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Hellmuth & Johnson PLLC

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Negotiating with vendors

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Ok, so now that you have assembled your team of professionals that will assist your association in carrying out its various functions and responsibilities, how can you be sure that you are getting what you need from these various vendors?  Here are a few tips to keep in mind when negotiating with your team.

First and foremost, educate yourself.  Make sure you understand what your association is getting for its money.  Know what products or services are or are not included in the contract price, what items are considered “extras” and how those extras will be charged.  If a written change order is required before any changes or additions can be made to the original contract specifications, make sure that is spelled out in the agreement, that you understand how the change order process works and that you follow the procedure if changes are necessary.

Second, make sure that the association maintains an appropriate level of control over its vendors.  Although the association may be contracting with vendors in order to relieve the board of some of the obligations involved in the day-to-day operations, the board cannot and should not delegate all of its decision-making authority to vendors, property managers or other third parties.   Remember that the board of directors is ultimately responsible for what happens in the association.  The board can ensure the appropriate level of control by including provisions in its various contracts requiring board approval of certain items, including extra charges, changes to the original specifications, expenditures over a certain dollar amount.  Management contracts should require board authorization prior to the manager contracting with any other vendors on behalf of the association except in the case of an emergency.

 Third, don’t be fooled into believing that standard contracts produced by vendors are not negotiable or that all contracts are the same.  If your selected vendor won’t negotiate the contract terms that are of concern to you, you might want to consider finding another vendor.  Don’t be afraid to ask questions about any contract terms or provisions that you do not understand or that seem ambiguous.

Fourth, it goes without saying that you should always have your association attorney review any major contracts before signing them.  This includes loan agreements, management contracts and any major maintenance or construction contracts.  A failure to obtain proper legal advice before signing contracts can result in the association being bound by a bad contract with unfavorable terms and/or terms that are vague or unenforceable.   In addition to reviewing the contract itself, the attorney should also review the association’s governing documents to determine the authority of the association and/or the board to enter into the agreement and whether there are any limitations on that authority (such as requiring approval from a percentage of the association’s members) or on the length of contract permitted.

If your association is experiencing difficulties with a vendor not performing as expected, it is a good idea to discuss the problem with your association attorney early on to ensure that you understand your rights and obligations before doing something that might cause the association to be in breach of its contract.  Specifically, you will want to know whether the vendor has a legal or contractual right to cure any defaults under the agreement, whether there are specific notice requirements that must be complied with before you can terminate the contract, whether the contract contains a liquidated damages provision or any other language that limits the parties’ legal remedies and whether the contract contains an attorney’s fee provision that allows either or both parties to recover attorney’s fees incurred in enforcing the agreement.  Understanding the contractual rights and obligations of the parties is key to resolving any issues that might arise under the contract.

Finally, keep in mind the old saying that an ounce of prevention is worth its weight in gold.  By taking the time up front to ensure that you have properly vetted your vendors and that your association has solid and enforceable agreements in place with its vendors, you can avoid a lot of potential problems down the road that could be very costly to correct after the fact.