Charter School Facilities: A Resource Guide on Development and Financing

Introduction

Facility
Development

Needs
Assessment

Site
Selection

Construction/
Renovation

Appendix A
Appendix B
Appendix C
Appendix D
Appendix E

The charter school operator who finds a site that perfectly meets his/her needs without any repairs or renovations enjoys a tremendous amount of luck. Unfortunately, not all charter schools are so lucky. No matter how minor the construction/renovation work on your facility, it is helpful to have a general understanding of the issues related to construction and renovation.

There are a few general rules about any size construction/renovation project:

Remember Murphy's law? Even the smallest project can take two to three times longer than expected. You may need a permit that could take longer than expected, materials may not be available, workers may be busy on other projects, not to mention unforeseen construction glitches. Always give yourself plenty of time to plan and complete any construction/renovation project.

If the timing of a project is delayed, you can be sure the costs will increase. Even when timing is not an issue, construction/renovation projects have many unknowns and the costs are somewhat unpredictable. Get solid information on costs up-front. Don't rely on one estimate - get at least three. If one contractor is proposing to do the work for significantly less than other contractors, research the details. Find out what is included in the bid and the quality of the contractor's work on other projects. Many charter schools have been attracted to low-cost contractors, only to find out it is more expensive in the long run when they have to repair poor-quality work.

Every construction/renovation project needs a point person who can make decisions as they arise. This responsibility can be covered by a staff member or the charter school director if the project is relatively small. Larger and complex projects may benefit from an expert who is retained as the project manager (see Section III) and who can devote a considerable amount of time to project oversight. Either way, the charter school should make sure that its internal process does not further complicate the construction process and that construction in turn does little to disrupt the school's planning and preliminary operations.

Above are two examples of project budgets. Sample budget "A" is for the acquisition and renovation of a building. Sample budget "B" is for minor repairs to a space leased by a charter school. No matter what the size of the construction/renovation project, charter schools should carefully develop a budget for the project, and constantly update it. See Appendix C for a model capital budget.

Every project budget should have some common elements. First, operators should be careful to only include costs associated with the facility. The project budget should be separate from the school's operating budget. This will allow you to track in greater detail the items in the project budget and the funds that will be used to pay for them.

Uses of Funds
This section should be as detailed as possible. Until you have accepted a contractor's bid for the work to be done, use your best estimates of how much each item will cost. Break categories into the smallest sections possible because this will help you estimate the real cost of the project. Always include a contingency amount, which is a percentage of the total costs added to those costs for unexpected expenses. Having a contingency budget item is extremely important.

Construction/renovation costs will vary considerably from project to project. Use the sample budgets as a guideline, costs will vary in your local area and depending on your project.

Beware of hidden costs in your construction/renovation project. Sample budget "A" shows soft costs related to the project which many schools forget to include. These costs can be a substantial part of your project budget, especially if you are doing a large project or building a new building. Other costs that are often forgotten are moving expenses, expenses associated with informing people of the new location, new phone systems and security. Also, don't forget about computers, desks, furniture and other capital expenses. They may be separate from the construction project but they still require funds.

Sources of Funds
Once you know how much money you need for your project, the budget should show how you will pay for it. Many charter schools prepare a budget by starting with the source of funds and then seeing what it will buy them. Avoid this practice if at all possible. You will be better served by determining how much money you need under different scenarios (minor repairs to meet code, major repairs to make the space more comfortable, gut rehabilitation to custom build a space to your needs) and then determining what sources of funds you will use to pay for them.

Note the availability of your sources of funds. Do you have the funds on-hand right now? Will they become available at a later date? Is there any uncertainty about receiving them? If you do not have all the sources of funds available right now, talk to your architect about whether there is a way to do the project in phases so you can complete what you have funds for now and finish the rest later. Doing a project in phases can be a good way to do only what you can afford, as you can afford it, however you should make sure this makes sense for your facility. Some projects are not conducive to doing in phases, for instance, the replacement of a roof must be done all at once.

You should anticipate that contractors will want to be paid within 30 days of completing their work. If your sources of funds will not be available on that schedule you should negotiate a different payment plan with your contractors in advance or scale back your project to meet the availability of funds.

Budget Revisions
Your project budget is not set in stone. As your project evolves, the figures in your uses and sources of funds will change. Remember to update your budget frequently. If costs come in lower than expected you may be able to use the savings on other items not budgeted, or you may wish to keep the savings for operating expenses. If costs come in higher than expected you will need to find additional sources of funds.

It is important to assemble a team to deal with a construction project, unless it is very small. There should be a team leader who coordinates all efforts and has authority to make final decisions. A good model is to establish a regular project team meeting on a recurring basis - possibly once a week. One member should take notes and distribute to the rest of the team. This system will help maintain communication among the team members and hopefully avoid problems during the construction/renovation process.

The team could be made up of the following:

School Primary Contact Person
At least one school staff member should be on the team, possibly the school director. Be careful to assign someone who will have time to attend meetings and review the work of contractors.

Architect
The architect should be added to the team as soon as possible. Choose an architect with whom you feel comfortable - you will need to work closely with this person. Understand the payment arrangements up-front and make sure the architect will be able to make the kind of time commitment you need for your project.

Beware of the mistake of surrendering everything about your project to the architect, or any other professional you retain. The professionals you involve may be experts, but it is up to you to analyze the information they give you and make the final decisions. The charter school must remain an active member of the team in order to achieve the best facility for its program.

Tips for choosing an architect:

Interview several before making a final choice
Get recommendations from other charter schools, other non-profits, or a local chapter of the AIA
Check professional affiliations
Be realistic about how much you can afford to pay and tell them
Check http://www.aiaonline.com

Project Manager or Owner's Representative
This person is someone a charter school may retain to coordinate all aspects of the project. This manager could have a variety of technical backgrounds (architect, builder, inspector, real estate professional). As noted in the Needs Assessment section, this person should be involved throughout the entire facility development process, from needs assessment to completing necessary renovations and opening the school. A project manager may be especially useful when involved in a renovation project where the architect is needed only for a small component of the overall project.

A charter school may choose to delegate a great deal of decision-making to a project manager they trust, however the same warning about surrendering to the experts mentioned above still applies.

A project manager's prime responsibility is to protect the interests of the school. Make sure you find someone knowledgeable who will not stand to gain from any decisions you make, such as the selection of a particular architect or general contractor.

Tips on choosing a Project Manager:

Check with other charter schools
Interview several before making a final choice
Check for relevant experience on similar size projects, and with zoning and permitting issues

General Contractor
The contractor will be a key member of the project team. A general contractor will coordinate all aspects of the construction/renovation work on your project, hiring electricians, plumbers and carpenters (the sub-contractors) and making sure the work gets done. A general contractor can be selected many different ways, discussed below in the next section.

The general contractor ("GC") should be an active member of the project team and should be present for all team meetings once selected. At these regular meetings the GC can report on the progress of work done and costs incurred. It is important to communicate regularly with the GC so that building issues or questions can be discussed and resolved quickly.

Attorney
Unless the size and scope of your construction/renovation project is especially small, you will probably need an attorney involved in the project team. Your attorney will represent your charter school on all legal issues involved in the project and can be extremely helpful in protecting your school from liability. The attorney will be heavily involved in the beginning of your project (acquisition of land or building, negotiation of leases and zoning, permits, construction and architect agreements, etc). Those schools that are considering the acquisition of land or buildings should consult with an attorney as soon as possible.

Operators will want to select an attorney with appropriate experience in real estate. Be careful with volunteer attorneys who are not familiar with this area of the law. Board members who are attorneys can be helpful, but the same suggestion applies - make sure they have relevant experience. Charter schools do not want to be the laboratory for an attorney to learn about real estate law. In addition, find out if your proposed project involves any subspecialties of law and find the appropriate attorney. For instance, if you are buying unimproved land for your facility, a land attorney specifically may be needed.

Throughout the facility development process, operators will be entering into contracts with various professionals and should know what their rights, obligations and expectations are in each case.

A contract is a legally binding agreement between two or more entities where there are benefits received by both sides (for example, the charter school may receive the benefit of an architect's services and the architect receives a fee). Well-written contracts will prevent disagreements later. Don't fear lengthy documents - the longer the contract, the more need there is for issues to be addressed in the beginning. Think twice before you sign a contract that says merely: "Contractor will install new sewer system - cost $80,000; 50 percent deposit; balance payable on invoice."

You will enter into a contract with each of the professionals you hire for your project. Be sure to review each contract carefully before you sign it. Make sure to read the fine print and ask questions about anything that doesn't make sense. If you hire a project manager, he/she should be able to help you understand the contents of each contract.

What Every Contract Should Include:

The parties to the contract
The purpose of the contract (e.g. To retain the services of a project manager)
The scope of the agreement (e.g. To assist with site selection, selection of contractors, monitor construction and oversee move-in)
Roles, duties and responsibilities (e.g. Attend all project meetings, inspect all construction work, etc)
The time of performance (e.g. Deadlines, start and end dates)
Compensation
Dispute resolution
Termination clauses

The following chart summarizes different bidding processes and contract types:

BIDDING	PRO	CON

Competitive Bid Provide specifications of the work to be done to several GCs. Each responds with a bid of how much they will charge if you select them.	encourages lower prices allows you to compare prices gives more GCs a chance to win your business	may allow GCs to under-estimate costs to win the bid, and work may not be completed for stated price can be lengthy process to develop specifications and oversee bidding process

Negotiated Bid Select a GC you want to work with, negotiate the price of the work (no bidding).	is faster than bidding may get more realistic final cost	doesn't allow comparison to other GC's may not get lowest cost

CONTRACTING	PRO	CON

Stipulated Sum (Lump Sum or Fixed Price) GC submits a fixed price for the cost of the work. Any changes are billed separately through a change order, i.e., any change to the fixed price amount of the contract is made through a change order.	provides a fixed price for the work stipulated allows changes not anticipated at a specified amount to be approved requires complete and final set of plans	could incur significant additional costs when changes approved, if original contract was not complete or specific enough. (Note: this can be true for all contracts) is not feasible for fast track projects or design build projects

Cost Plus a Fee with a Guaranteed Maximum Price GC submits a guaranteed price that includes provision for a managing fee, i.e., for the GC to earn a fee for managing the project. Any change to the contract amount requires approval via a change order.	allows more negotiation over what work will be completed and costs of work provides charter school with greater control can include, and usually does, a "sharing in the savings" clause is feasible for fast track projects	allows for incomplete plans, which could be a negative in the long-run may be much more expensive for the school since costs include best "guestimate" in the form of allowances

Time Plus Materials GC charges for each task completed (labor and materials) and there is no set price.	allows project to be completed piece-by-piece	encourages GC to create more work to be done provides no absolute figure for budget requires heavy monitoring by charter school

Bonding
For many charter school facility projects, requiring the construction firm to be bonded will be a good idea. Payment and performance bonds are financial guarantees by a surety company. The payment bond guarantees the payment obligations for labor and materials for the project. The performance bond guarantees that the contractor will complete the job according to the contract. If the contractor were to fail to complete the project or pay for the labor and materials provided by subcontractors, the surety company would be responsible at its own expense.

The cost of bonding is usually passed on to the developer (in this case the charter school) in the construction bid the contractor gives. Contractors obtain bonding after being analyzed by the surety company. As a general rule, the cost of bonding is one percent-two percent of the contract amount. The insurers thoroughly review the contractor's experience, equipment, financial resources and the quality of their subcontractors. If a contractor can obtain bonding it is often a sign that the firm is stable and reliable, although charter school operators should not use this as a proxy for their own evaluations of a contractor.

Change Orders
When something unexpected arises outside of what is included in the fixed price contract or the GMP, the charter school will have the opportunity to approve a change order to include the item in the contract. For instance, a school worked with an architect to develop specifications for a competitive bid for the renovation of a building. A GC was selected and a contract agreed to. The contract included the cost of repairing the roof, but it did not anticipate repairs to a brick chimney. During the construction process the GC discovered the problem with the chimney, brought it to the school's attention and quantified the cost of repairing it. The school then had the option to repair the chimney for the quoted price, or not. Keep in mind that the older the building and the more extensive the renovation work needed, the higher the likelihood of incurring change orders.

Contingencies
Early sections discussed the need to budget for contingencies. The above example of the chimney repair is precisely the reason for budgeting for contingencies. Neither the school nor the architect anticipated the condition of the chimney. Every project needs funds set aside for unforeseen eventualities.

Retainage
A common practice in construction/renovation projects is to withhold a percentage of the amounts due to contractors until the end of the project to insure completion. The amount withheld is called retainage. Customarily 10 percent of the contract amount is held as retainage until the entire project is complete. For instance, a carpenter working on a project for two months might submit an invoice after the first thirty days for the work completed to that date. The school makes a payment of 90 percent of the invoiced amount and withholds 10 percent as retainage. At the end of the second month when all the carpentry work is done, the school could pay 100 percent of the invoice for the second months work, plus the 10 percent withheld in the first month. Arrangements for retainage should be negotiated up-front.

Depending on your local jurisdiction, your facility will be subject to several different regulatory bodies. Navigating these processes can be time consuming and in some cases may present significant challenges to your project. In some areas opponents of charter schools are using zoning and building code issues to try to block schools. Be aware of the process in your local jurisdiction and be prepared to marshal all the resources you will need (i.e., public and political support, media attention, etc).

Zoning
The local zoning authority regulates property use. Properties have zoning designation, such as residential, commercial or industrial. If the zoning of the proposed facility you wish to use does not allow for the education of children in its space, you may need to present your case at a zoning hearing to have the designation changed (you will need a variance from the zoning designation). These issues will vary considerably among jurisdictions, so operators should work closely with their architect or project manager to identify these issues and work toward resolution.

Planning
If you are constructing a new building, you may need approval from a local planning authority before work can proceed. This body may request changes to your plans, the preparation of which can add time to your development process. This will be a major responsibility of the architect.

Building Code
Each jurisdiction will have building codes regulating safety issues in your facility. You must comply with these regulations in order to receive a certificate of occupancy to legally occupy your facility. In some jurisdictions, charter schools are exempt from some of these regulations because they are classified as part of the school district, which maintains its own standards. In other places, you may face additional requirements because you are a school. You should consult with your architect or project manager to determine local requirements. Talk to someone knowledgeable about charter schools to determine what specific exemptions or constraints apply to you.

Building codes regulate:

Structural and foundation loans and stresses
Construction materials
Fireproofing
Building heights
Ventilation and air conditioning
Plumbing fixtures and installation
Electrical installation
Heating system construction and equipment

Overseeing the construction/renovation process can be a difficult proposition. For first-time developers, the complexity of the process can be intimidating. For experienced developers, the process never fails to teach you something new each time. Clear communication and good planning can help the process go more smoothly.

1-3 MONTHS	2-4 MONTHS	6-18 MONTHS	1 MONTH

Planning and Design Study of available space Preliminary floor plans and drawings	Approvals and Contracts Final drawings Construction specifications Zoning approval Preparation of RFP's Bidding Interviews and selection of GC Sign contract	Construction Permits Review by fire marshall, engineer Excavation/ demolition Building construction/ renovation Team meetings	Punch List Final details Certificate of Occupancy Move-in

The first phase begins when you start working with your architect on the planning and design of your facility. Construction of a new building will require more in this stage than a moderate rehabilitation of an existing building.

This phase is often the toughest because it is the point at which your vision for your facility must mesh with contractors and regulatory agencies. Your initial plans may need to be modified for cost or regulatory issues. You may also discover at this point that your project is not feasible at all.

At this point your architect needs to produce precise specifications of all the work to be done so that the project can be approved by regulatory agencies and put out to bid. You will prepare a request for proposals (RFP) to which the contractors will respond. Your RFP should outline the work to be done with as much precision as possible. You may want to interview the contractors before you select the one you are going to work with.

Once construction begins, the use of the project team meetings becomes central to a successful project. In addition to approving invoices for payments and inspecting work completed, these meetings will provide an important forum for the school and contractor to communicate about design issues and problems.

The construction contract will detail how payments will be made. Many contractors will invoice once every 14 or 30 days. It is important that the architect, project manager and a school representative sign-off on all work completed. This must include a visual inspection of the work. It is important not to advance funds before work has been completed and inspected.

At the time of each progress payment you should review your project budget to monitor actual costs versus what you budgeted. If there are change orders to the contract you may need to allocate additional sources of funds.

At the end of your construction/renovation project all the major work will be completed and what remains is called the punch list. These are the final details such as installing minor fixtures, painting touch-ups and clean-up. This is often when contractors lose interest in a job, so keep your list of punch items and make sure they are completed. (This is the time when holding a 10 percent retainage can insure that the contractor finishes all those little details).

You will receive your Certificate of Occupancy (CO) once all work has been completed and local inspectors can review your project's compliance with safety, fire and building codes. You will not be able to occupy your facility until you get your CO.

This is also the time when you will need to move furniture and equipment into your facility. Teachers will want access to their classrooms and computers may need to be set up. You should leave adequate time for all these activities, although this is not always possible.

Even experienced real estate developers experience problems during construction/renovation. Here are a few to watch out for:

Delays
As mentioned in the beginning of this section, never underestimate the time involved in a construction/renovation project, no matter how big or small the project is. Plan for delays, have contingency plans in place in case you are not able to open school on time. The timing of material shipments, the weather and labor shortages - all contribute to uncertainty around the construction/renovation process.

Poor Workmanship
Unfortunately the work completed is not always up to standards. The best way to prevent this is to retain an experienced project manager or architect who can spend considerable time on-site during construction to monitor quality. Check your contract and understand your rights and responsibilities.

Unauthorized Work
Particularly with renovation projects, a general contractor may feel it is necessary to do work not specified in the contract. The GC may feel this work is central to the overall project, however the charter school paying for it may disagree. The main way to avoid this problem is with a fixed price contract where the school must authorize all changes (change orders) to the contract. If the school does not authorize a change, it is not obligated to pay for the work. Regular project meetings and a diligent project manager can also prevent this problem.

Contact the local chapter of the American Institute of Architects (AIA) for a listing of area architects or check http://www.aiaonline.com.

The School Design Primer, The Little Institute for School Facilities Research, 1996. Contact The Little Institute for School Facilities Research, 5815 Westpark Drive, Charlotte, NC 28217.