How does an association select the best bid and the right contractor? Don’t stop at price and quality: investigate these 5 policies before you hire a contractor and save your HOA money on avoidable litigation.
HOAs Liable for Contractor Negligence
When an HOA hires a contractor, it accepts potential liability that extends outward from the HOA to the management company, insurance companies, and finance companies. Each of these entities is eager to minimize that liability – to insulate themselves as much as possible from the potential costs of contractor negligence.
Insurance and management companies usually have policies designed to shift some of the burden of responsibility away from themselves. Most HOAs know this fact, and the best boards try to ensure that the association is not ultimately responsible for the actions of a contractor. In a typical HOA, the board will verify that a contractor has the following:
- Liability Insurance
- Surety Bond
- Workers’ Compensation Insurance
- State Licenses
- Business License
- Any other requirements of the particular job
Verifying these basic is a great start. But it’s not enough.
HOAs routinely fail to consider a crucial element in liability protection: reviewing and verifying a contractor’s policies and procedures to ensure they meet minimum qualifications. While most people know that State and Federal OSHA safety regulations apply to contractors, they don’t realize that enforcement is usually after the fact – after an accident happens. Violations can bring enormous fines and liabilities, and the possibility that the HOA will be pulled into the lawsuit.
By investigating a contractor before a problem arises, HOAs can avoid major headaches, and save money on avoidable litigation. So how does an association select the “best bid” and the right contractor?
Looking Beyond Price and Quality
By using a job specification to acquire bids, boards and managers can usually identify the best price, and the specification sets workmanship and material quality standards. But some HOA boards and managers believe that using a specification during the bid process guarantees that the HOA will avoid a negligence lawsuit. It won’t.
Your challenge is to find quality work while avoiding opportunities for problems. In your search, “quality” shouldn’t apply only to materials and craftsmanship: it should apply to the contractor’s standards. This may sound difficult, because the most qualified bid may not always offer the best price, and finding the most qualified contractor sounds like it will take a lot of legwork.
But your HOA shouldn’t settle for getting either the best price OR the most qualified contractor; it should strive for both. With a little investigation your association can get the most qualified contractor at the best price.
5 Contractor Policies HOAs Should Investigate
In any project, you want to complete the work with as few incidents as possible. By doing a little research in these five areas, you can help make sure that unexpected and potentially expensive problems will be handled smoothly. The length and size of your project should influence how closely you examine each policy.
Pre-Employment Background Check Policy
Does the contractor have a policy for minimum qualifications for employees? Does the contractor avoid convicted felons that might pose a threat to the environment where the employee is assigned to work? Does the contractor have procedures to evaluate the level of employee skill and place them in the best jobs for that level? Do they offer training for improvement?
A resounding Yes! to each of these questions shows that the contractor aims to achieve a certain level of excellence. By hiring only quality employees, assigning them to tasks within their skill-level, and always seeking improvement at the jobsite, the contractor reduces the chance of accidents occurring and reduces your HOA’s risk of liability.
Security and Theft Prevention Policy
An effective security and theft prevention policy begins at the contractor’s office. Does the contractor have policies and procedures that protect sensitive customer information, including where that information is stored, how it is secured, and who may access the information? Do they use video and audio security cameras in the contractor’s office and warehouse? Contractors should also respond to breaches in security by checking for suspicious identity information on employment applications, document inconsistencies, breaches of computer access, alerts from third sources, etc. Ultimately, they should examine any system where an employee could attempt to obtain private information or advantages.
The contractor that presents the least risk of liability will not only have these policies active within their business, but will have each policy written in a legal document.
Personal Property Handling and Disposal Policy
Job materials should be carefully inventoried and stored with controlled access. Contractors should retain records for incoming and outgoing inventories with names and dates, and signed receipts for material disposition.
Complaint Resolution Policy
A complaint resolution policy includes special polices for verbal and/or written complaints. There needs to be a form with the job or account identification available which an employee or consumer can complete. The person making the complaint needs to know it is being investigated and that a report with findings will be delivered. Contractors must log all complaints and review them periodically.
Disaster preparedness includes planning before, during and after the disaster. No one knows in advance if a disaster will be water, fire, earthquake, financial, etc.; but safety of persons is primary, and securing the property is next. Key elements in a backup plan include methods of communications, off-site storage of job computer data files, ongoing physical security, implementation of “work-arounds” during periods of communications failures, and written lists of key contact persons for contractors, sub-contractors, government, insurance, and safety personnel.
Learn how your HOA can prepare for the next disaster by making an emergency plan
Protect Your Association
At the end of the day, has your community investigated enough? Your association should be able to say: “There was nothing else we could have done to avoid this problem.”
When it comes time to select a contractor, be sure to ask for pertinent policies and procedures that will protect your job, and if anything does not look right, it probably is not right for your association.
Adapted from an article by Burt Dean, owner of Rebello’s Towing Service. Dean previously owned an association management company, and has been a member of ECHO and frequent contributor for many years.