There has always been a delicate balance between the level of service and the cost of the service. Usually, the more service desired, the higher the cost. This is especially true in the world of association management. Since the members of an association and its elected board of directors are all volunteers, having service providers as business partners is the best way to improve the service levels while maintaining a fair price.
The most important business partner is the management company. The management company acts as an agent for the association and conducts the business of the association on behalf of the board. The value of real property in an association is enormous; in a typical 100-unit condominium association, if the property values average $250,000 per unit, the real property value of the association is $25 million in addition to the association-owned common elements such as a clubhouse, pool, etc. It is wise to entrust the welfare of this collective $25 million investment to the best managing agent available. The same holds true for the association’s attorney, reserve study expert, insurance agent and auditor. To protect the value of the property in all respects, the board should use great care in hiring these key professionals.
Other contractors may be less critical to the success of the community association, but they are still vital. These include the landscaping company, general maintenance contractor, pool maintenance company, and roofing company, among many others. The critical point is that when you partner with a contractor, you are able to improve service by assuring success of both the association and the contractor. The learning curve to success is virtually flat when the expectations of the community are known and the contractor is able to meet the criteria. Conversely, frequently switching contractors or professionals often results in a loss of momentum and control, spawned by the lack of continuity and specific community knowledge. Long-term relationships balance the service level with the expense and encourage the contractor, the professional and the board to work together toward common goals.
There are a number of ways to build business partner relationships that will allow the community and the partners to flourish. Here are some important measures that will help build those partnerships.
Annual Review: Each partner that provides continuing service to the association should be reviewed annually. Similar to an annual employee review, the board should indentify the areas that the partner performs well and the areas that need improvement. This annual review is essential at aligning the expectations of the board with the performance level of the partner, even if both are bound by a multi-year contract.
Openly Address Issues: When service issues are discovered, the board or manager, depending on the discrepancy, should promptly alert the partner to the issue. There should be a clear chain of command that provides a simple process for reporting and following up on service shortcomings. The board should never wait until contract renewal or the annual review to express concerns over any performance issues.
Contracting Policy: The board should adopt a written policy on contracting. The policy should include: when bids are required; how many bids; length of contracts; renewal parameters and long-term relationship building. The policy helps build partnerships by encouraging relationships that are mutually beneficial to both parties. The policy also answers critics who may perceive that a certain contractor is getting preferential status. Below is a sample contracting policy that can be modified to meet the needs of any association, while not providing legal advice. Be sure to have your association’s legal counsel review this policy before implementing it for your association.
Contracting Policy and Guidelines
The following guidelines have been developed in order to assist the board in maintaining competitive and fair contracts for all parties involved, while building partnerships with key contractors.
Proposals under $5,000:
Any proposal costing the association $5,000 or less may be authorized by the community manager without the multiple proposal process. All contractors used for this type of work must be on the approved vendor list and meet all requirements in the Contract Terms and Conditions.
Proposals exceeding $5,000:
- A Request for Proposal must be drafted.
- Terms and Conditions supplied by the management company must be attached to the Request for Proposal and become part of the contract.
- Competitive proposals must be solicited with the intent to receive three comparable bids.
- If the Terms and Conditions are changed by either party, the association’s attorney must review the new document.
- Contracts issued to new vendors will not exceed one year in length. Renewal contracts may be up to three years in length with appropriate termination provisions as detailed in the Terms and Conditions.
Continuing Service and Long-Term Contractors:
The following are proposal guidelines that are to be used when the same contractor has been performing satisfactorily for a period of three years or more.
- For any contractor who has been used for a contract cycle of not greater than six years, bidding is not required if all of the following conditions are met:
- the renewal provision increases the price by no more than 3% or less annually
- the annual review conducted by the board is favorable
- all issues with the contract have been resolved to the board’s and manager’s satisfaction
- all association committee and the community manager must follow the Request for Proposal guidelines.
- For a continuing contractor that has been in place for greater than six years, a Request for Proposal must be drafted and distributed.
- If at any time the board of directors is not satisfied with a current contractor, or if the contractor has not adequately fulfilled contract terms after receiving a written discrepancy notice, the relevant association volunteer committee or community manager will solicit competitive proposals based on the request for proposal guidelines. The method for determining dissatisfaction will be:
- Resident survey results
- Association’s staff experience with contractor
- Committee, board and management company review of survey results and staff opinion
Bid Day: For major contracts or for continuing service contracts, having a Bid Day allows greater control on the process, increases the number of potential contractors and establishes expectations. Your management company can organize and coordinate a bid day on behalf of the association.
It is desirable for a community association to create and maintain partnerships with important business partners. A systematic approach, backed by clear policy, is the best method to nurture long-term business relationships that will benefit the community.
Craig Koss, AMS®, PCAM®
Regional Vice President
Ann Arbor, MI