Three Bids. There is no statute requiring three bids whenever a board authorizes projects. However, good business practice requires bidding for large projects. The threshold amount for seeking bids will depend on the association's budget. Associations with a $5 million annual budget will have a higher threshold before going out to bid than will associations with a $50,000 budget.
Small Projects. Boards will have difficulty obtaining bids for small repairs. Many contractors will not waste time preparing written proposals for a $500 repair. For routine plumbing repairs, most boards call a plumber familiar with the development and pay him as needed to repair leaks. This is an acceptable business practice.
Large Projects. When it comes to large projects, such as replacing a roof, painting buildings, paving streets, etc, bidding is a good business practice. If a board receives a single bid of $220,000 to paint buildings, it is impossible to determine the fairness of the proposal without competing bids. If the next two bids (from licensed and insured companies) come in at $160,000 and $152,000, the board will know that the first bid is too high.
Large Variances. Ideally, bids should be within 10% of each other. If there are significant variances, one of the bidders has made a mistake and improperly bid the project or is intentionally misbidding it. An unusually low bid may be undercutting legitimate bids and plans to substitute inferior materials or make up the difference with change orders. Boards need to investigate any large variances that may exist before making a decision.
Low Bid. Boards are not required to accept the lowest bid. The lowest bid is not always the best bid. The company may be small and inexperienced and may be operating on a shoestring budget with low levels of insurance, limited equipment, and minimal staffing. If someone quits or equipment fails, your project may suffer. With a more established company, the chances are better that the work will be done on time and within budget.
Specifications. A critical factor for bidding projects is the preparation of specifications. It will be impossible to properly compare bids if companies are not bidding the same work. For a large painting project, are all bidders power-washing the exterior? Are they filling cracks and caulking around window frames? Are they using the same quality paint and applying it to the same thickness? To compare apples to apples, have a consultant prepare the specifications. Only then can boards truly compare bids. See Request for Proposal.
Sealed Bids. Boards should use a sealed bid policy when soliciting bids. Boards are allowed to review and discuss bids in executive session but may, if they choose, review and vote on them in open session.
Sample Policy. Boards should consider adopting a policy related to bidding. Following is a sample:
Management shall obtain three bids for all work over $_______. Contracts will not necessarily be awarded to the lowest bidder--contracts will be awarded to the best bidder as determined by the board. The requirement for three bids may be waived depending on the circumstances, i.e., whether the work is an emergency, the association has a long-standing relationship with a particular vendor who is especially knowledgeable about the building, changing vendors would disrupt existing warranties, and/or other vendors are not be willing to bid on the project.
Frequency of Bids. If an association already has a good company providing good services, the board is not obligated to force it to annually re-bid their services. This includes companies such as landscapers, elevator companies, management companies, security services, etc. Forcing them into an annual bidding cycle can lead them to view their relationship with the association as a short-term commitment rather than one into which they should invest time and energy. Annual re-bidding will also cause competitors to stop preparing and submitting proposals. They will view the annual dance as an exercise in futility.
If a company has been providing valuable services and has not exceeded CPI increases, the company could be in place for many years without going through a formal re-bidding process. Instead, management can spot-check industry pricing by making phone calls. Even if the board were to request new landscape bids on a 5-year cycle, it does not mean the board should switch companies if one came in with a lower bid. Switching to a cheaper company could result in lower-quality service. If the existing vendor is not the lowest bid but is competitive, the association benefits from continuity of relationship with a known entity providing reliable services--one that is already familiar with the association's policies and procedures.
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