Every HOA needs the help of vendors to fulfill their maintenance obligations. As such, they should carefully review each HOA vendor contract they receive to ensure that the vendor will provide the necessary services at a reasonable cost.
The Key Elements to Review in an HOA Vendor Contract
HOA vendor contracts outline all the terms and conditions of an agreement between a vendor and a homeowners association. It contains service inclusions, add-on services, fees, and cancellation policies. Remember to consider the following before you sign an agreement.
1. Scope of Work
A good homeowners association vendor contract will usually indicate the vendor’s specific deliverables. It should outline the exact services the vendor will provide and what may be outside the scope of work. Moreover, it should indicate the following:
- Materials needed for the project
- Amount of materials required
- How the vendor will complete the job
- When and how often the vendor will provide services
- Where the vendor will accomplish the work
For example, let’s say you’re reviewing a landscaping contract. Make sure it outlines whether the vendor mulch and gardening tools are included and, if not, who will shoulder the cost of materials. It should also indicate when the vendor will be on HOA premises and when they will complete the job. Refrain from signing any contract with an unclear scope of work and avoid vague language.
Apart from these, consider each inclusion and consider removing any unnecessary services. These only add to the cost without benefiting the community meaningfully.
2. Timeline
An HOA vendor contract should have a specific time frame and indicate the start and end dates of each service. A schedule will hold the vendor accountable and set clear expectations on when they should deliver on their promises.
In addition, remember to be more careful about signing contracts with longer terms. The governing documents might prohibit the board from signing vendor contracts that span more than one year. Furthermore, signing a long-term contract can limit your options. Consider shortening the term so the HOA can re-evaluate the vendor’s yearly performance.
3. Price
One of the most important elements of a contract is the price. After all, it would be pointless for a vendor to provide all the right services if the HOA cannot afford it. Make sure the contract price is within the budget to avoid levying special assessments.
In addition, it’s important to review any extra costs the HOA might incur from add-on services. Review the inclusions thoroughly and compute the cost based on the contract price and the price of any necessary upgrades.
If the price is slightly over budget, don’t be afraid of HOA vendor contract negotiation. Some vendors are willing to lower their price points or adjust the scope of work to meet your needs. Negotiating an HOA vendor contract can seem intimidating, but it can make all the difference between hiring a good vendor and settling for a substandard one with more affordable rates.
4. Indemnity Clause
Those unfamiliar with vendor contracts might overlook the indemnity clause, but it’s a very important part of a written agreement. It requires the vendor to indemnify the association should anyone file a lawsuit related to the work.
5. Cancellation Policy
Every HOA vendor contract should have a cancellation or termination policy with clear procedures. The policy must indicate when either party can terminate the agreement and what the penalties might be. The terms should be balanced and not disproportionately favorable to either party.
6. Payment Terms
An HOA vendor contract should have clear payment terms. This allows the HOA to avoid confusion or missed payments during the project. Moreover, remember to check whether the terms are reasonable.
For example, it might be a red flag if a vendor asks for full payment upfront before the project begins. Signing this contract could encourage them to slack off while fulfilling their duties. After all, they have already been paid.
Instead, make sure the payment terms are fair for both parties. HOA vendor contracts often include an initial down payment, partial down payments during certain project milestones, and full payment upon completion.
7. Insurance Requirements
It’s often unwise to hire vendors without proper insurance coverage. Make sure the contractor has ample insurance and that the contract indicates they have disclosed and assured you of that information. Better yet, consider listing the insurance policies and minimum coverage the vendor requires from the HOA. Otherwise, the HOA may be exposed to liability.
Ask the vendor for an updated Certificate of Insurance and any additional policies. Review the policy for exclusions and whether or not the insurance covers the homeowners association.
8. Attorney’s Fees
A good HOA vendor contract should have a clause indicating that each party will cover the cost of their attorney’s fees in case of a lawsuit.
9. Warranties
Review the contract for any warranties that might be given to the HOA. Warranty clauses prevent the vendor from abusing the HOA and forcing them to pay for defects or malfunctions caused by the vendor.
10. Permits, Code Compliance, and Qualifications
Does the project need proper permits or have code compliance requirements? Make sure that the vendor complies with all codes and state regulations throughout the project. The contract should also describe which party will obtain and pay for any necessary permits.
Apart from these, it’s a good idea to make sure the vendor has updated licenses and certifications. Doing so will ensure the HOA that the vendor can fulfill their work according to industry standards. It also protects the HOA from potential liability.
Other Tips to Keep In Mind
Apart from reviewing the elements of a contract, homeowners associations should also adhere to a few best practices when hiring vendors.
Obtain Multiple Bids
It’s usually a good idea to obtain at least three bids from different vendors, especially for large projects. Multiple bids give the HOA several pricing options to choose from and allow them to compare the offerings of different vendors. They can gauge whether or not they’re getting a good deal and get an idea of how much such services should cost.
Get Professional Help
Reviewing a contract yourself can sometimes be effective, but it might be wise to run it by a trained professional. Ask a lawyer or HOA management company for help. They might find suspicious clauses or unfair conditions that are unfavorable to your community.
Getting professional help will save you a lot of money and keep you from running into long-term problems. It can also help you weed out any vendors that may have dubious practices or intentions.
Check With the BBB
The Better Business Bureau (BBB) or a state licensing bureau can help you learn more about specific vendors. Previous clients may have complaints about a vendor’s work ethic or past performance. If the reviews contain red flags, it may be wise to find a different prospect.
Attention to Detail Is Key
Reviewing an HOA vendor contract isn’t easy, but attention to detail is key when it comes to binding legal documents. You do not want to find yourself in trouble later on because you overlooked a clause in the contract.
Do you need help reviewing vendor bids and contracts? Consider hiring an HOA management company like 88 Doors. We offer professional management services to community associations. Call us now at (512) 348-8821 or contact us online to learn more!
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