Community associations cannot accomplish all the tasks they are responsible for without getting outside professionals to help maintain and service their assets. With every agreement to provide a service or to supply materials comes HOA contracts.
Common Services Outsourced by Community Associations
Some of the most common services associations hire on a contract basis include:
- Cleaning
- Waste Collection
- HVAC Maintenance
- Pool Servicing
- Building Repairs and Maintenance
- Management Agreements
Many times, boards of associations sign one-sided HOA contracts because they are pressured into making a decision on a short timeline or are simply intimidated by the language.
Despite the typical lengthy contractual agreement, there is a common bidding practice in which the association is presented with a short document including scope, price, and signature line for the association to accept what is deemed to be a proposal. Many times, Boards will sign the proposal even though it includes language that indicates it is subject to “all other terms and conditions,” without ever being presented any additional documentation. Simple agreements are typically inadequate to fully protect the association’s interest in the event something goes wrong.
10 Key Considerations When Navigating Contract Negotiations
When negotiating a contract with a vendor or contractor, the following are some items that should be considered:
1. Parties Involved
Every contract should include the full legal names of the parties involved so that each party is aware of who has an obligation to whom.
2. Scope of Work
The scope of work is one of the most important parts of the contract. It sets expectations including the exact materials to be provided, the quality of work expected, the level of service to be provided and/or the standard by which the work will be accepted. The more detailed the document is in defining the scope of work, the less likely the association will encounter conflicts in the future.
3. Timeframes
Setting a duration of the contract is critical. Without a start or end date for a project or agreement, the association is giving far too much latitude to the provider under the contract. A community association must look to its bylaws for any minimum or maximum contract requirements.
It is best practice for contracts for the provisions of services to be subject to termination without cause with a short notice period, such as thirty days. The community association should also review the agreement for any requirement that the company be given an opportunity to “cure” any breach and for any automatic renewal provisions. Penalties for failure to meet the deadline, also known as liquidated damages, should be considered.
4. Pricing Terms
- Fixed-Price or Lump Sum: This price is set during negotiations and written into the contract. The association should only pay the amount stated in the contract, no more and no less, regardless of the actual costs the contractor incurs to accomplish the job.
- Cost-plus: The provider of the services will charge the association for the cost of labor and materials along with a markup. This is typically more favorable to the contractor because the price is not fixed. To avoid incurring heavy costs using this approach, the association should negotiate a guaranteed maximum price, so that costs are capped at a certain amount.
- Unit-Price: This type of pricing under a contract details prices per unit, which may include materials, labor, overhead, supplies, and profit. The association pays the vendor based on the units at agreed-upon rates and is best for situations that involve repetitive tasks.
- Progress Payments: If a contract calls for progress payments, then, other than a down payment for project start-up costs or mobilization, the remainder of the work performed under the contract should occur prior to the payments. This will give the community association leverage over the vendor to ensure quality and completion of the work.
- Holdbacks or Retainage: A contract should give the association the ability to withhold payment if the work is incomplete or does not meet satisfactory standards. Retention, often ten percent of the amount due, may be held until a defined date after completion of the contract to insure full payment to subcontractors and suppliers.
5. Insurance and Indemnification
Insurance and indemnification provisions are not just boilerplate language. Vendors often try, to the greatest extent, to limit their exposure and shift responsibility to the association.
Contracts should require the vendor to carry liability insurance to cover any claims against personal injury and property damage which may arise from or out of the work or services being performed under the contract, specify the amount of insurance needed on a per occurrence and aggregate basis, and require that a certificate of insurance be provided showing the proper insurance coverage prior to the commencement of the work and upon request by the association during the project. The contract should require that the insurance remain in full force and effect for the term of the contract and name the association as an additional insured party. Additionally, the contract should require the vendor to carry worker’s compensation insurance covering the vendor’s employees.
An indemnification provision requires the vendor to defend the association if the association is sued because of the actions of the vendor, and to pay any resulting damages. The contract should contain a provision requiring the vendor to indemnify and hold the association harmless and all related parties from all damages and claims that are caused by the vendor or the vendor’s employees. Reciprocal indemnification provisions should be carefully reviewed so that the association is not required to indemnify the vendor or its employees for their own negligence or intentional acts.
6. Remedy Clause
Contract breaches and failure to perform obligations under the contract do happen, and the association should know what options it has should such an event occur.
7. Warranties
Warranties on materials provided by the manufacturer are common, but warranties on the work performed under a contract are not. Associations should seek for contractors to provide a warranty of the work under the contract, specifying its duration and scope, and provide for how defects are to be corrected or replaced.
8. Lien Waivers
If a contract calls for the supply of labor or materials to the association, the contract should require the vendor, as a condition of final or interim payments, to furnish a lien waiver that complies with Georgia law. A lien waiver is an affidavit certifying that all laborers, subcontractors, and suppliers have been paid in full and relinquishes any claims of payment against the association. This is critical to include so that no claim is made against the association for payment due to the workers from the vendor.
9. Exhibits
If there are any referenced documents or exhibits in a contract, these should be reviewed in conjunction with the contractual language and appropriately attached and incorporated into the contract to help ensure the association is aware of all costs, clauses, and obligations.
10. Signatures
All parties to the contract should sign the agreement. Furthermore, the association should confirm that the contract is being signed by the appropriate officers as provided for in the association’s governing documents.
Protecting Community Association Interests through Negotiation and Legal Counsel
HOA contracts as presented are typically partial to the contractor or vendor, giving them advantages over the association. Some objectionable contracts may be avoided by the association by including unacceptable terms in bidding materials or requesting a vendor’s standard contract prior to negotiations to modify so it is fair to the association. Community associations do not have to accept vendor contracts as presented. Association Boards should not be afraid to negotiate the various terms of an agreement to protect the interests of the association.
The items above are only the starting point of provisions that must be considered before signing a contract. It may be prudent, and cost effective in the long term, to have the association’s legal counsel review any proposed contracts before the association negotiates and executes them. NowackHoward is happy to advise as to any contractual concerns your community association may have. If you aren’t sure if your association’s vendor contract complies with Georgia law, feel free to reach out to NowackHoward for further advice.