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BID
SHOPPING
 QUESTION: I
would appreciate your comments on whether bid shopping by
a board of directors is a violation
California law or a violation of the Code
of Ethics by a certified manager.
ANSWER:
There are
two types of bid shopping and both are considered
unethical because of the
unfair competition involved.
Pre-Award Shopping. The first type is called pre-award bid shopping and occurs when a
board or manager receives bids on a project and instead
of awarding the contract to the best bid takes
the lowest bid without the contractor's knowledge
or approval and discloses it to other contractors.
The board or manager "shops" the bid in an effort to get
new proposals below the original bid. At that point, the
board may award the contract to a new low bidder or
squeeze everyone again with another round of bid shopping.
Post-Award Shopping. The second type is called
post-award bid shopping. This one is done by the general
contractor after the association awards him the contract.
It is done without the association's knowledge or approval. The
general takes his subcontractors' bids and shops them in an effort to drive down the
costs he quoted the association. He does not pass the
savings on to the association. Instead, he pockets the difference.
Negative Impact. Using a legitimate bid to chisel down
other bidders can significantly impact work quality. Contractors will cut corners by substituting cheaper materials and
inexperienced labor in an effort to make a profit.
Some states
have made efforts to curb this
practice. Those efforts have been largely unsuccessful.
Managers. I reviewed the
Codes of Professional Conduct posted by the Community
Associations Institute (CAI) and the California
Association of Community Managers (CACM) on their
websites. They don't directly address bid shopping but
their ethics standards are broad enough to cover the
practice. In 5-01(b) of CACM's Standards of Practice:
[Managers] shall employ a sealed bid process wherein all bids
are received sealed and are opened in the presence
of the client board or its designated representative
other than the Member.
Paragraph
14 of CAI's Professional Manager Code of Ethics states
that managers shall "Not engage in any form of
price fixing, anti-trust, or anti-competition."
RECOMMENDATION: I know that boards and managers who engage in bid
shopping have good intentions but the practice is not ethical.
Moreover, using it to save a few dollars may actually backfire and cost the
association more money than it saves.
FDIC
INSURANCE
 On July 21, 2010, basic
FDIC insurance coverage was permanently increased to
$250,000. The standard maximum insurance
amount of $100,000 had been temporarily raised through
December 31, 2013. That increase is now permanent. The
coverage applies per depositor, per insured institution.
Boards should take this into consideration as part of
their association's investment strategy.
HOA CREDIT
UNION
QUESTION: Can
our common interest development own and
operate a credit union or bank for the benefit of the
homeowners?
ANSWER:
An HOA owning a credit union? That’s a new one. I had to
ask attorney Helene Fransz for help on this one.
Corporate
Purpose. Your
association's articles of incorporation establish the purpose for
your corporation. Running a credit union is
probably not one of them. As a result, if your board set up a credit union
it would likely be an ultra vires act
unless the membership amended your articles to allow for it.
Ownership &
Taxes.
There may be laws regarding who
may and may not own a credit union. You need to
talk to a lawyer who specializes in banking law. You
better talk to tax specialist as well since income from business operations will be taxed
differently than membership dues. Finally, who would
run the credit union? It's tough enough running a
homeowners association. A credit union would be another source of potential liability. Gives me the
willies just thinking about it.
FEEDBACK
Wolves at the Door.The letter from the folks wanting to hire
non-members as  directors was interesting. Your advice to
"insurance up" was apropos but you should warn the
little lambs about the right insurance lest they be
slaughtered by the wolves within or without because
useless coverage ala Farmers. I have found (too late)
Travelers, Chubb, and AIG cover the dangerous and common
non-damages lawsuits. Without such coverage, they stand
to lose their homes and everything else as is happening
to us. -Lois W.
A Vacuum. Herein
lies the vacuum in the professional management industry;
little or no training, knowledge, or experience about
roofing, plumbing, electrical, heating, paint quality,
waterproofing, basic structural considerations, etc. It
appears that, unless there is an onsite property
manager, the management company's efforts consist of
calling a contractor to fix the problem, or gathering
bids for work requested by the board. I would guess that
most boards do not realize this when they hire a
manager. -Michael G.
Sincerely yours,
Adrian J. Adams, Esq.
Adams Kessler PLC
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