Selection of Vendors that Provide Goods and Services to HOAs

A significant portion of the responsibilities of HOA management personnel involves the selection of third parties who provide goods and services to the homeowners association. The process of selecting third party vendors entails several different components such as: (i) identifying the scope of work that is to be bid out; (ii) obtaining bids from various service providers; (iii) reviewing and comparing bids; (iv) investigating the background and qualifications of the various vendors being considered; (iv) documenting a proposed agreement with the service provider; (v) presenting the information to the association’s board of directors for consideration, approval and authorization.

Identifying the Scope of Work.

Before soliciting bids, it is critical to have a clear understanding of exactly what the work to be bid on consists of. Without clearly identifying the scope of work, a third party vendor cannot accurately estimate the time or materials that will be required to perform the job. A general description of the job to be bid on should include, where possible, a quantification of number and volume or size. For example, a bid for the installation of fencing should identify the type of fencing, the material (i.e. wood or wrought iron), the height, the number of lineal feet of the fencing, the number and location of entry gates, and any optional items or decorative treatment that is included. The same information should be provided to each third party vendor that is asked to provide a bid.

Obtain Bids from Multiple Potential Service Providers.

It is quite difficult, if not impossible to accurately assess the expertise of a potential service provider and the desirability of a price that is provided in a bid without having anything to compare it to. Thus, it is extremely important to meet with and obtain bids from three or four potential providers of the same services and materials that are desired in order to make an informed decision on the best one to select. It is only through a comparison process that includes “like for like” on the materials and services being quoted that association management personnel can make an informed decision on the best service provider to select for a given job. When comparing the different candidates for the job, the price is important but also consider such things as how the service provider presents him or herself, the appearance of his or her truck, tools and equipment, and the completeness of their proposal and contract documents, and the manner in which he or she desires to be paid.

Reviewing and Comparing Bids.

Each bid that is provided by the various service providers under consideration should clearly identify the materials to be utilized in the job along with their cost, and the cost of the labor and all other charges that the association is going to be required to pay. The terms of payment should also be specified as the service provider should never be paid in advance for services that have not been provided. Potential service providers who demand large amounts as a deposit should be avoided. In fact, some states have laws that govern the maximum amount that can be charged up front. The bids should also provide estimated start and completion dates for the work to be performed. Frequently, the bid obtained from one potential service provider can be used to negotiate a more favorable price or terms from another more desired service provider.

Investigation of the Background and Qualifications of the Service Provider.

It is also critical that the background and qualifications of all service providers being considered be investigated. This entails getting complete information from the various service providers under consideration regarding their business name, the type of business entity (sole proprietorship, partnership, corporation, or Limited Liability Company). With this information, public records should be reviewed to confirm that the person/company under consideration has a business license, an appropriate contractor’s license, and liability / workers compensation insurance. Copies of the Declarations pages from insurance policies should be obtained to confirm the necessary insurance coverage. While they are fine for small jobs, handymen should never be used in place of licensed and insured contractors in order to save some money on the cost of a job that should be performed by a licensed contractor. It is also a good idea to ask for and contact some references of prior client’s for whom similar services were provided. Any service provider who is not willing to provide the information that is necessary to conduct a proper investigation should be avoided as they are most likely going to be a problem. Sometimes, valuable information concerning a potential service provider can also be found on the internet by merely “Googling” their name.

Documenting the Terms of the Agreement.

Most service providers have standard contracts that they use when being retained by a client and much can be learned about a potential contractor from the documents that they present to clients. Some will be very incomplete and lacking important information that should be included, and others will contain provisions that are totally one-sided to the benefit of the service provider (as one would expect considering the fact that the document was probably prepared by an attorney retained by the service provider). The contracts provided by the different service providers should be compared and provisions that are not clearly understood should be discussed and clarified. While it is understandable that association legal counsel is often not consulted due to cost considerations, it is always a good idea to get input from legal counsel on provisions that should be included or excluded in the final agreement.

Discussion, Approval and Authorization by the Association’s Board of Directors.

After the vetting process has been completed, the information pertaining to the service providers being considered should be presented to the association’s board of directors for evaluation, discussion and a vote on which service provider to retain. After the board has made the decision on which service provider to retain, the decision should be documented in a resolution that is included in the minutes of the meeting. The resolution should include language that specifically authorizes and instructs specified officers or management personnel to enter into the approved contract on behalf of the association. Homeowners association management personnel should have policies in place that mandate specific procedures like those outlined above relative to the process for selecting service providers. Developing and following a clear vendor selection process will minimize the risk of losses that are commonplace within homeowners associations that do not have such procedures in place.

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This article was written by Lawrence Szabo, who has practiced business and real estate law in California since 1974. He has served as legal counsel to homeowners associations, association members, and property managers, and he has mediated HOA related disputes. He has also personally resided in multiple communities that are governed by a homeowners association as both an owner and a tenant, has held positions as an officer and director of a homeowners’ association, and has served on and chaired HOA committees. His educational background, professional training, and hands-on experience in connection with the operations of homeowners associations has provided him with a unique and extraordinarily high level of knowledge and expertise in the field of homeowners associations and common interest developments, and the myriad of issues with which they are confronted.

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