Bidding Out the Management Contract

Community Associations HOA Board of Directors HOA Management Companies Vendors

Helpful Hints for the Board of Directors
One of the toughest challenges a board of directors can face is the decision and process of bidding out the association’s management contract. Boards often feel they have a fiduciary obligation to bid out the management contract when, in actuality, the board may simply not realize it is already exercising appropriate fiduciary obligation by working to preserve and extend the relationship with the current management company.
The first thing the board should do in considering bidding out the management contract is to ask itself why it should go out to bid. Is there a service issue with the current managing agent? Or is it really about price? Perhaps there is just a clash of personalities with the current staff assigned to the community on behalf of the managing agent? Any of those issues should be promptly discussed with the current managing agent. From day one of establishing a relationship with your management company, the board of directors needs to be prompt and upfront with the company regarding any issues or obstacles. Just as the board expects management to be proactive and candid, the management company has the same expectation of the board. After all, you are in a partnership with your management company – the fewer the surprises the better the relationship between the two entities. So, whether price, service, or personnel are the issues, let your current managing agent know. When possible, all efforts should be made to overcome any concerns of the current managing agent and contract.
If the relationship with the current managing agent is beyond the possibility of repair, the board must move forward with the bid process. As this can often prove to be a daunting and overwhelming task, here are a few helpful hints for the board to consider when entering the bid process:

  • The board may consider forming an ad-hoc committee for the specific purpose of assisting the board of directors with researching and selecting a new management company. The ad-hoc committee members should be appointed by the board, provided with a scope of authority and goals as determined by the board, and disbanded upon conclusion of the bid/selection process.
  • Engage your team of professionals. Consult with the association’s legal counsel for assistance with drafting a Request for Proposal (RFP). Often times the current managing agent is willing to assist the board with the RFP. The goal is to craft an RFP that will allow for an apples-to-apples comparison of the potential new management companies. Seek out credible management company references from the association’s legal counsel, auditing firm, and other service contractors of the association. Ask the local chapter of the Community Associations Institute) for a list of member management companies.
  • Once the RFP is reviewed and approved by the board, email and mail the RFPs to the respected management companies from whom you wish to receive a response. Provide a specific timeline in the RFP within which the proposal must be submitted, designate the timeframe in which the ad-hoc committee and/or board will review the responses, and specify the date(s) that the committee and/or board will be interviewing the potential candidates.
  • Once the proposals have been received and adequately reviewed by the ad-hoc committee, the committee may then make its recommendation to the board for the top three candidates. The board should then invite the three finalists to the community for an interview. Create a list of questions in advance of the interview process and be consistent in asking the same questions of each candidate. Set the length of the interview to be anywhere from 45 minutes to an hour. Request to meet and interview with the members of each firm that will be working directly on behalf of your association. Often, management companies will send out their marketing or executive-level staff members. While those individuals will be involved with your community, you want to meet with those you will be dealing with on a day-to-day basis, such as the community manager.
  • Upon conclusion of each interview, inform the bidder of the specific timeline in which the board will be making its final decision. Although sometimes unavoidable due to extreme circumstances, a transition period of no less than 90 days between management companies is most beneficial to the association.
  • Lastly, congratulate the winning bidder and inform the other two bidders of the board’s decision.

The aforementioned tips are just a few helpful suggestions for the board that will provide for a smooth, efficient, and effective bid process. Remember, the goal is to obtain like-comparisons and to select the managing agent (including consideration of the incumbent) best qualified to meet and, hopefully, exceed the expectations of your association.
Provided by Association Living.