General factors to consider are:
- state law
- governing documents
- experience of on-site staff
- warranty issues
- liability issues
State law often comes in to play when determining whether or not a licensed contractor is required to perform the work. Some states may have laws that allow the Association staff to act as “owner/builder” to perform repairs without having to comply with contractor licensing requirements. Other states have strict requirements that prohibit on-site or management company staff from performing such work without a contractor’s license. Know the law in your area. If you are not certain of the line area, consult with your Association's attorney or take the safe route and use an outside licensed contractor. The last thing you need is a problem caused by having work performed by unlicensed staff when a licensed contractor was required.
Check your governing documents, as they also may have an impact on determining who can perform certain repair work.
Even if the nature of the repair does not require the use of a licensed contractor, you must still consider the capabilities and experience of your on-site staff. If your on-site staff does not appear to have experience in a certain area, then you are probably wise to avoid having staff perform such repairs. Use an outside contractor instead.
Warranty issues are often overlooked. Deck sealing is an example that has been raised many times. Many deck sealing products require periodic re-applications. Often, those periodic re-applications must be performed by a contractor certified by the product manufacturer to perform the work. Having your on-site staff perform a task as simple as resealing decks may void your warranty. Always check your warranties before performing repair work.
Liability issues must also be considered. A licensed contractor would be trained to recognize and allow for certain liability issues that on-site staff may not have any training in.
If you decide to bid the work, you still have some of the same issues to consider. For instance, state law may require a bid process for projects that exceed a certain level (5% or 10%) of the annual budget. Governing documents could contain similar clauses. In most states, a prudent businessman rule applies to boards making these types of decisions. If prudence indicates that work would normally not be performed without obtaining bids, then it should go out for bid. Another factor to consider is potential conflicts of interest. State laws may have a prohibition against a sitting member of a board participating in the decision to bid work if one of the potential vendors is a company in which that board member has a financial interest or is a related party.
Once the decision has been made to bid repair projects, you should be able to rely upon the Association’s bidding guidelines. But if you're like many Associations, you don't have bidding guidelines. If that’s the case, then from here it starts to get a little fuzzy as to what the first action should be. It may depend upon the nature of the work being performed. As an example, if you're considering a complex or large project such as a roof replacement, it is probably prudent for the board to engage a roofing consultant before going out to bid for contractors, for the simple reason that the roofing consultant can define the scope of the project based on his knowledge or experience. That knowledge or experience is typically not something that the average lay board member would possess. Also, there is a possibility in the roofing project that several different contractors may be involved, as well as potentially several product manufacturers, depending on the type of roof, flashings, rain gutters, etc.
The next question generally is, how many bids do you need to obtain? An unwritten rule seems to be that the board should usually obtain three bids to perform work, although it's acceptable to request more than three bids. There's nothing magical about the number except that too few bids not only limits your options, but may be viewed as favoring a particular vendor.
This raises the question of using the same vendors on a continuing basis. I have seen both sides of this issue debated. On the one hand, I have seen boards accuse a manager of potential impropriety and even make allegations of kickbacks because the manager exhibited a strong preference in selection of vendors. In fact, in talking with a CPA who specializes in fraud investigations, I discovered that this is one of the potential signs of a financial fraud. However, it may simply be that a more logical reason exists, which is that the vendor has continually proven himself to be reliable. One good way for a board to get around this issue is to establish a bidding requirement that sets time limits when considering vendors. An example would be to establish a requirement that every three or five years, a formal bid process is required. At a minimum, this keeps the vendor on his toes and requires that his costs must remain competitive. It also gives the board a chance to look at what other vendors have to offer.
The simple act of opening bids is also something that may be influenced by state law. For instance, some states insist on a sealed bid process for certain activities, and require that the sealed bids be opened at a board meeting in the presence of all board members. That process substantially eliminates the possibility of anyone connected with the management of the Association attempting to influence the bid process by having advance knowledge of the fee proposals.
Another thing to consider is both what is excluded from the proposal as well as what is included. As an example, if reconstruction work will result in the accumulation of a certain amount of debris, management needs to consider whether or not the contractor is providing debris removal as part of the work, or if that is excluded from the proposal and therefore becomes a separate cost to the Association.
An additional factor that should be part of the Association’s rules for board and committee members is the establishment of a single point of contact within the Association for vendors. Normally that person would be the general manager. At one Association where I worked, there was a single troublesome board member who insisted on micromanaging repair projects. Whenever he saw that the contractors were on-site, he would make it a point to visit and talk with them, explaining what his demands were and generally impeding the process. It took a public reprimand from the board to control that board member.
One other consideration that should be part of the Association’s established process is evaluating all proposals first, on a qualitative basis and secondly, on a cost basis. Many board members seem to believe that their only duty is to minimize costs and therefore always select the lowest bid. That is not a wise decision. The lowest bid is not always the best bid, and management should place significant value upon the qualitative and performance requirements of the proposal.
Always consider and establish up-front payment options regarding the contract. The last thing you want to do is allow the contractor to get ahead of the Association on payments. This is something that we saw about 15 years ago with the earthquake reconstruction projects that occurred in Southern California after the Northridge earthquake. There was so much damage that contractors did not have to be very competitive in pricing - there simply weren't enough contractors to get all the work done on a timely basis! One of the things I observed is that certain projects might only be 40% completed and yet the contractor had received 60% of the payment. You need to establish clear guidelines and performance levels before payments are disbursed. There should always be a retention until work is completed. The final payment should only be released after work is inspected and approved.
The last step (although it may be prudent to consider this much earlier on in the process) is to have the Association’s attorney review any proposed contracts, or perhaps even draft the contracts themselves. If the Association has an established bid process, standard contract language and terms should already exist, allowing for a relatively easy review process for the attorney. For complex projects, however, custom contract terms may be required. No matter what the project is, it is usually prudent to have the attorney review any contracts before signing. The minor cost of legal fees up front can usually prevent the need for any significant legal fees on the tail end.
