There are thousands of vendors that work in your area but only a few are utilized for property owners association (POA) work. So, which one do you choose? Selecting the right one can be overwhelming. When looking for a qualified vendor, there are several factors you will want to consider before engaging. First, who or what is a vendor? A vendor, also known as a supplier, is a person or business that sells goods or services. This could include contractors, professionals and brokers. So, now that we have defined what a vendor is, how do you get the results you want from a trusted vendor? There are many options, but one important method is to pre-qualify potential vendors.
Factors to pre-qualify a vendor?
When looking to pre-qualify a vendor there are some important factors to consider:
- How many years has the vendor been in business?
- Does the vendor have adequate references?
- Does the vendor have adequate insurance?
- Will an RFP (Request for Proposal) be used?
Experience. A key thing to consider when pre-qualifying a vendor is their level of experience or the amount of time the vendor has been in business. Selecting a seasoned vendor is extremely important and can be a step in the right direction towards meeting the POA’s needs.
References. Why are references important? References will help the POA determine if the potential vendor is a good fit. These days, it’s easy to read a vendor’s reviews online to get an idea of how satisfied previous customers have been with their performance. Often, consumers are using reviews as a guide to determine whether to choose a vendor and determine if they are credible and trustworthy. Whenever you are researching a new vendor, be sure to contact 2 or more of their former clients and read online reviews, where available.
Insurance. A POA vendor must have adequate insurance. One of the more critical aspects of pre-qualifying a vendor is making sure it has the appropriate insurance, licenses, and credentials. Frequently, insurance coverage gets lost during POA contracting. However, whether contracting for minor repairs or major renovations, the contract should include detailed specifications and all potential damages must be considered. This serves as a protection for the POA in the event there is any incident and will ensure you’re selecting the right vendor that meets the POA’s demands. Other items to consider when reviewing the insurance provision in a potential vendor contract are, occurrence v. claims made policies and the required coverage related to the potential range of damages that could occur while a vendor is performing a service. Included in the potential range of damages should be the length of coverage and effective dates to assure that the proposed insurance provision fully covers the service. Finally, once everything is in order, review the certificate of insurance to ensure that it matches the pre-qualification.
Indemnity. Along with insurance, reviewing indemnification provisions in contracts for potential vendors is important, but is something that may get overlooked. However, allocating responsibility for a breach, default, or misconduct by one of the parties to the agreement is vital. The indemnity provision should also spell out limitations on recovery and whose insurance will fund the indemnity. This is another factor to consider when pre-qualifying a vendor.
RFP. A common complaint about the RFP process is that it’s time consuming for the manager; however, the RFP process can clear up questions on various aspects/issues, such as costs, scope of work to be performed and other factors that may arise later. Naturally, POAs tend to use vendors who they feel are reliable and have performed services for the association in the past. An association may be inclined to accept and engage the first vendor to submit a proposal rather than having the parties execute an actual contract, but this is not the best practice. Instead, pre-qualifying a vendor using an RFP can save you from a big headache down the road, such as when a vendor attempts to change terms/conditions referenced in their proposal at the contract stage. A word of caution, though: POAs should be careful not to rely solely on an RFP. Proposals do not always address important issues such as indemnification, insurance requirements, termination clauses, etc. Instead, contracts should clarify what a vendor’s exact responsibilities and pricing are. For these reasons, associations should not simply rely on a signed proposal. Contracts with vendors are strongly recommended and the association should consider having its legal counsel review these contracts to ensure the association is adequately protected. Making good business decisions for your community is a top priority, not speed and convenience.
Other Provision. Notably, managers and board members should check for other provisions when considering a vendor contract. For example, is there a provision in the contract that protects the POAs confidential information? Or, does the contract restrict the hiring of the employees or vendors? Contemplating these tips and of course, seeking the guidance of the POA’s legal counsel, will safeguard the POAs interests and help to secure a qualified vendor.
Law of Agency and Principal:
It is important to note, that you and your team need to understand the Law of Agency and Principal. Why? You, as a manager or board member, are not negotiating or seeking services for yourself, but for your principal – the Association. Of course, you are not expected to know the legal nuances of Agency/Principal laws. However, it is a good idea to have a basic knowledge because it addresses under what circumstances the manager or board member can legally bind the Association. A primary example of this is vendor contracts. Vendor contracts awarded are in the name of the Association and either signed by a board member or a community manager for the benefit and burden of the association. Based on the employment agreement or contract, a board member or your manager has express authority, implied authority, apparent authority, or no authority.
How does someone gain authority?
- For on-site management, the employment agreement should grant authority to act without specific board authority.
- For the portfolio manager, the contract should provide authority for the manager to take action without specific board authority.
- Without express authority, the agent may be responsible for any financial reimbursement to the Principal.
Tips for Managing Vendors:
Vendors want your association’s business and there are ways they will go about securing it, and there are some ways for you to make the distinction on whether it’s an appropriate business transaction. Some vendors will attempt to tilt the scales in their favor and their actions could be viewed as ethical or unethical.
Ethical actions could include:
- Doing a good job and sticking to the guidelines set forth in the contract
- Entertaining the managers
- Providing gifts to the managers or board members under a certain dollar amount
- Surveying Boards
Unethical actions could include:
- Providing gifts to the managers or board members over a certain dollar amount
- Family or friends promised jobs
If a manager is using the same vendors for all properties, consider the reason. Is it merely a coincidence, is this the best vendor in the city, are their prices the most competitive, or is there a different, more questionable rationale?
Some items to consider when vendors are vying for your business: there should be a written agreement with all vendors stating that they will not provide a gift or anything of value over a certain dollar amount annually, and if they do so, they will be banned from bidding on further projects. In addition, if a vendor does provide a gift to a manager, consider why and who the gift actually belongs to.
What about kickbacks? A kickback is essentially a bribe, or some incentive paid in exchange for selecting a particular vendor. Kickbacks do not happen frequently but are not completely implausible and do not always come in the form of money. Sometimes a kickback can manifest in nepotism, political hiring or more contracts. Obviously, this is a practice that should be avoided when selecting vendors for the POA. Of course, since it’s a small POA world after all, managers and vendors will develop relationships. The thing to remember is, you should make sure to select vendors that meet the POAs budget and quality standards, not your own.
Pre-qualifying a vendor may seem like a very easy task but remember, there is a fair amount of work that goes into selecting the right vendor for the POA. You as a manager or board member are not the principal. You are acting on behalf of the Association. Vendors can come in all shapes and sizes and the first one to respond to your request is not always the best. You should be looking for qualified vendors that have experience working with POAs. The Community Associations Institute is a great resource to utilize and has already made great connections with vendors in local areas that most likely meet your qualifications.
Before taking the steps to pre-qualify a vendor, join us for a webinar on pre-qualifying vendors, on August 6th, to learn more about the pre-qualification process. Shareholder Sipra Boyd and Associate Noelle Hicks of our Houston Office will take you through the process of pre-qualifying vendors, discuss the types of insurance vendors should have and other provisions to consider.