4/4/2007

The is the second installment presenting opposing views on construction of a new Ocean Pines Community Center.

AGAINST:
This week's column, as promised, is by Ed Moran, who came to Ocean Pines in 1985 as an advisor to Chase Bank. He negotiated the second Turnover Agreement and the sale of the Sports Core property to the Ocean Pines Association (OPA). He has been a part time homeowner here for the last 15 years. - Marty Clarke

A series of mistakes
By Ed Moran

The proposed community center is a mistake; actually it's a series of mistakes. Let's start with its size. The building, its parking lot (determined by the size of the building) and the runoff ditch will occupy over an acre of valuable commercially zoned land (which is an OPA asset in its present form.) The method of financing the construction was a mistake, maybe more than one mistake. Seeking to pay the bill by selling real estate of uncertain value leads to two unknowns. How much will the project finally cost and how much will the real estate bring? Compound that mistake by not putting the land up for sale immediately just makes matters worse. (Suppose the real estate market softens?  It did.) This is a capital project and it should be financed by long term debt repaid from assessments on present and future users.

Reviewing the literature from the 2001 referendum and the prospectus for the 2005 referendum is interesting. The 2001 referendum was for a 28,000 square foot building at a cost not to exceed $5 million. Four years later, 29,000 square feet was anticipated to cost only $3. million. The 2001 referendum expected to finance the project with a $54 to $60 annual special assessment to spread the cost into the future; the 2005 referendum implied that the project would be free of present or future capital cost. The first referendum lost by 800 votes; the second won by 200. The building, purpose and location were the same but now it was free. Whereas 2005 also had a high-powered marketing campaign; 2001 had little. The 2001 document talks of an auditorium, the 2005 document talks of two multi-purpose rooms suitable for cultural events and concerts. In the meantime, the Pines Players have gotten religion and moved to the church down the street. In July 2005, the prospectus stated that the community is "too polarized" on whether we need or can afford an indoor pool. The following year, the board approved one without a referendum on this polarizing subject. The literature for both referenda decry the condition of the present community center but six years later, nothing has been proposed to rectify its condition or to recognize the fact it's an integral part of the firehouse.

So mistakes were made and mistakes have consequences. Failing to examine the root causes of the mistakes or previous failures just adds to the misery. Here's a thought:
a) Scrap the building plans.
b) Sit down with a contractor and work out a fair and reasonable settlement.
c) Redraw a smaller building with one multipurpose/ gym room.
d) Make it two or even three stories and incorporate a new firehouse about where the old one stands.
e) See if you can get out of the present contract to enclose a perfectly good outdoor pool. (You're proposing to build more meeting space for a growing population but simultaneously eliminating one outdoor pool.)
f) Include the indoor pool in the new building.   
g) Explore possible financing through long term debt. We've got a good credit rating and a proven stream of income.
h) "Invite local construction experts to weigh in as well" as promised but not delivered in the last prospectus.
i) Put the marketing muscle displayed in '05 behind it and it might work.
Do the math: $5.4 million, new community center (cc); $950,000, pool cover; $1.5 million, cc/firehouse fix equals $7.850 million. A nice sum for construction - and an acre of prime commercial land still on the books if you do it all in White Horse Park.

Nothing is accomplished these days nationally or locally without building coalitions. The last referendum ignored the complaints and suggestions of several constituencies that had adamantly opposed the 2001 referendum but might well have been willing to compromise on a smaller meeting space pool/gym/cc/firehouse solution. They were never invited to the party, and that's the biggest mistake.

______________________________________________________________________________________

FOR:
Community Center Referendum-Dollars & Cents
By Tom Olson
Ocean Pines Association General Manager

In our last report, we defined the issue that is before the Ocean Pines membership.  It centers on the $1.5 million difference between the amount approved in the August 2005 referendum and the current estimate of $5.4 million.  Activities by the Association during the last eight months include; designing the Community Center, bidding of site work and generally getting the project started.  The Board was within weeks of obtaining building permits that would have triggered a 12 month construction timetable imposed on the contractor to complete the building. Contracts have been approved by the Board and signed with the construction management firm and the general and site work contractor.  These contracts are American Institute of Architecture Contracts commonly used in commercial construction projects.  The specific type of contract used is a "design/build contract" where the Association avoids the cost of retaining an architect to design the building on their behalf.  Instead, the design is made part of the contractor's obligation based on project specifications prepared on behalf of the Association.

There has been some confusion on the part of those debating how much the Association would be obligated to pay if the membership voted to disapprove the referendum question.  I'll break the cost down into two general categories.  The first category is funds expended to date, the second will be additional obligations resulting from contract cancellations.  Funds expended already total $352,230.   Here is a list of the vendors and the amounts paid:
 
Funds Expended to Dated
Vendor                                 Amount Paid
Design Atlantic                    $  97,257
SPN                                      $157,159
Soule'                                   $  50,523
Hillis Carnes                        $    4,480
Worcester County                 $       300
Richardson Auctioneers        $  11,612
OPA Labor Costs                  $  25,000
Misc.                                     $    5,899
Total                                     $352,230

The amounts presented above are actual dollars paid out.  They do not reflect however all obligations related to the Community Center project.  This second category is called Contractual Obligations.  It is important to understand that when an organization engages in a contract, certain promises and assurances are conveyed.  In our case, the contractor, Blades Construction, is making a promise to design and build the building in accordance with specifications outlined and the Association is promising to pay the contractor for their efforts.  We have also contracted with Blades to do the site work for the project. Since last August, Blades has been working with their architects and structural engineers to develop designed drawings for construction purposes.  Blades has incurred $225,000 in design fees to date.  The Association has not paid Blades for these services.  In addition, there are provisions contained in the agreement between the Association and Blades that provide financial protection for the contractor if the project is cancelled.  The Blades firm has advised the Association that those costs total $325,000.  Legal Counsel has reviewed the contracts and confirms that the Association may have obligations to the contractor should we breach the agreement.  So, let's tally the entire cost to the Association if we walk away today:

Additional Contractual Obligations
Bills Paid by the Association Already                 $352,229
Reimbursement to Blades for Expenses Incurred $225,000
Contract Cancellation Obligation                         $325,000 
Total                                                                     $902,230

There should be no doubt in anyone's mind that canceling the contract is an expensive proposition. The Association will need to reimburse the contractor as outlined above for expense incurred and lost profit.  Funds to cover these expenses will have to come from real estate sales, borrowings or the members themselves.  Combined, the Association and its members will have lost out on the value of almost one million dollars.

Sometimes we receive comments from members that imply an adversarial relationship between the Association and its members.  We also receive questions on the veracity of the information provided or those who are providing the information.  Reality is that if the Association loses money on this project, each and every member loses as well.  Your directors are committed to decisions they believe are in the best interest of Ocean Pines members.  Do they always agree? No.  Are they always correct? No.  Do they give their very best in trying to keep Ocean Pines a great place to live? Absolutely!  Are they doing their very best to meet their obligations to the membership?  Unconditionally!

Most importantly, they represent you the member, they are committed to preserving the valuable assets of Ocean Pines today as well as tomorrow and protect the quality of life that is vital to the community's success. 

Coming soon….How will we pay for the Community Center?....Stay tuned.


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