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Selecting and Negotiating with Vendors

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As we approach spring and look forward to the annual spring walk-through and start planning maintenance, repair and replacement projects for the coming year, boards and managers will be faced with a number of decisions, as well as bids and proposals from various vendors and contractors. How do you choose the right vendor and how do you make sure that you are getting the most for your money? 

Before seeking bids from contractors, association boards might need to take a step back and make sure that they clearly understand which maintenance obligations belong to the association and which are the responsibility of the individual homeowners. Maintenance responsibilities can vary greatly among associations. The division of responsibilities in a condominium will be different than in a townhome, single family or cooperative association. Even among associations of the same type, there can be big differences in the maintenance responsibilities as set forth in the governing documents. Therefore, you should not assume that one association is the same as another or that the way that maintenance has been handled in your association in the past is correct. If you are not certain about which components of the property are or are not the association’s responsibility, you cannot properly plan for current or future maintenance, repair or replacement projects. Thus, before you even attempt to schedule your spring walk-through, it is a good idea to make sure that you have a good handle on the maintenance responsibilities within your association to ensure that the Association is meeting its obligations but not performing or paying for items that are the homeowners’ responsibility. If you are unsure about who is responsible for what maintenance, you should work with your association attorney to get a legal opinion and/or to develop a chart that sets forth who is responsible for what and who pays for what maintenance.

Once you are clear on what responsibilities the Association has for maintenance, repair and replacement, you can then determine the scope of your projects and start requesting bids from contractors. When seeking out bids, don’t assume that all contractors are equal or that the lowest bid will always be the best. Even if you have a prior relationship with a particular contractor, that doesn’t mean that a different contractor might not do a better job for the money. So how do you know which contractor to choose? First and foremost, educate yourself. Research potential vendors to see what other customers have said about their work and how they resolve potential disputes. Get referrals from the contractors and talk to those other customers about their experience. Check out their standing with the Better Business Bureau and other trade organizations or websites that may have certification programs or other means to evaluate a contractor. Once you have a proposal from the contractor, 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.

Next, 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 and signature of the actual contract and of other certain items, including extra charges, changes to the original specifications, expenditures over a certain dollar amount, etc. 

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. If a contractor is unwilling to put certain terms in writing or responds in a manner that appears evasive, inflexible or dismissive of the board, that may be a red flag that this person or company may be difficult to work with and/or that the Association is not getting the best value for its money. It goes without saying that you should always have your association attorney review any major contracts before signing them. This includes loan agreements and management contracts, as well as 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.   

Published in CIC Midwest News, Spring 2016 Issue

Phaedra J. Howard, Esq.

Hellmuth & Johnson, PLLC

phoward@hjlawfirm.com

(952) 746-2142

http://www.hjlawfirm.com