As an HOA board member, you’re taking on an active role in your community. Obviously, this means making sure the community runs well; but, this role also covers all of the general upkeep issues, such as gardening, cleaning and laundry room service, and any other ongoing “handyman” type projects—tasks which often require HOA board members to review vendor bids, proposals, and agreements. Unfortunately, this can be an exceedingly difficult part of an already difficult job, particularly if you have no experience going over contracts or hiring vendors yourself. In fact, one of the biggest reasons self-managed boards have difficulty keeping their heads above water is because of their inability to manage vendor agreements, as just one misstep can result in wasted money and a job that still needs to get done. That’s why we’re here to help.
Without further ado, here is our guide on vendor agreements.
Reviewing Vendor Agreements, Proposals, and Bids with Your HOA Board of Directors
HOA Board members are bound by legal mandates, set forth in many places (such as your state and your own CC&Rs), with regard to how to accept vendor proposals. There is process that should be adhered to when working with your HOA management company to correctly see a vendor proposal through to the end.
Start by confirming a complete proposal. As you go over each vendor proposal, thoroughly review and anticipate questions. The top two questions from other HOA Board members (and possibly residents) will be, “How much is it going to cost?” and “How long is it going to take?” If you are presented with a new question from another board member or a homeowner, take note and make a commitment to provide a quick answer.
The basics for soliciting bids of any number include a general description of the job and a general quantification of number and volume or size. For instance, a bid to “install speed bumps at entries” is not enough information even if you discussed the project in detail with the vendor. A better description would be, “to install two speed bumps at each of the three entries, each being 8 feet wide and between 4 and 5 inches in height.” Make sure that each vendor has bid the same project. If one vendor asks for a clarification (i.e. “Do you want us to include the mailbox kiosks along with all the buildings in the painting bid?”), make the same clarification with all of the vendors.
There are also licenses and other basic assurances that you will also need when reviewing vendor proposals. These include any certifications, licenses, bonds or insurance required by your state or specified by the CC&Rs. On top of this, when an outside contractor comes onto the property to do work, you may also have to provide them with your HOA’s certification for association and management insurance. Additionally, don’t forget to have the contractor give your HOA a copy of their tax ID number; every vendor needs to provide their tax ID number to get paid. Ask for copies of this documentation from each vendor and make sure they are properly certified.
As HOA Board members, you might take on a supervisory role for the CAM project if you do not work with an HOA management company. A new vendor should be asked about any previous experience working with HOAs. When the job begins, consider making a job checklist. Are they cleaning up after their work sessions? Are they are starting and finishing on time? Are they correcting any mistakes? Would you recommend this vendor for future work? All of these are important questions and facets when beginning the bid process, so do not neglect any of them.
Things to Look For in a Good Contractor
Once you’ve received the bids and the proper paperwork, it’s time to start the selection process; fortunately, not every job will require an exhaustive vendor selection process. You might find that a vendor recommendation from your HOA management company or fellow resident will be enough. Yes, you should still perform due diligence, but hiring someone to change light bulbs is not the same as hiring a roofing contractor. Keep the scope of the job in perspective.
That being said, finding a contractor who will perform quality work at a reasonable price can be a daunting task. It’s always a good idea for your HOA management company to ask for references, and even better to contact the Better Business Bureau and your state licensing bureau at times to see if there are complaints against a prospective contractor. Follow the warning signs that can alert you to unscrupulous, disorganized, inexperienced, or financially troubled contractors who may deliver broken promises, bad work and blown budgets rather than professional results.
In any business, first impressions are important. How a contractor presents themselves and maintains their truck, tools and equipment are good indicators of how well they’ll take care of you and your job. They should look neat and professional, and their vehicles and equipment should be clean and in good repair.
Whether you’re bidding out a project for your HOA or for your home price, it’s always important to consider the bid when selecting a contractor. However, even if they make a good first impression, beware if they bid low. Don’t let a low price or a special deal blind you to a potential problem; both can be warning signs. A bid far lower than others may indicate the contractor isn’t experienced enough to know the actual cost of the job, or he never intends to finish the work. Disreputable contractors may bid low to secure a contract and then tack on extra charges as the job progresses.
If you’re pressured during the bidding process by tactics such as “limited-time offers,” look for a different contractor. Hiring a contractor is not a split-second decision; for this reason, many states give homeowners three days to cancel a home improvement contract—without obligation—after signing it. A prospective contractor should take their time as well, carefully reviewing the specifications of your job before submitting their bid. If they don’t take notes and measurements, or make material and labor calculations, or simply name a price based on a similar job, they may not be detail-oriented or thorough enough to do a good job.
A prospective contractor may offer you a discount, hoping to earn your future business following a job well done, but be wary if a contractor offers materials at a discounted rate. Small contractors rarely buy materials in the high volumes necessary to yield big discounts, and unless they severely overestimated quantities for a previous job, they rarely stock large inventories of material. Discounted materials are usually seconds, ungraded, or below-grade minimums for code, any of which would compromise the quality of your project.
While the price may be right, what about the terms of payment? In general, don’t choose a contractor who asks for more than 20 percent of the total cost of a job up front. While some projects require a large initial payment to cover a deposit for products like cabinets or special-order ceramic tile, it doesn’t apply to commodity materials like roofing and lumber, which a legitimate contractor will usually purchase on account with at least 30 days to pay.
Lastly, a contractor who works on a cash-only basis raises a big red flag. Not only does paying in cash limit your financial recourse if problems arise, the contractor is likely not operating a legitimate business, which includes paying taxes and insurance. Look elsewhere for a professional to perform the work or talk with your HOA management company for recommendations.
Associations have to hire contractors fairly often to do a variety of different jobs in your community. Contractors are hired to take care of everything from landscaping, pool maintenance, and common area repairs. Due to the vast amount of contractors out there, associations must be cautious about who they hire and whether or not the contractor has the proper insurance. It is not uncommon for contractors to accidentally damage property or for someone to get injured during the job. This could lead to potential lawsuits and leave your association in a real bind. Thus, all contractors should have insurance coverage that protects your association and your HOA management company.
Before hiring a contractor, review their insurance policy and make sure that it covers possible damages incurred during the job. Also, make sure your contract includes a guarantee or assurance by the contractor that their insurance protects the association’s assets and relieves them from liability. Always consult with your HOA management company before hiring a contractor.
When checking a contractor’s insurance policy, make sure that the association is listed as additional insured. Call the insurance company to verify that the policy is still valid, current, and covers the work being done. You’ll have to examine the policy’s endorsements to see if the particular type of work is covered.
Additionally, the policy needs to be effective when the work begins; check the date on the policy and do not let the contractor start work before that date. Make sure the contractor has purchased the required amount of insurance coverage, and that the contractor’s name matches the name on the policy. Contractors have been known to operate under several different names, or even under someone else’s name. If the names on the contract and policy do not match your contractor’s name, you might not be covered.
It is very important to properly inspect all aspects of a contractor’s insurance policy to make sure that your association is covered and that you will not be left liable for any damage done by the contractor. You might also check with your HOA management company for insurance coverage requirements.
Making a Final Decision
Before a final decision is made, remember that nothing drives down prices like competition. Any price you obtain with competition will be lower than a price you obtain without it. By having your HOA management company shop the job with multiple contractors, your HOA will be able to get the best bang your buck. Also, write down everything you expect. Effective competition requires a complete, accurate, and final definition of the goods and services involved in the project.
Once all this is done, prepare a comparison chart or list to present the board. This will incorporate the bids, qualifications and references. If you work with a community association management company, they should present this to your board and provide a recommendation of the right vendor for the job. Then, all there is left to do is choose the company you think is best for your community, based on all the evidence, and kindly end a courtesy letter or email to any vendor who didn’t get the job so you don’t burn any bridges.
Whether you’re hiring a contractor for a project commissioned by your HOA’s Board of Directors or for your home within your HOA, reviewing these guidelines will help ensure that you find a reputable contractor to trust with your most important tasks, while also crafting a vendor agreement that is suitable for both sides involved.