Top 9 Ways to Mitigate Risks During a Hotel Renovation
By Kurt Meister Senior Vice President , Distinguished Programs | January 06, 2019
You feel the pressure to make your hotel stand out from the crowd. And that means you must complete any hotel renovations more quickly than renovations of standard commercial buildings. After all, your hotel's guests expect the latest amenities.
But renovations bring considerable business risk, from missed deadlines and busted budgets to potential lost revenue, negative guest reviews and additional liability. So, before you begin your hotel's next renovation cycle, make sure you manage risk appropriately. Follow these nine tips:
1. Assemble the Right Team
Don't contact any designers, architects, general contractors or subcontractors until you establish a team that will be responsible for reviewing all contracts. Key members should include a lawyer, an accountant and a trusted retail insurance provider or counselor. Choose one that specializes in construction risk.
2. Fully Vet All Contractors
You'll ask for bids from multiple contractors. That's a given. But make sure they're contractors who specialize in remodeling, not just new construction. Seek contractors who know how to care for the needs of your guests by minimizing noise, staging material deliveries and keeping renovation areas visually appealing throughout the project.
Also, do your homework. Hotel renovations gone bad often make headline news. Do an online search to see if your contractor has been involved in any such missteps, and ask them questions about it during the interview. Also check with agencies like the Better Business Bureau and review any complaints against the contractor. And make sure any general contractor or subcontractor you hire is licensed, bonded and insured in the state where your hotel resides. Don't take their word for it; ask to see proof of all three.
You'll surely ask all contractors for references. Make sure you follow up with each one so you can get a true sense of comfort with that contractor before you hire them.
3. Create Contractual Risk Transfer
A smoldering copper pipe starts a fire in an area where sprinklers aren't yet active. A construction worker falls through an open hole in the floor. Children enter the job site after hours and suffer serious injuries. Incidents like these can create lengthy renovation delays, trigger lawsuits against everyone involved, and potentially cost millions of dollars.
To protect yourself in such a disaster, I encourage all hoteliers to have clear risk transfer in place-and to verify it contractually-before the project commences. Such risk transfer will hold the hotelier harmless in the event of an injury or damage during the renovation project and will redirect claims or lawsuits back to the appropriate party.
Start by having a trusted insurance professional review your existing property insurance policy. It may include coverage for minor work under construction. If not, it's wise for the hotelier to purchase builder's risk insurance for the length of the renovation period. Builder's risk protects the hotel's insurable interest in materials, fixtures and equipment that are part of the renovation, including materials that are in transit or stored off-site. It terminates when the property is ready for occupancy.
Next, of course you will require your general contractor and all subcontractors to purchase contractor's general liability (CGL) insurance. This will cover injury to third parties, such as guests or employees, during the renovation. It also covers the contractor's liability for items like damage to the existing hotel structure or construction defects discovered post-renovation. It's up to the hotelier to dictate the amount of liability carried by contractors and subcontractors, and to ensure the stated limits apply specifically to your renovation project.
Next, ask for a copy of your general contractors' and subcontractors' CGL policies. Don't rely on a certificate of insurance, which lists liability limits. Instead, insist on seeing the actual policy so you know your hotel is added as an additional insured. Ask the insurance professional on your team to review all policies and verify that you're properly covered.
4. Know Your Budget and Deadlines (and build in accountability)
While budget rules the day in hotel renovations, sometimes deadline is paramount. For example, when Minneapolis hosted Super Bowl 52 last year, owners of the Mystic Lake Casino had to complete a nine-story, 180-room expansion prior to the big game. The one-time revenue gain from such an event put deadline first. Many hoteliers face similar scenarios, whether they're completing renovations in time for a major conference or for the peak of tourist season.
Get ahead of potential time delays or cost overruns. During your due diligence, ask contractors for specific examples of projects that stayed on budget and met deadlines, and for examples of projects that did not (along with reasons why). Also, put performance-based incentives into your contracts for finishing early and on-budget, and establish contractual penalties for any cost or deadline overruns caused by the contractor.
5. Create Wiggle Room
Even the smoothest projects run the risk of going off schedule. So, build a few extra weeks into each project if possible. Hoteliers have more control over delays during the design phase. If you agree with the architect's opinion up front, you'll cut down on delays. Another tip: Make certain all change orders from your team must be reviewed by management during the construction phase.
6. Know Your Mold Risk
No matter how new or clean your hotel appears, assume that mold will be found during renovation. That's because hotels have a unique exposure to mold. Because similar construction techniques are used in every hotel room, if mold is found in one room, it could be found in every room. In particular, mold thrives under bathtubs, in showers, behind wallpaper and around in-room air conditioning units. Saunas, spas, pools, fountains and HVAC systems are other areas of concern. Mold also may be found underneath exterior siding. Hotels in humid environments will almost assuredly find some level of mold.
Mold is not just a worry for older hotels. We've seen a prevalence of mold in newer facilities due to energy-efficient building techniques that prevent drafting and cross-ventilation. In addition, the use of vapor barriers during construction can trap mold.
So, build a mold contingency into both your timeline and budget. And only work with a company that has prior experience in mold testing and removal.
7. Take Extra Steps (and find extra budget) for Historic Renovations
If you operate an older hotel (built before 1940), you'll never meet customary renovation schedules. You'll need to add extra time to vet artisan contractors who can work with the intricate wood, plaster or tile materials required to restore your hotel in a historic fashion. You'll also need to add extra budget. Consider the case of the Biltmore Hotel in Coral Gables, Fla., a National Historic Landmark built in 1926. It underwent a massive and successful $25 million renovation in 2017. About 42 percent of that budget ($10.5 million) was devoted to preserving the hotel's historic value.
8. Plan for Code Upgrades
A hotel doesn't have to be historic to run afoul of modern-day construction and building codes. Older structures may need upgrades to electrical or plumbing systems. Hotels built in the 1970s or earlier may require lead paint or asbestos remediation. And all renovations must meet the latest Americans with Disabilities Act (ADA) requirements. These types of civil code-related upgrades typically are not covered by insurance, and they can add significant time to a project. For example, the Otis Hotel (soon to be the Hotel Indigo Spokane) suffered a three-month construction delay while state inspectors investigated whether contractors had properly removed asbestos from the 107-year-old structure.
9. Mind Your Online Reviews
Spend five minutes on almost any travel website and you'll find plenty of one-star reviews from exacerbated guests who stayed at a hotel during a clumsy renovation. Gripes range from the tangible (water leaks, electrical issues, noises or odors) to the cosmetic (negative reviews of new finishes, wallpapers or flooring).
Your hotel's reputation management strategy is of utmost importance during a renovation. Assign someone specific to read and respond to all online comments and reviews-positive and negative. This shows your guests that your hotel truly cares and is dedicated to resolving all issues. Keep the responses short. Be gracious. Admit when your hotel has made a mistake. Use plain language. Encourage guests to contact the general manager directly to discuss making amends.
Also, make sure your reputation management lead shares reviews with hotel management and with your general contractor. If the compliant is related to the renovation, work with the general contractor on a plan to remove the source of the complaint.
Renovation mistakes cost money and time. The occupancy rate of U.S. hotels hit a 30-year high in March (66.1 percent), and with consumer confidence soaring, the boom is expected to continue. That means hoteliers can't afford to have rooms offline for any significant length of time. Renovations already bring hefty price tags no matter if a hotel is in the renew stage ($10,000 per room), the refurbishment stage ($20,000 per room) or the overhaul stage ($100,000 per room) of its renovation cycle.
That's why smart hoteliers must look at every possible thing that could go wrong during a renovation and plan accordingly. Most of all, when it comes to risk management, don't assume you're covered. Review all contractor and subcontractor policies and contracts with a trusted insurance advisor. Having that peace of mind is priceless.
HotelExecutive.com retains the copyright to the articles published in the Hotel Business Review. Articles cannot be republished without prior written consent by HotelExecutive.com.