There is always work to be done on a building, whether it’s a simple lobby repair or a major capital improvement, and finding the right contractor for the job takes some work. If the vetting process is not done properly, the results could be disastrous.
Consider the following hypothetical scenario: wanting to move quickly on a capital improvement project, the board of a fictional building hastily approves a contractor without bothering to do any reference or background checks. Maybe the contractor was mentioned by a friend of a friend, or just appeared toward the top of a cursory Google search. After the project is already underway, the property manager digs around for information and discovers that the contractor’s license is expired. And although there were rave reviews posted on the contractor's website regarding the quality of his previous work for other clients, nobody at this building reached out to those clients to verify that the reviews attributed to them were true. When the property manager visits the contractor’s previous work sites, it's clear that the contractor isn't qualified to do what he's been hired to do for the manager's building.
And the surprises aren't over. The manager also finds out that the contractor doesn't have the proper insurance coverage—which leaves the building open to massive liability if something should go wrong in the course of the project. It’s looking at those small details that could be the difference between hiring a qualified contractor who can complete a job properly and has the right documentation, and hiring an inept, unqualified contractor that could cause significant trouble for the building.
Do Your Due Diligence
“Having your attorney review any contract from a vendor before signing is one of those situations where an ounce of prevention is worth a pound of cure,” says Jonathan H. Katz, an attorney and partner with the law firm of Hill Wallack LLP in Princeton. “Associations often think they're saving money by skipping the step of going to their attorney to review the contract, and what they'll do a lot of times is just sign the contractor's proposal. But the contractor's proposal is geared to be more favorable to the contractor. Anything in the proposal regarding what happens if there is a breach, whether it be attorney's fees, or interest, or indemnification, are going to be very unfavorable to an association.” Katz recommends to his clients that they only sign contracts, never proposals. And even if they don't have him draft the contract, he recommends that he at least reviews the contractor's form contract to suggest which provisions should be taken out because they are more favorable to the contractor than they are to the association.
When reviewing potential contractors, having a property manager involved in the vetting process can help reduce headaches for the board. Christine Evans, regional vice president for Associa, a large management firm which has offices throughout the country, including New Jersey, explains, “Individual board members can come under attack, being accused of picking a favorite vendor. Also, they might not have the experience or knowledge needed to understand which contractors are really the best for the job. A contractor may have done a great job replacing a roof on a single-family home, but there are other factors that need to be considered when you're working in a multifamily building with common areas and shared spaces, or when a whole neighborhood is getting their roofs replaced.”
When it comes to selecting a contractor to do work for an HOA or condo, communication is at the top of Evans' priorities. “That's definitely where some contractors fall short,” explains Evans. “They don't know how to communicate well with all of the different people who are involved. They're used to only having to make one phone call to a single homeowner if they get rained out. When you're in a situation where you've got a lot of people who are involved and affected by any changes to your schedule, the communication piece is so important. Certainly workmanship is of the utmost importance, but contractors can quickly get a bad name and a bad reputation just because of their communication.”
The property manager provides a single point of contact for the contractors, which helps stop the spread of misinformation or confusion. “Usually vendors who work with associations know that they should limit their personal conversations with individual owners because things get misinterpreted, and owners start talking to other owners, and pretty soon the message is nowhere near the same as when it started out,” explains Evans.
Know Your Expectations
The first thing a property manager should do when starting work on a project is ask a lot of questions of the board to find out what exactly their expectations are for the work that needs to be done, so that they can determine if they are capable of putting together a specification that lays out the details and scope of the project. “There are a lot of standard specifications out there for things like landscaping,” explains Evans, “but even for a simple specification, the property manager should be getting into a conversation with the board about what they're looking for with a new vendor. Why are they not happy with the current vendor? Is it the method of trimming? The frequency? We need to figure that out and put it in the specification, otherwise the specs given to the contractor aren't going to match what the association is actually looking to have done.” For bigger jobs like roof replacements in a multifamily building, an engineer should be involved in drafting the specs, and reviewing the work when it's done. “Most managers aren't qualified to get on top of a building and determine if all of the underlayments were done properly with the appropriate materials,” explains Evans. “Spending the extra money for an engineer in those situations pays off in the long run.”
Once the property manager gets the board's approval on the specs, the next step is to send those specs out to vendors for bids. “In my experience, you have to send the specs to six vendors if you want three bids,” explains Evans. “Usually there will be several bids that come in that didn't follow the spec, or the bottom line price is so variable.” Evans recommends including a spreadsheet with the bid request that's sent to vendors and asking the vendors to fill out the fields relating to the specs: how many times throughout the year they're going to mow, how many times they're going to edge, how many times they'll trim shrubbery. “That way, at a glance you can see if they've left something out,” explains Evans. “And some contractors may feel like the spreadsheet is too much work and will just want to send you their standard bid. That's fine because it's a sign that they're probably not going to be the best for the job. If they can't comply with this request at the beginning, they probably aren't going to meet your expectations at the end.”
Require Proof of Insurance and Licenses
Proof of insurance and licenses should be covered in the specs sent out to vendors. “There's no sense in considering a bid from an uninsured vendor if you're professionally managed,” explains Evans. “Most management companies are not going to allow for contractors who are not insured.”
Hiring a contractor who does not have the proper paperwork, especially insurance, could cause tremendous financial hardship to the building. For example, Evans recalls a situation in which a small roofing company was not vetted properly before it was hired. “The owner said he had insurance, but he was actually planning on purchasing insurance once he got started on the job,” recalls Evans. “Work began before the insurance was in place, and one of his workers fell off the roof and injured himself fairly badly. It resulted in lawsuits that are still going on today. It's just not worth it.”
To avoid these situations, make sure that the contractor shows proof of their insurance coverage. The declaration page of the contractor’s insurance policy will explain what type of coverages the contractor has, including such information as the name of the insured or insured party; the location of the property insured; the value and replacement value of property insured; the inception and expiration date of the policy period; amounts and limits of insurance coverage; deductibles; and the premium amount.
Also, the association should be listed on the insurance as an additional insured or interested party. “This is a very important step,” remarks Evans. “If the association is listed as an additional insured on the policy, and the contractor falls behind on their insurance payments or their policy is canceled, the association will be notified.”
Remember, too, that the general contractor may come with a team of subcontractors and the subcontractor should also produce all of their required coverage. It is the responsibility of the general contractor to make sure that any sub hired is properly licensed and insured. “Most of our contracts have a strict prohibition against subcontractors unless the contractor gets the association's approval in writing,” says Katz. “And in our contracts, we always require that the contractor in addition to any subcontractors show proof of insurance, worker's comp papers, and all of that good stuff. We try to nip that stuff in the bud before work starts whether or not we'll be dealing with subcontractors, and to make sure that all of their documentation is covered.”
Finally, Evans recommends that the board and the management meet with their top three bids for an in-person interview before finalizing their decision. “It's easy for contractors to say yes to things on paper, or to say that they can do x, y, and z over the phone, but it's much harder for them to take your questions or concerns lightly when they're sitting face-to-face,” remarks Evans. “You can tell a lot about someone's professionalism when they're sitting right in front of you. You can ask them follow up questions on safety measures, for example, and that's when you can tell if they just marked 'yes' on a spreadsheet to get the job, or if they actually implement OSHA training and other safety measures.”
Luckily if management has done the vetting process and thoroughly checked a potential contractor’s documentation, references, and examples of their work, the odds of a problem occurring will be much lower. But say insurance does lapse after a vendor has been contracted, and work needs to be stopped.
If it is found at a later point in time that there is an issue with either insurance or licensing, the management and board’s first line of defense would be to halt the process on the job until these items are produced and verified. It’s not worth the risk involved to continue. “A phone call to the contractor should be made immediately,” explains Evans, “followed by a certified letter which says that 'Per the conversation that we had on the phone today, none of your staff is to be on the property. Work is to be halted. You'll need to remove all of your equipment, and so on.' And you should always inform your attorney.”
Lisa Iannucci is a freelance writer and a frequent contributor to The New Jersey Cooperator. Staff writer Jenn Welch contributed to this article.
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