsheet.  The bottom line was that Otis offered to reduce the price by a further $22k if we did all four elevators in 2023 (total $319,345) vs. spacing it over two years (at $341,427).  Further, if we opted for all 4 elevators in 2023, Otis offered some added incentives (“platinum” service for “gold” price and no charge for the $10,000 part they loaned us to get the northwest elevator working in summer 2022).  Even though this was a Phase I Vigilance Committee decision, I cc’d all three Vigilance Committees and the HOA Board in case they had any suggestions to help the Phase I Vigilance Committee make the decision.  The Phase I Vigilance Committee unanimously agreed to bite the bullet and do all 4 elevators in 2023.  The HOA Board also unanimously agreed that this was wise, and all the comments received from the other Vigilance Committees were fully supportive of that decision.
  7. Postscript. We signed the contracts on December 28, 2022, and paid the deposit.  Otis ordered the equipment and agreed to have two crews work on two elevators simultaneously – doing one tower and one elevator in the main building in one month, and the other tower and final elevator during the next month.  (Each elevator upgrade takes the best part of a month.)   That way, the main building will always have at least one elevator working.  As soon as we have the exact dates, we’ll let the towers know when they will be without elevator service.  That way they can avoid being here or warn renters or other guests.

Frankly, I believe the Owners were extremely well served by the Vigilance Committees here.  I truly believed that service on the Vigilance Committee was only going to take about 8 hours per year … and they have had to spend all that time on just this issue!   And a surprise and an ultimatum to boot!

Personally, I apologize for a) misreading the bid and reporting a too-low number as the cost of the upgrade and b) failing to get proper authorization from the November Assembly.  That imposed a lot of extra work on the Vigilance Committees and the HOA Board.  Remember, all these folks are volunteers; so, if you see them, be sure to thank them.

The good news is that we will have brand new elevators in 2023 – probably good for another couple of decades.  The other good news is that we are adding over $90k to Phase I Reserves this year, so that Reserve account should end the year at just under $300k, less any unplanned needs arising this year.  (See Everything You Wanted To Know About Reserves to learn more about how Reserves are accounted for.)