Diversified Facility Services tells all

 

In response to my report on the 2005 Reserve Study, Favil West wrote me that I was wrong—about many things, but I’ve come to expect such harsh judgments from my old mentor. While he and I are not always in agreement, I must confess that Favil was pretty close to the mark about a major conclusion I had reached. That conclusion concerned a matter of some importance, namely, what I thought was about to occur in the handling of the “Look-back” 2005 Reserve Study. I had expressed the believe the Board and the Reserve Committee were about to engage in some sort of hanky-panky—to manipulate certain data to affect the outcome of the 2005 Reserve Study for Villa Neighborhood reserves.

Boy, was I wrong! But not in the way you might think. It appears that the Board was way ahead of me on this one. No, they were not going to monkey around with the database from Diversified Facility Service’s newly produced 2005 Reserve Study. That, as it turns out, would not be necessary. It seems clear that the Board had already taken care of the Villa Neighborhood reserve problem well before the start of the first meeting of the 2005 Reserve Committee. You see, the Board had already primed Diversified with the new reserve data for the Villa Neighborhoods, data, by the way, that had the affect of discarding the results of the 2006 Reserve Study.

With the new, so called “corrected” Villa Neighborhood data having already been handed over to Diversified by the Board, Diversified was in an ideal position to then generate their new Study incorporating this newly found information. The anticipated result, of course, would be to lower Villa Neighborhood reserve requirements, an objective being sought by the Board. As it turned out, the so called “Look-back” Study was the Board vehicle not so much to take a “look-back” but to materially alter the Board’s mandate going forward.

In other words, the Board ostensibly ordered a so-called hands off “Look-back” 2005 Reserve Study, while at the same time funneling key information to the company doing the Study with the knowledge of what affect that information will have on the outcome of the Study. This practice might be lauded by some, while it might remind others of efforts by some companies to, as they say, cook the books to demonstrate what the company would like others to see.

I just learned about this in a call I made this week to Diversified and spoke at some length with their president, Tom Stephan. He was most helpful in explaining how their company had ignored certain key painting data from the 2006 Reserve Study and instead relied on information recently supplied by our Board, as well as on data, would you believe, from the 2000 Reserve Study, to justify and come up with markedly different results (compared to the 2006 RS) for their 2005 Reserve Study.

Before you say, “what the heck is he talking about,” let’s see if a picture will help, or more accurately, a chart.

So, what did Diversified ignore? The 2006 Reserve Study (in RED) reported a painting cost of $1.57 per sq. ft. That might lead some to conclude that the comparable figure for Painting in 2005 would be around $1.40/sq .ft. Although Tom Stephan of Diversified said that the $1.57 figure was reportedly based on bids from two painting contractors, giving validity to the use of that data for the 2006 Reserve Study.

However, in determining the cost of painting for 2005, Mr. Stephan explained that Diversified disregarded his company's own database for Villa painting as contained in the 2006 RS that his company had conducted, as if it did not exist. That deliberate "omission" of seemingly relevant data requires more explanation than what Mr. Stephan was able to provide.

One has to assume that Diversified was heavily influenced by the submission of new information supplied by the Board, who I assume prevailed upon Diversified to ignore the $1.57 figure from the 2006 RS. Interestingly, that new information was NOT information for the 2005 period, which might be relevant, but, instead, was information from 2007, two years after the period that was the subject of the Reserve Study.

The Board and apparently Diversified would like us to believe that labor and painting cost conditions existing in the Las Vegas area in 2007 tells us something more about 2005 than does the data relied upon for the 2006 Reserve Study, which is closer in time and relevancy to the period in 2005 under review. Other than pointing to the alleged fact, as stated by Mr. Stephan, that Nevada painting contractors in 2007 had provided Sun City with a painting bid of around $1/sq .ft., there is no other information provided by Diversified that would suggest or justify that labor and painting cost conditions in 2007 should in any way provide a reasonable or rational basis for calculating painting costs in 2005.

So, with that 2007 contractor's bid in hand, Diversified makes a finding that the cost of painting in 2005 was $0.80/sq. ft., after backing down from the 2007 bid of $1/sq. ft., leaving many to wonder what's really going on by our Board behind closed doors. We'll get into that soon.

Ron Johnson, 17 January 2008