Vendors are an important part of any community, but an HOA must ensure the terms of the job they’re completing is clearly set. Doing this can help the association avoid potential disasters and save an enormous amount of work down the line. However, many associations still downplay the importance of vendor contracts, leading to consequences that could have been easily prevented.
Understanding the Importance of Vendor Contracts
Contracting vendors is a natural part of any homeowners association. A planned community requires a certain level of service that simply can’t be accomplished without outside help. A responsible HOA, though, must not close a deal with just a smile and a handshake. It just doesn’t work that way. After awarding the project to a vendor, an HOA must draft a vendor contract to cement both parties’ legal obligations to each other.
Vendor agreements can be a confusing topic for some, which is why a handful of HOAs refuse to go near the subject. Yet, HOA contracts are a critical component of all vendor projects. For this reason, a contracting policy for HOAs must exist and be mandatory. Here are some reasons why HOAs can’t do away with vendor agreements:
1. Sets Expectations for Both Parties
The primary importance of vendor contracts is that they define what each party owes the other. Vendor contracts contain the details of a project, including what must be accomplished, when it must be completed, and how much it’s going to cost. Verbal agreements may have worked in the past, but they are never a reliable method of transacting with vendors.
When expectations are set, both parties can make the right preparations. The HOA can allocate a budget for the project, while the vendor can plan a timetable.
2. Outlines Consequences
One of the best HOA contracting tips for any community is to define consequences in case the vendor fails to deliver. Unfortunately, not all vendors have proven track records. A bunch of them will commit mistakes — some more severe than others.
If an HOA doesn’t have a vendor contract in place, the vendor can easily get away with any grave mistakes (or even abject failure) scot-free. Worse yet, the HOA will lose a huge sum of money and have nothing to show for it.
A good vendor agreement must include specific details on penalties the HOA may levy against the vendor in case the latter can’t fulfill their obligations. In this way, vendor agreements protect the association from financial losses.
3. Confidentiality and Privacy
A vendor contract may also indicate privacy clauses to safeguard the HOA. While it may not apply to all vendors, a privacy clause or confidentiality clause usually comes in handy if an HOA wishes to keep the project under wraps or if the vendor will be operating in a space with sensitive information. An HOA may also want to keep details of the contract itself confidential, such as particulars related to pricing.
4. Circumstantial Changes
What happens when a project is delayed due to bad weather? What if an earthquake destroys all the progress midway? Certain situations or unforeseen occurrences could affect the way the project is carried out or completed.
These exceptions must also be included in vendor contracts to avoid misunderstanding. More often than not, HOAs and vendors get into disputes over this type of sudden change. Without a vendor contract, misinterpretations are pretty much guaranteed.
Cementing a Contract
By this point, the importance of vendor contracts is clear. These agreements are far more than just pieces of signed paper that happen to contain details of a project.
They protect the HOA from unnecessary financial liability and legally bind vendors to complete their tasks at a defined time.
Having a contract with vendors secures the details for how the work will be accomplished. As such, in addition to the information mentioned above, a good vendor contract should include the following:
- Completion Date. This refers to the date the work is to be completed by as well as what will happen if the work is not completed by the deadline.
- Work Hours. The contract must also include the length of time each day is spent on the job and specific days the crew(s) will work.
- Materials. This refers to the materials or items that will be used in the project’s development.
- Storage Details. Supplies and equipment must be kept in a specific storage space when they are not in use. This way, you can keep track of them during off-hours.
- Break Spaces. The contract must also outline where lunches and breaks will be taken, including bathrooms that crew members can use.
- Payment Terms. Perhaps most importantly, the contract must include payment terms and address issues like proof of insurance, liabilities, and worker’s comp.
Without providing these details in the contracts, vendors may be unclear about the association’s expectations. Even worse, they may knowingly take advantage of this obscurity and the community itself.
Even if work does appear to be going fine under a verbal contract, the minute something goes wrong — such as a missed payment, delay, or unforeseen site conditions — the HOA could run into trouble, potentially risking a lot of money.
Beyond the details, an HOA must make sure the contract is read and signed by both parties before any work begins. If the contract is negotiated but never signed, both the HOA and the vendor may be acting in accordance with the contract but unsure whether everything in it is accepted. This can lead to uncertainty in the relationship and affect the job.
Before scheduling projects, the HOA manager must be made aware of the considered jobs so they can help set up a system to ensure a smooth process and timely payment at completion.
Never Start Work Without a Contract
From safeguarding the financials of the HOA to settling disputes over circumstantial changes, there is simply no denying the importance of vendor contracts. All associations must have them for every vendor, big or small. Aside from protecting the business the financial sense, vendor contracts also protect the HOA from legal liability.
If things go awry and the situation escalates to the court of law, the HOA can turn to the agreement as proof that the vendor is in the wrong. Not to mention, having a vendor contract also sets the foundation for having healthy relationships with your vendors in the long-run.
Due to the complicated nature of vendor agreements, most associations seek assistance from an attorney or an HOA management company. In the case of the latter, give us a call.
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