Nonprofit owners: a board that reads the report once a quarter

A community arts center, a regional food bank warehouse, a new wing on an independent school. The owner is a nonprofit that has never built before and will probably never build again. The money came from a capital campaign with named donors, the board meets four times a year, and the person who signs the pay applications is the executive director, whose day job is something else entirely.

The GMP contract does not care about any of that. It moves at the same pace it would for a developer with a construction department, and the owner's record has to keep up with it even though the readers of that record only look every ninety days.

Two clocks

The contract runs on a monthly clock: pay application, contingency draws, change orders with notice periods measured in days. The board runs on a quarterly one. The gap between them is where nonprofits lose money, because a decision that needed an answer in three weeks waits for a meeting that is eight weeks away, and the contractor proceeds under the contract's default.

The practical answer is a small building committee with delegated authority up to a stated amount, and a record that lets the committee see what it is deciding. On a fictional $9.4 million arts center, the board might delegate change orders up to $25,000 to the committee and require board approval above that, with the committee reporting every item at the quarterly meeting regardless.

What the quarterly reader needs

A board member who reads the report four times a year has forgotten most of the last one. The report cannot assume continuity. Each quarter it should restate the GMP, the anticipated final cost, the two contingency balances and the total campaign budget against which all of it sits, before it says anything about the quarter.

Then the quarter: the change orders executed, by cause, with the owner scope ones named as the board's own decisions. The allowances reconciled. The buyout position. And the one question a nonprofit board always asks, which is whether the project will finish inside what was raised. That is the anticipated final cost against the campaign total, including the owner's soft costs, and it should be a single line with a yes or a no beside it.

Donor restrictions and the ledger

Nonprofit money often comes with strings. A gift restricted to the performance hall cannot pay for the parking lot. When a change order moves scope between spaces, the ledger needs to know which fund the change draws on, not only which contingency. Recording the campaign fund alongside the cause on each change is a small extra field and it saves an argument with the auditor in year two.

The monthly record behind it

The quarterly report is only as good as the monthly record it summarizes. Somebody, usually the executive director or a hired owner's representative for a few hours a month, has to keep the ledger current: the pay application read against the schedule of values, each contingency draw entered with its reason, each change order with its cause and its event date, each allowance with its status.

That is perhaps a day a month on a project this size. It is the day that decides whether the quarterly report is a record or a reconstruction. A record can answer why the projection moved. A reconstruction can only say that it did.

The executive director's exposure

The person signing the pay applications is certifying, in effect, that the work claimed has been done. On a nonprofit that person usually has no construction background and is relying on the architect's certificate. That is reasonable and it is what the certificate is for. It is still worth the director having a one page check each month: does the percent complete on each line look plausible against what was seen on the last site visit, does the contingency draw have a stated reason, has anything moved that was not discussed.

The point is not to second guess the architect. It is that the director will be the one explaining the numbers to the board, and a director who has looked at them monthly can explain them. One who has not will be reading the report aloud.

After the ribbon cutting

Nonprofits close out badly, because the campaign is over, the building is open, and the attention has moved on. The closeout reconciliation, where the savings pool is split, the last allowances are settled and the retainage is released, is where the last of the campaign money is decided. The board should see a closeout report as a separate item, with the final anticipated final cost against the final GMP and the campaign total, and the ledger should be kept until it is accepted.

In the product

Monthly owner report, Change order register, Contingency ledger. Free tool: Pre-GMP Readiness Score.

Keep reading

Earlier: Reporting a bad month: how to put an overrun in front of the board. Later: Self-performed work inside a GMP: how the owner reads a package the contractor gave itself. All articles on by owner type.