(The Value Game is a powerful tool for deploying Intangible Capital to distorted, corrupt, or dysfunctional markets. The following case study describes a current project that our team has won against substantial mainstream competition. This case study is about real money, real projects, real people and real markets where the Value Game converts social capital directly into financial capital and converts financial capital into social capital – without the construct of an over reaching corporation.)
For many condominium associations, the maintenance, repair, and reconstruction industry has devolved into a minefield of distrust and dysfunction. Countless lawsuits have taken the industry to the point where many contractors simply walk away from condominium projects for fear of litigation. The worst form of “capitalism” ensues where everyone acting in their own best interest is in fact acting in the counter-interest of their community. The Value Game promises to upset this negative incentives condition while enhancing community resilience.
Here’s How The Problems Start:
The board of directors of a homeowner’s association is entrusted by the residents to hire a contractor to perform a complicated reconstruction project. Unfortunately, condominium board members are not very good at writing contracts or issuing requests for proposal or collecting bids. When a contractor is selected, the scope of work is often poorly established. The expectations between the community and the contractor begin to diverge. Soon, a law firm is engaged by some residents to sue the contractor for damages. After a long battle, a settlement is awarded, but it is not enough to fix the problem after paying the law firm.
A chain reaction:
Fortunately, the contractor in the suit was insured, but this does not cover the personal, professional, and opportunity hardship of defending against the suit – “it’s just not worth the trouble”. The insurance company then jacks up the premium for condo projects. As the pool of available contractors dries up, and the price for reconstruction increases, many condos are forced into deferring maintenance in a distorted market.
After a while, a condominium springs a few leaks in their piping system. Each leak results in relatively small water damage claim. When the insurance company notices several claims in the same building, they begin to fear that a mainline is about to rupture next and threaten the condominium with cancelation of their policy unless they replace the entire system immediately. Now the insurance industry is in a double jeopardy: they force the contractor out of the market and they force the condo out of the market to basically avoid suing their self.
The dysfunction deepens:
Banks will not make construction loans to condominiums that are not insured. Likewise, they will not make mortgage loans to buildings that are not insured. The property values plummet and the owners are sent under water. Soon they begin to default on the mortgages that the banks already hold. More maintenance is deferred as buildings fall apart and become unsafe. Banks pull out of the market to avoid defaulting on their selves.
The wider community suffers.
The Value Game
The Ingenesist Project is currently deploying a Value Game to the condominium reconstruction market with remarkable success. The Value Game is a new class of business methods that alters the incentive structure of a distorted market such that everyone acting in their own best interest is, in fact, acting in the best interest of the community. We are currently at about 30% game time and about 50% implementation in the case study described below.
Here is how the Value Game is formed:
The first thing is to identify the shared asset. This is the single thing in which it is everyone’s best interest to preserve. In this case, the shared asset is the physical condominium building.
If we look at each of the players individually, we see that it is obviously in the best interest of the residents to have a safe and well-maintained home. It is also in the best interest of the contractors to have a successful and profitable interaction with the building. It is in the best interest for the Insurance industry to reduce the risks that they underwrite. The banks also benefit from a viable, organized, and disciplined community with strong real estate valuation and complete insurability of assets. Finally, the broader neighborhood benefits from the presence of a viable condominium community. It is in everyone’s best interest that the others are successful.
About the game board
The first rendition of the Internet was populated by static websites built for a person, or to sell a product, or to deliver entertainment, or to provide information. The next level of the Internet included social media where users actually create the content that populates a website such as Facebook and Twitter, etc. The third level of the Internet is a Value game where a social network is built ABOUT an asset that communities share. For this project, we set up a website for the physical building with its own social network where all of different players interact with each other to preserve their best interests.
Case Study; The Value Game.
The current case study is a condominium re-piping project in the Pacific Northwestern US. The community consists of about 200 units (400 residents) who occupy a single high-rise tower that must undergo a major reconstruction project that will impact everyone. The total value of the project is about 3 million dollars. This is real money in a real Value game.
The first thing is to reduce the likelihood of diverting incentives that can result in litigation. This may be accomplished by introducing strong community building management. In this particular case, a professional engineering firm was hired to represent the best interest of the asset. Together with The Ingenesist Project, they represent the needs of the HOA, they select construction technologies, define project scope, write the RFP, write the contracts, select the contractors, and manage the project.
The Social Network Dynamics
The website used in this case study is a common open-source Word Press platform with a Buddy Press backend to provide “Facebook-like” features – except private. The engineering firm submits all reports, surveys, test results, assessments, photographs, schedule, pipe products, accessories, and plans onto the website for all members to see equally (there are some exceptions to protect financial data). Very few secrets are hidden from view and everyone is encouraged to discuss the project among each other.
Individual residents are invited to form “groups” and start “threads” in topics for which they have an interest or a concern. People naturally migrate toward other people with similar interests and they build relationships.
Contractors are able to see all of the assessments, conditions, and work scopes directly from the website instead of paper submittals. They can ask questions and post ideas of their own for community review.
The engineering firm can monitor discussions and collect ‘frequently asked questions’, which are posted in an FAQ. Everyone gets the same correct answer to their questions without rumors or speculation.
When community meetings are held, there is no bickering or infighting because everyone is educated and prepared to ask unique and relevant questions of the presenters. When a community is unified, they can easily come together to make important decisions that impact the quality, cost, and schedule of the project.
The insurance company is given limited access to the website which demonstrates that the community is acting to mitigate the risks that the insurance company underwrites – this keeps the policy in force.
With website access, the insurance industry can also see that licensed engineers professionally manage the project in a vibrant community. This greatly reduces the likelihood of litigation. The insurance industry can now classify this project among “commercial” insurance pool instead of the litigious condominium insurance pool.
Contractors feel comfortable with this professional engineering management and insurability, which brings more contractors to market thereby increasing the talent pool and reducing costs. At the end of the project they get 400 likes on Facebook, YELP!, and Angie’s List
The bankers will have access to the website to monitor progress. With insurance policies fully enforced, banks will lend favorably to the HOA who needs to fund a major reconstruction project. Banks will also lend favorably to mortgages in this structure because it is well maintained.
It is in the best interest of the community to be civil and thoughtful in their discussions knowing that they are being observed by some of the other stakeholders. This eliminates the incentive to be disruptive and increases the incentive to be engaged and productive in the project.
Over time, the website becomes a forensic record of all matters associated with the project. Everyone knows who said what, when, where, and why with an electronic time stamp. There is little to be disputed.
Interaction with the Wider Community:
Real estate agents always describe property in poetic hyperbole. The RE market rarely tout the improvements that a community works so hard for. The website could be a place where a real estate agent can advertise their services in exchange for a promise to mention the re-piping project and intangible values of the community. The market will respond to a well-maintained building and an engaged community (ref: Jane Jacobs externality), which will drive real estate valuations up.
Hotels, restaurants, theaters, art galleries, service groups and civic organizations all benefit from prosperity and resilience in their community.
In the end, the shared asset is preserved and everyone is profitable.
The Ingenesist Project is currently in the middle of this above case study / scenario. Real money is being exchanged in a real project with real players. It is a significant fact that our team won this contract and is being well compensated. We are deeply confident that The Value Game can be easily built and deployed throughout a 200 billion dollar condominium reconstruction and maintenance industry at great benefit to communities, insurers, bankers, contractors, and homeowners using existing technology and community sourced intangibles values.