Selecting Vendors
Dennis,
What are the true fiscal or fiduciary obligations of a condo board when it comes to hiring contractors for major projects?
Our board had the property manager get three painting contractor bids. They immediately threw out the highest bid but didn’t actually motion or vote or allow homeowners to discuss.
The second contractor had a middle of the road bid amount and walked the property twice to see the issues. But this contractor doesn’t hold proper AZROC license to paint- they have a roofing contractor license instead. Also they don’t hold any licensure (KB-1 etc.) that would allow them to legitimately subcontract work to other specific licensed companies.
The third contractor bid the lowest price, only walked the property once and said in their bid they didn’t get to see enough of the property. They also have a civil judgment against them for over $600k b/c a local HOA sued them and won (appears to be insurance recovery related). The board was supposed invite this contractor back out for a more thorough walkthrough and inquire about the civil case. They failed to do this despite having 30 days to get it done. They also didn’t ask the property manager to find out more. Additionally, the board discovered this 3rd company actually has had additional legal issues – to the tune of over $3.6M in a consent judgment between them and the US Department of Labor and a different case where the DOL recovered $47k for denying worker overtime wages.
But the board voted to accept their bid.
What could be the implications for our Association by doing business with a company that was found by the U.S. Department of Labor of intimidation against workers, falsifying payroll records, requiring some workers to volunteer their time on weekends without pay, withholding overtime pay to 593 workers in four states…?
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PJ,
The association, through its board of directors, has both a contractual and fiduciary duty to the homeowners to act in good faith, with ordinary care and prudence, and in the best interests of the homeowners as a whole. Based on what you have provided, it could be concluded that the board failed in its due diligence in awarding this contract, and a suit could be filed against the association for breach of duty. The challenger bears the burden of proving that the association breached its duty, not the other way around. This is not an easy challenge. You may question the board on this issue, and if you and the other homeowners are not satisfied with the association’s answers, you may circulate a petition for a special meeting of the members to recall the board. The board needs to understand that it works for all homeowners and is answerable to them. Litigation simply makes attorneys richer, and the homeowners always pay the bills, win or lose. Litigation should always be a last resort.
To my knowledge, no state or federal agency could sue the association based on its actions; any suit would have to come from a homeowner harmed by the decision.
Dennis