I Bid You Good Day Bidding Out Service and Project Contracts

I Bid You Good Day

It’s only logical that if something goes wrong and needs fixing at a condo or HOA, it's the board or manager’s job to do some due diligence and choose the contractor that makes the most sense for the community's needs and budget.

This is usually done by gathering bids from several different vendors. After all, if you don’t compare the price and terms quoted to you by one vendor to those quoted to you by his or her competitors, how will you know if you’re getting a fair price, or being taken advantage of? Understanding how to navigate the bidding process—whether it's a manager doing it or the board itself, in the case of self-managed communities—is a crucial component of maintaining an HOA's overall financial health.

Managing Bids

“When a board decides that a project needs to be done, we will put together a request for proposal and will have the board approve it. Once they do, it means everyone is on the same page of what the project entails,” says Jonathan Louis, CEO of American Management Group, based in Pembroke Pines. “We have a preferred vendors list already made up of those we have worked with in the past, have a good track record and are fully licensed and insured.”

Anthony Rodriguez, managing partner with Florida Advanced Properties, Inc. in Miami says that while obtaining bids from a vendor for a project or ongoing service can be requested by either the board or the manager, it is usually done by the manager.

“All vendors are identified based on having pre-verified their license and insurance,” he says. “Furthermore, in some cases they are identified based on their reputation, if they've worked with the association and/or manager in the past.”

Robert White, co-managing partner at KW Property Management in Miami agrees that at their properties, it's up to the manager to take control of the bidding process. “Based on the service needed, the manager reaches out to their district and regional manager, who will recommend someone who provides quality service at a reasonable price,” he says. “Our firm does not own or have any financial relationship with any vendors, so we are completely independent. The goal is to provide the association the best service at the best price; there's no economic benefit to the manager.”

Who's Best?

Managers typically identify prospective vendors through past experience, or from industry recommendations. If the board has a recommended vendor they want to try, Louis says that a good management company will do some investigation into their reputation and licensure, and qualify them. This involves the contractor filling out a form and showing all license and insurance requirements.

“Once you get this, you have to check at least two references and make sure the people they worked for were satisfied with their work,” Louis says. “Once they have been qualified, we send bids to any vendors who have been qualified.”

Jed Frankel, a shareholder attorney in the community association law firm of Eisinger, Brown, Lewis, Frankel & Chaiet, P.A., says potential vendors can be identified in a number of ways ranging from word-of-mouth to advertisements, yellow pages, signs showing work they are doing on other projects, web-based information and search engines.

“Given the large number of vendors vying for association business (some of whom can be unscrupulous) I always suggest researching them by checking with prior customers or trade groups like the Community Associations Institute (CAI),” Frankel says. “It is up to the association to establish its bidding process. The process may or may not be included in the constituent documents. Generally the process should be set up so that it provides the board members with sufficient information for them to exercise their business judgment and select the best contractor for the job.”

Three is the Magic Number

The “ideal” number of bids depends upon the scope of the project. “For something relatively minor costing $500 or less it might not make sense to invest the time necessary to contact multiple vendors and obtain competing bids,” Frankel says. “On the other hand, where there is a multi-million dollar project that will affect the association for years to come, it's a good idea not only to seek multiple bids (sometimes as many as five or more) but to talk to as many people as possible—such as board members at other associations, building officials, and other professionals in the community association industry—to vet the contractors submitting bids and learn about possible hidden dangers down the road.”

According to White, usually for all material contracts or jobs it is industry standard to get three bids. In the event of a professional or a minor job or contract, it may be okay to get only two bids. That philosophy is shared throughout the industry.

“Customarily, we request a minimum of three bids for any project or service that exceeds a pre-determined monetary amount,” Rodriguez says. “A predetermined amount is usually put in place to work efficiently and effectively. For instance, if a light bulb goes out and you need to replace it, in order to get the job done quickly it is not worth obtaining a few bids for such a small job. Furthermore, it is understood that associations are guided by an annual budget, which they should have allocated funds for certain items such as maintenance, etc.”

Rodriguez says while it may seem that collecting 5, 6 or even more bids makes the most sense, in order to effectively move forward in the day-to-day business of an association, it's really not efficient to spend more time than necessary obtaining bids, so three is usually the perfect number.

“Obtaining only two bids is not necessarily a mistake—in some cases, you will find that there are only two companies out there that are willing to even take the job,” he says. “Also, opening the bidding request for proposal (RFP) is also encouraged, as it reflects transparency. Of course, if you obtain three bids and find that the proposed price is dramatically different for each, then at that point I would continue obtaining bids until you stabilize the proposed figure.”

It’s all arbitrary, though. “You don’t want to get too carried away. If you have a sizable project, it doesn’t hurt to have 4-5 bids—but a tiny little project sometimes you don’t even need to bid it,” Louis says. “For us, anything over $2,000 we seek bids for.”

The Easy Way Out?

When obtaining bids for an association, conflicts of interest may occasionally arise. When it comes to relationships between prospective vendors and management or board members, “There has to be full disclosure of those connections,” Louis says. “One of the reasons management companies are asked to do bids is that we have to follow a high professional standard. So if there is a relationship between someone at the management company and a vendor that has to be disclosed. If it’s a board member, they have to recuse themselves from voting on it.”

Rodriguez’s rule is that if it even appears that there may be a conflict of interest, then don’t proceed. However, it goes back to reviewing your association’s governing documents.

“I've seen cases where even board members (per the governing documents) are allowed to bid on jobs for their own community, if they meet all the requirements,” he says, “but in those cases, the board member isn't allowed to vote on that particular issue. Some may strongly disagree with such policy, but if the association benefits from a vendor that offers a better deal all around because they are an owner and/or board member, then where is the conflict of interest?”

While it may be tempting to just hire the board treasurer’s nephew to repaint the lobby or to accept the lowest bidder for a given job just to save some bucks—taking the easy route can backfire, costing a lot of money in damages, legal fees, and insurance payouts.

Rules and Regulations

While some association’s governing documents outline procedures and protocol for obtaining bids, it is not the norm. Florida Statute 718.3026(1) does require that for any project which in the aggregate exceeds five percent of the association’s total annual budget (including reserves), the board and/or manager shall obtain competitive bids.

But what about when something unforeseen happens, and there's simply no time to solicit multiple bids? Let’s say the sprinklers go off and flooding occurs, for example—that’s a time when you can call a vendor without collecting bids, Louis says.

“We have preferred vendors on a list exclusively for emergencies,” Louis says. “All they’re going to do is mitigate the damage and prevent any more damage from happening, but they will not restore it.” That company will be asked to submit a bid for the restoration work, but the fact that they were called in to mitigate is no guarantee that they will get the restoration job just because they were there when needed.

It’s Rodriguez’s belief that emergency situations are really the only time it's okay to not bid out a bigger job, as it’s understood that the damages which can occur in an emergency can be much greater if it is not attended to immediately. However, “I strongly recommend that a bidding process always take place in order to select the best vendor at the best price.”

Bid Communiqué

As previously mentioned, the bid process is handled through a RFP, an outline with all of the specific specs for the job. For larger contracts/jobs, the vendors are normally invited to board meetings to give a presentation to explain and support their pricing and bid structure.

“It is important for all the bids to be based on the same parameters so they can be compared accurately,” White says. “Usually, a summary sheet with the bids is prepared to highlight the responses and compare them.”

This proposal might be as simple as an oral request for a bid to replace the roof or in other instances a set of plans prepared by an engineer that an association requests bids on. It is generally a good idea to have all these communications in writing so that the association has a record of the process.

Once the manager receives the bids and prepares a recommendation to the board, a decision can be made. While the manager and the management company facilitate the information and coordination, the board makes the final decision.

Final Thoughts

The lowest bidder is not necessarily a bad choice, but it also shouldn’t be considered the winner based solely on price. When reviewing bids, it is important to review and verify credentials, references and much more. For that reason, Louis says, the best choice might be the lowest bid, though in many cases the mid-bid—or even in some cases the highest bid—may be the wisest route.

“What we look for is those that meet the requirements in the Request for Proposal as closely as possible, we look for track record and we consider how low is the lowest bid,” Louis says. “There is a technique used by some unscrupulous vendors out there that they will come in so low and then try to hit you with change orders. That’s why the RFP is so important. We consider all factors.”    

Keith Loria is a freelance writer and a frequent contributor to The South Florida Cooperator.

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Comments

  • Good Article! Very informative for board members who are elected to serve but had no previous career experience with purchasing processes. So how can you get a bid for emergency services? Disaster Restoration services all have a baseline for mitigation costs recognized by the insurance industry as "Fair and Reasonable" but any company worth their salt will offer a program with fixed and discounted cost for out of pocket expense by an Association. Create an RFP with an example emergency at the approx cost of your association deductible to see who will offer a competitive bid below the deductible amount.