Before entering into a contract
with a vendor, boards should make sure the agreement has been reviewed by legal counsel. The association's attorney will be looking for issues such as the following:
. Associations must verify that the contractor/vendor has the appropriate license
for the work he will perform and that the license is current. Licenses can be verified through the Contractor License Board
. Associations should be aware that using unlicensed contractors
can be costly.
. Make sure the contractor carries workers' compensation
insurance, provides proof of insurance
and names the association as additional insured
. Made sure the contractor's insurance does not contain a multi-family or condo exclusion.
3. Governing Documents
. Make sure the contract does not violate any limitations
in the association's governing documents.
4 . Legal Review
Signing the vendor's contract
or the vendor's work order is generally poor business practice. The
agreement/work order is usually written to favor the vendor, not the
should have their legal counsel review all contracts before they are signed by the board and either modify the vendor's contract or
draft one that protects the association. Following are some issues and clauses that need to be reviewed in all agreements:
Parties. The opening paragraph of a contract typically names the
parties to the agreement. The contract should NOT name the directors as
parties. Instead, the party to the agreement should be the association itself. If
directors are listed as parties to the agreement, they could be named
personally in any litigation that might result because of any alleged
breach of the contract. The contracting party is the corporation which
the directors sign on behalf of the corporation.RECOMMENDATION:
Scope of Work. The scope of
work must be clearly defined. An ambiguous or incomplete description of the project gives rise to
disagreements and makes it difficult to hold the vendor accountable for
Payment Schedule. Define the
payment schedule. Generally, payments should be phased so that monies
are paid to the contractor as work is completed. As a rule, full
payment should not be paid up front, since it exposes the association to
significant risk of loss if the contractor does not perform. Normally, a
percentage is paid up front so the contractor can purchase materials
and begin work. A percentage, usually 10%, is retained by the
association at the conclusion of the work until everything is
Insurance. Define the types of insurance and minimum limits the vendor must carry
and whether the association is named as additionally insured on the
Indemnity. Vendor agrees
to indemnify the association if the association is sued because of some act or
omission of the vendor.
Time for Performance. If
performance dates and times are important, put them in the contract.
Permits and Licenses. Vendors must be licensed and pull permits whenever appropriate and provide the association with copies of both.
Warranties. If the vendor promises
to stand behind his/her work, be sure to put it in the contract. You
should also have the manufacturer's warranty against defects in the products (not
necessary for service providers).
Mechanics Liens. Mechanics
lien provisions should protect the association in the event the
vendor fails to pay his subcontractors or material suppliers.
Termination Clause. If work is not
performed satisfactorily, there should be a provision for terminating
Evergreen Clause. The contract automatically renews if notice is not given to the vendor of the association's intention to not renew the agreement.
Escalator Clause. The association's payments to the vendor
automatically increase each year. The increases may be predetermined or
may be linked to the CPI.
Alternative Dispute Resolution. An
ADR provision is often included in contracts so as to keep litigation
costs to a minimum and to speed resolution of any disputes.
Attorneys' Fees. Without an
attorneys' fee provision, typically each side bears their own fees and costs.
All contracts should be reviewed by the association's legal counsel before they are approved and signed by the board. Boards can contact us
for assistance in preparing, reviewing and enforcing contracts.