HOAs Should Have Procedures for Retaining Contractors
Management personnel for homeowners associations (property managers and directors) are constantly arranging for maintenance, repair, and improvement work that is required to properly maintain and/or improve the association’s common area property. To make prudent financial decisions about expenditures for maintenance, repairs, and improvements there should be specific procedures for the retention of the independent contractors that are employed by the association. The following described procedures provide an overview of the process.
Obtaining Bids
The first step in the process for retaining contractors should be obtaining bids for the work to be done. It is not uncommon for an association’s governing documents to contain provisions that specify the association’s requirements relative to the bidding process, so management personnel should always be familiar with the content of the governing documents relative to bids. Bids should be obtained from at least 2 or 3 different contractors who are properly licensed and insured. This process enables the management personnel to not only have comparative prices, but to also receive and evaluate input from multiple parties regarding the job. When obtaining bids, it is important to compare apples with apples– not oranges. The competing bids must be for the identical scope of work utilizing the same materials. This requires specification of materials that are to be used.
Evaluate the Contractor’s Experience and Background
It is not uncommon for unlicensed and uninsured contractors to misrepresent information that is provided to a prospective customer for their services. Areas of misrepresentation frequently include stating they have the required license and insurance (liability and workers compensation) when they do not. Unlicensed and uninsured contractors should never be used. To confirm a contractor’s experience and background, management personnel for the association should utilize a form that is designed to be completed by the contractor to provide information about the contractor that may be utilized by the association in evaluating whether or not to use that contractor. The information provided by the contractor should include at least three unrelated references to contact who utilized the contractor for prior similar jobs, and copies of the contractor’s business license, contractor’s license, and insurance certificates. Management personnel should then verify that the information provided is still accurate by checking public records. If the contractor does not provide the requested information, or provides incomplete information, he/she is sending you a message — don’t use that person or company. If the contractor operates as a business entity, check the appropriate government agency website (generally the Secretary of State) to confirm the status and that it is in good standing and confirm that the licenses and insurance are in the name of the entity that is being used. Additional governmental websites provide verification of business and contractor licenses.
Evaluate Contractor Bids and Contractor Documents
After the management personnel has received all of the bids and verified the information provided by the contractor, the bids received from contractors whose backgrounds have been approved should be compared and prioritized. Copies of the proposed contract documents should be provided for review and approval by the association’s board of directors, or authorized management personnel. Proposed contract documents should be completed to include a description of the work to be performed, the job specification, material descriptions, payment amounts, payment terms, anticipated start and completion dates, warranties, and remedies for defaults. The contract should never be structured in a manner that pays the contractor at any time for more than the labor and materials that have been provided. State laws may also impose requirements on contractors regarding the form and content of the contracts that they utilize and/or the payments they receive, so management personnel should be aware of the requirements of their particular state.
Obtain Board Approval of the Contract
The proposed final contract should be presented to the association’s board of directors, or authorized management personnel if board approval is not required, for review, discussion and approval. If the contract is approved by the board of directors, a resolution indicating the approval should be adopted and documented in the minutes of the board meeting. It is always a good idea to have contracts reviewed by legal counsel to insure that important provisions that are designed to protect to association are included in the document especially when the contracts are for large jobs.
Monitoring the Work
After a decision has been made on the contractor, and a contract has been signed by all necessary parties, the association should have one or more designated people monitor the performance of the job and confirm work has been completed, laborers and material suppliers are paid by the contractor, and that progress payments are being made in a manner that is consistent with the work that has been completed. If there is a need for changes, they should be documented, approved, and signed by all parties to the original contract. All notices and important communications between the parties during the course of the job should also be documented. When the job is completed management personnel should confirm that there are no liens that have been recorded against the association’s property in connection with the job and/or obtain appropriate lien releases. If issues come up regarding the work after it has been completed, they should be appropriately documented and the contractor should be provided with written notification of those issues as soon as possible.
Conclusion
There are many aspects of dealing with contractors who provide services to homeowners associations and the process should not be treated casually as there can be serious financial ramifications to the association. By adopting and following specific procedures for dealing with the retention of independent contractors, an association can greatly reduce the chances of having future issues that are a product of failed relationship with a contractor.
Statutes, Forms, or Guides related to this Article:
Use these to fulfill the action steps from this Article.
