If there is only one thing that all community associations, big or small, have in common, it’s this: They must all hire a vendor to perform work on their behalf at one point or another. That’s why it is very important for a homeowners or condo association to know how to property select a vendor and protect themselves in the process. Members of an HOA’s board of directors have a legally binding obligation to make sound business decisions that are in the best interest of the entire community. This is known as their fiduciary duty and it includes making sound decisions when choosing a vendor.
Associations have two options when hiring someone to perform work for the community. One option is to hire an employee that is paid by the association. An example of this includes a full-time maintenance person or the manager of a self-managed association. Aside from very small, simple projects, there are few instances where this is advantageous for the HOA; what happens if the employee is sick or goes on vacation? There are other considerations as well. An association which uses an employee to perform work must withhold income, Social Security, Medicaid, and unemployment taxes. The HOA must also verify the legal residency status of any employee, not to mention background and referral checks. As you can see, this option has more cons than pros.
The other type of vendor is an independent contractor. When you think of a vendor for a community association, this type is what most people think of. Examples of independent contractors include landscapers, attorneys, and roofers. An association which hires an independent contractor must only file and provide a 1099 Form to the vendor. Requiring less reporting to the IRS and less paperwork is a huge benefit to an HOA. Other benefits of hiring an independent contractor are that they and pose less of a liability to the association. Any contractor worth hiring will be licensed and insured so that any damages or injuries sustained on the property do not fall on the association. Clearly, it is more advantageous for an HOA to engage in this type of business relationship.
No matter what kind of vendor your association chooses to utilize, any work performed should be put in writing. All of the basics, such as the work to be performed, the duration of the work performed, and the price the association will pay to the vendor, will need to be on paper. This will eliminate any discrepancies between the association and the vendor.
The key to successful vendor selection is for your board of directors to be transparent throughout the entire process. Any job that requires a third party vendor should receive at least three bids. Many states have laws that require multiple bids, so you could run the risk of breaking the law by hiring a vendor on the fly. Besides complying with state law, receiving more than one or two bids will give you an idea of what kind of value you’re getting.
When choosing a vendor to hire during this process, many boards make the mistake of automatically choosing the lowest bid. Instead of doing this, try to select the bid that offers the greatest value, even if it’s not the cheapest. That’s right, the cheapest bid isn’t always the best value. That’s why it’s important to carefully review all bids to see what they entail. Make sure your potential vendors provide proof of being licensed and bonded, to ensure they are property qualified. You don’t want to find out the hard way that the vendor that got hurt on your property doesn’t have proper insurance.
Even after you have selected a vendor, keep transparency and organization priorities. It’s a good idea to keep the documentation from rejected bids, because you never know when you will need to show proof of due diligence. Without going off on a tangent about legalities, it’s worth mentioning that some HOA’s never sign a contract without first having it approved by their attorney. This is an added precaution, but laws vary from state to state and new laws are crafted every year, making it a good idea to have your attorney look at all contracts.
Following these simple suggestions will help to ensure that you’re getting the best value for your money and that any job your HOA needs performed will be completed in a timely and acceptable manner. If you’re accepting bids for new contracts for 2013 or need to find a new vendor, we invite you to use our FREE vendor directory. The vendors on the HOA Management (.com) directory have been time-tested by many community associations; we have already done the initial screening process for you. All you have to do is search by location and category. We make is easier than ever to find quality, dependable companies with experience in the HOA industry. Now that you have the basics, get out there and pick a winner.
This article is provided by HOA Management (.com).