Published on: July 22, 2007
We are often warned that “the devil is in the details”—an admonition to read carefully and understand fully the terms of any agreement before signing it. That is good advice, to be sure. But community associations are as likely to be harmed by their failure to include essential details in the contracts they negotiate as by their failure to heed the details proposed by others.
We know now that it is, in fact, possible (and dangerous) to be too thin, if not too rich, but it is difficult to imagine many contracts that would suffer from being too detailed. Most of the contract-related problems that community associations encounter arise because the agreements specify too little, explain too poorly, and assume too much. Details may be “vulgar,” as Oscar Wilde observed, but they are also an association’s best defense against the disappointments, differences, and disputes that can foul relationships, derail major projects, and breed costly litigation that could often be avoided if the contract stated clearly the responsibilities and expectations of all the parties involved.
The need for clarity begins with the Request for Proposals (RFP) that governing boards issue, or should issue, before selecting contractors for major projects or selecting vendors to provide essential services — management, security, landscaping, snow removal, at the like.
The most important provision in an RFP, and in the contract based on it, is the scope of the work to be performed. You want to be sure all the companies bidding on a construction project or a service contract are bidding on precisely the same work; otherwise the comparisons of promises and estimates of costs won’t be meaningful and your selection process will be skewed. For this reason, among others, you don’t want the company providing the services to define the project. You don’t want contractors to tell you what they proposed to do; you want to tell contractors what you expect them to do, how, when, with what materials, and to what specifications you expect them to perform those tasks.
If you are soliciting bids for landscaping or snow removal services, your RFP shouldn’t say simply that you want the grass watered and mowed or the snow cleared after a storm; it should specify when you expect a plow to respond (after the first snowflake? after the first inch of snow has accumulated?), where you expect the snow to be stacked when it is cleared from streets and driveways, and whether you want the contractor to use salt or a salt substitute. For landscaping, similarly, the contract should spell out how often you want the grounds to be mowed and watered, which areas are or are not included in the service, what other tasks (planting, hedge clipping, edging, etc.) you expect the company to perform and the tools you want them to use. Are electric tools acceptable or do you want all the bushes trimmed by hand?
You Need an Engineer
Boards probably don’t need any help defining what they expect from a landscaper or a snow removal service. But for complex projects or services — and almost any construction contract will meet that definition — you should have a professional engineer or another qualified professional, who is not trying to sell you anything, draft the project specifications, because the level of detail required is beyond the capacity of most board members.
lf you are replacing the roof or siding, you want all contractors to base their bids on precisely the same materials (down to the size of the shingles and the quality and size of the nails they plan to use) and the same work. So the RFP should specify, for example, whether you expect to replace the underlayment and indicate that the bid should include the cost of removing and disposing of construction debris. Details you fail to include in the RFP and in the contract will materialize as change orders that will increase the cost of the project and the frustration level of board members and owners..
Engineers will often attach a draft contract to the RFP. That isn’t a bad idea, but you should have the association’s attorney review the contract first so any changes that might affect the project costs are incorporated up front and addressed in the bidding process. It is also helpful to determine early on if provisions on which the association is going to insist will be unacceptable to any of the prospective contractors. The association can decide whether to drop the requirement or eliminate contractors who balking at it from the selection pool.
While attaching a draft contract to the RFP can be helpful, it is more important and more useful to attach the RFP to the contract or to incorporate it by reference in that agreement. It will be difficult for a contractor or vendor to argue that they weren’t expecting to do the work specified for the amount stated if the RFP on which they based their bid is part of the agreement.
The Fundamental Things Apply
The various contracts communities negotiate will differ in their scope, complexity and cost, but whether you are dealing with a $5,000 landscaping agreement or a $1.5 million construction contract the same me general principles will apply: Spell out everything, assume nothing, leave nothing to the imagination (theirs or yours), don’t leave any expectation, however obvious or insignificant it seems, unstated or unexplained. The more holes you leave in a contract, the greater the risk that a contractor or vendor will drive a crane or a snow plow through them.
This isn’t to suggest that contractors and service providers as a group are unethical and looking for opportunities to take advantage of you, although there are some bad actors and you need to protect yourself from them. But the driving issue here is the need for clarity. Most of the contract problems community associations encounter arise not because one party is trying to take unfair advantage of another, but because the parties have different expectations that the contract failed to recognize and reconcile.
The best way to illustrate this is by describing some of the provisions that well-drafted contracts should include. These examples can’t include every detail that every contract should incorporate, but they will highlight the kinds of issues and concerns various types of agreements should address.
What do you expect the manager to do and how much will you be expected to pay for those services? This most basic feature of any agreement is the one that mot often suffers from a lack of detail in management contracts. For example, many contracts state only that the manager will attend all board meetings. The manager may assume, reasonably, that this means one meeting a month – 12 per year averaging three or four hours each —— which is the norm for other communities he/she manages.
The board knows, but doesn’t mention, that it actually meets twice a month and that directors bring their toothbrushes, because the sessions often last well past midnight. The manager doesn’t mention that the base fee quoted in the RFP covers meetings that last no more than three hours and that the company will charge $150/hour for every hour beyond that. The reality test, when it comes, will not be pleasant for either party. The contract should anticipate and address all of these issues. Additionally, the agreement should cover:
- All the tasks the manager is expected to perform, distinguishing between standard services (included in the base fee) and additional services, such as the oversight of construction projects, for which the company will charge an additional sum. The contract should specify how much will be charged for these services and how these charges will be calculated – lump sum (based on the project), hourly, some combination of the two?
- The level of performance required. It isn’t enough to say the manager is required to conduct regular inspections of the property; the contract should specify what is included in those inspections (the exterior of buildings only, interior as well, rooftops, grounds….) and what is meant by “regular” – once a month, once a year, once a week?
- The manager’s authority to make decisions and the limits on that authority. The contract should include an emergency provision, waiving these limits (within reason) when circumstances, which the contract should define, require the manager to act without prior board approval.
- A termination clause. You should assume the relationship with the association’s manager will be successful, but include provisions for managing the separation if it is not. The contract should state the association’s right to dismiss the manager both with and without cause and should specify the advance notice required before termination (state laws may establish minimum notice requirements and require that managers have an opportunity to “cure” the problems. We also recommend adding language allowing immediate termination if the cause is misappropriation of association funds.
These are likely to be the most complex and most costly of the contracts the association will negotiate. I’ve mentioned some of the major concerns, none more important than defining the scope of the project, but here are a few more:
- Establish a phased payment scheduled with a “retainage” provision, allowing the board to withhold a specified percentage of each payment. The withholding will give the board leverage it would not otherwise have to encourage the contractor to complete the project and take care of any “punch list” items at the end.
- Establish timetables for completing the project or project phases, specifying penalties (if any) for failing to meet those targets and incentives (if any) for beating them.
- State the contractor’s obligation to obtain and provide any applicable warranties.
- Require the contractor to have appropriate insurance (liability and workers’ compensation) in sufficient amounts, which the contract should specify.Have the association named as an additional insured under the contractor’s liability policy. This will enable the association to file any claim directly with the contractor’s insurance company instead of bringing the claim against the contractor.
Although these contracts are somewhat technical and specialized, the basic contract principles apply:
- Make sure the services detailed in the contract reflect the services owners want and need.
- Limit the term of the contract as much as possible; avoid automatic renewal provisions.
- Specify the association’s right to review and approve the location and appearance of any equipment the provider installs.
- Require the company to pay for any damage to buildings or harm to individuals resulting from installation and maintenance activities.
- Also require the company to indemnify the association against any claims for injuries suffered by workers or damage to the company’s equipment.
- Detail all the charges for which the association will be billed.Specify who owns the wiring and the equipment and what happens to those items if the association selects a new vendor when the contract ends. In a licensing agreement (allowing a provider to install equipment on association property to provide services to other customers), make sure the contract requires the company to remove the equipment and restore the association’s property to its original condition when the licensing agreement ends.
A couple of closing thoughts, starting with the one you expect: Have your attorney review contracts before you sign them. I’m making this point at the end of the discussion rather than at the beginning both because it is obvious (to attorneys, anyway) and because there is no way to give this advice without making it sound anything other than self-serving.
But it is important. A conversation that begins with, “Here’s the contract we’ve signed” will be short and not terribly helpful. There’s not much an attorney can say about a contract you’ve signed except, “You have our number; call us if you encounter any problems and we’ll do what we can to untangle them.” Seek the advice you need from your attorney, from engineers, accountants, and other experts, who can help you anticipate problems and avoid many of them. Having obtained and paid for that professional advice, don’t ignore it.
Finally, select your contractors and vendors carefully. Remember, a community association isn’t a municipality; the board is not required to select the lowest bidder and the low bid isn’t always the best choice. Insist on references and check them, even for relatively minor projects and small contracts. Attention to detail in RFPs and contracts is essential, but in the end, the quality of the work and the reliability of the services the association receives will depend not just on the clarity of your RFPs or the contents of your contracts, but on the reliability, professionalism, and performance of the contractors you select