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Business Partner Vetting: Are You Exercising Due Diligence

06/01/2019 4:21 PM | CAI Rocky Mountain Chapter (Administrator)

By Editorial Committee, CAI Rocky Mountain Chapter

Finding a business partner who will perform quality work at a reasonable price can be a daunting task.  Taking care to properly vet your community association’s business partners (and potential business partners) can help avoid problems down the road.  You should rely, at least to some extent on information and feedback from your community association manager (their relationships and opinions in the industry matter!).  But what else should you be doing to protect yourself and your association?  Aside from checking with the Better Business Bureau and licensing boards in Colorado, the following will provide a checklist of things your Board should be doing and considering when vetting business partners.  These can help alert you to unscrupulous, inexperienced or financially troubled vendors who may deliver broken promises rather than professional results.

  1. Review your association’s governing documents.  Your documents may have provisions which require business partners to possess certain levels of insurance (make sure their policies do!) and might also provide for other limitations on contract terms.
  2. Beware of low bids.  Price is absolutely an important consideration when selecting a vendor, but don’t let a low price or a special deal blind you to a potential problem.  A bid far lower than others may indicate that the vendor is not experienced enough to know the actual cost of the job or he/she never intends to finish the work.  Disreputable vendors may bid low to secure a contract and then tack on extra work as the scope of work progresses.
  3. Confirm insurance.  Make sure that the business partner will identity the association (and its management company) as additional insured on the business partner’s insurance policies.  Confirm that there are no exclusions in the business partner’s insurance which may prevent the policy from covering damage, claims, injuries or liabilities arising from the business partner’s performance under the contract.
  4. Take your time.  If you are pressured during the bidding process by tactics such as “limited time offers,” look for a different business partner.  Hiring a business partner is not a split-second decision; in fact, hopefully it is the start of a long and beneficial relationship with your association.  Review multiple bids and really understand all that is included in the scope of work requested by your Board and the costs/timelines to perform same.
  5. Call references.  Asking for business partner references and then never reaching out to speak to them is NOT due diligence.  Make sure that you are reviewing the bids, references, AND reaching out to the references to discuss experiences with the business partners.
  6. Have legal counsel review the bid and proposed contract.  Occasionally, community associations will forego this legal review because it is believed that the goods and/or services to be provided are nominal and do not justify the cost of legal review.  The legal review, among other things, is important in order to help your Board understand a contract’s proposed indemnification provisions.

Taking these steps may not prevent future problems, but they can certainly help to minimize problems that could arise because of failure to perform basic due diligence when selecting business partners to perform work for your association!

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