HOA vendor contracts

Date Published : Jan-27-2022

Written By : Kim Brown

When it comes to selecting a vendor for a job, board members must do more than perform a quick Google search. More often than not, the association’s CC&Rs state the requirements for acquiring vendor proposals. For example, if a job or item exceeds a certain percentage of the association’s annual budget, then the board may be legally obliged to obtain competitive bids.

      

Download our free request for proposal template

      

With a few exceptions, associations are expected to follow a pre-established process to ensure they select a vendor that will provide quality service for a price that the HOA can afford.

      

Competitive bids

Competitive bidding means that the association takes more than one bid to ensure it receives multiple pricing options. There is no legal requirement for the HOA to accept the lowest bid.

There is a general belief that HOAs must get at least three bids. While this is not a requirement for most states, associations are encouraged to get more than two bids, especially for big projects. Not all jobs will require the board to solicit bids.

      

Instances where bids are not needed

There are usually two instances where the board is not obligated to collect competitive bids. The first is in emergency situations. Most governing documents will state that HOAs are allowed to hire a contractor without getting bids if something needs to be fixed right away.

Secondly, if a project is not costly, it can usually move ahead without soliciting bids. The governing documents should indicate when bids must be collected. For example, if a project costs 10% or more of the HOA’s annual budget, then a request for bids must be sent out.  

      

Requests for proposals

An HOA request for proposal (RFP) is a document drafted by the board or manager. This document is a formal request for bids from vendors; it’s also the best way to clearly communicate the HOA’s needs and expectations to prospective vendors. You can download an example of a proposal here.

RFPs should be detailed; submitting a thorough proposal cuts back on unnecessary back and forth communication between parties. Good proposals also help vendors determine if they are a good fit for the job.

Proposals can be sent through the mail, but digital proposals are much more efficient. Condo Control even has a Vendor Portal feature that allows admins to request quotes and have private conversations with approved vendors. Moving this process online speeds up selection and resolution times.   

An RFP can be organized into three parts:

  • An overview
  • Job requirements
  • Vendor qualifications 

      

Overview

The overview provides a summary of the type of service or materials that the association requires. Include the problem that needs to be resolved, the scope of the project and general expectations about outcomes.

It is helpful if you can provide the location of the project. Vendors may not be able to travel to your HOA to perform a job.

      

Job requirements

This section provides the vendor with more details about the job, including:

  • The time frame in which the project needs to be completed by
  • Desired methods for fixing the problem
  • Any special instructions for the project

Price is probably the most important detail to both parties. Provide vendors with a realistic budget. In some cases, the job may cost more than the board realizes, so be prepared to pay a different price than the one listed in your proposal.

Ask potential vendors to explain how they will successfully complete the project; get into the specifics. Finally, indicate a clear deadline for proposal submissions to be turned in, as well as the date that the HOA plans to make a decision.

      

Vendor qualifications

HOAs can use RFPs to learn more about the contractor. Ask for each vendor’s qualifications and what they believe makes them suitable for the job. You can ask for examples of related jobs they completed, if applicable, to get a sense of their experience and skill level. References also add credibility.

Don’t forget to ask for proof of proper licenses, workers’ compensation and certificates of insurance for general liability. When the HOA does hire a vendor, it may need to provide them with the association’s certification for association and management insurance. Make sure to get the contractor’s tax ID number; every vendor is required to provide this before receiving payment.

Evaluating vendors submissions

Once the proposals are in, the board and manager will need to evaluate each submission. The goal here is to find the vendor that can offer the most value to the association.

      

Cost is important, but shouldn’t be the only consideration

HOAs don’t have extra money lying around. As such, boards may be inclined to select the vendor who can do the job for the least amount of money to ensure they don’t go over budget. However, a low cost doesn’t always lead to a favorable outcome.

If a vendor is offering a service for a much lower price than their competitors, it probably means the vendor is compromising somewhere. It could be that they use sub-par materials, or they take a long time to finish a job. Bad work could even cost the HOA more in the long run, especially if it needs to be redone. For this reason, don’t select the most inexpensive vendor based on price alone.

Few boards would choose the most expensive contractor, but a high price doesn’t mean that the vendor is the very best, either. Don’t choose a contractor who asks for more than 20% of the total cost of a job upfront. On occasion, a big project may require a large initial payment to cover a deposit for materials, but it shouldn’t apply to commodity materials like roofing and lumber. A seasoned contractor will usually purchase those types of items on account with at least 30 days to pay.

      

Check with the BBB

To obtain more information about a contractor’s track record, HOAs can check with the Better Business Bureau (BBB) or their state licensing bureau to see if there are complaints against a prospective vendor. If there are red flags, don’t take a chance on a contractor who has been described as disorganized, inexperienced or financially troubled!

      

Ask a professional to weigh in

Always keep in mind that HOA boards are made of unpaid volunteers.  While they try to make the best decisions possible, they may not always have the knowledge required to make informed choices. In these situations, they can seek guidance from an attorney or the HOA’s manager.

      

Contracts

Once a decision has been made and the project has been awarded to a vendor, both parties must sign a contract to solidify the parties’ legal obligations to each other.

The vendor contract must clearly define what each party owes the other. It should contain the details of the project, including what will be accomplished, when it will be completed and how much it’s going to cost.

Look for a guarantee or assurance by the contractor that their insurance protects the association’s assets and relieves them from liability. There should also be a clause that addresses project delays due to bad weather, supply shortage or other unforeseen circumstances. Penalties should be identified if either party cannot fulfill their end of the deal.

Payment terms is another important item that must be in the contract. By having terms and conditions in writing, disputes are minimized if something doesn’t go according to plan.

      

Conclusion

Hiring a vendor that you know nothing about can feel like taking a big risk. That’s why many HOAs prefer to work with a manager that has existing relationships with trustworthy contractors. However, it is certainly possible for boards to find local professionals who are willing to do good work for a fair price. Submitting detailed proposals that include a reasonable budget will help ensure your community gets the assistance it needs at a price it can afford.

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