RealManage Insight

5 Essentials for Any Service Contract at your HOA

by Marc Rodriguez, SVP Austin on Apr 21, 2022 9:30:00 AM

As board members of a homeowners association, you ensure that maintenance and security services are provided in the community area. While hiring each service member individually is possible, contracting third-party service providers to handle the work ensures quality service at a lower cost.

However, choosing a third-party contractor for a job should not be done by calling for bids and selecting the lowest one; it involves signing a third-party service contract. The HOA typically handles many service contracts, and any oversight in their writing may lead to massive losses for the association.

Here are a few things to take into consideration when writing service contracts.

1.  Is The Vendor Insured?

It is essential to ensure that the vendor is adequately insured before getting into a contract. Always verify that they have met at least the minimum accepted industry standards of insurance and have a certificate of insurance.

This ensures that the association is not liable for any sloppy work done by the contractor, or any injuries on the property during the project.

The vendor should have at least worker's compensation insurance if their employee is injured and general liability insurance for you to consider hiring them. Risky projects will require additional forms of insurance based on the risks involved.
As a precaution, ensure that the association is named an additional insured and a certificate holder. This ensures that you are notified of any changes in the contractor's insurance status.

2.  The Vendor and Association Responsibilities

Outlining all the contractor's and association's responsibilities reduces conflict between the parties. The duties should outline all the parties' responsibilities to fulfill the contract and timelines for the work and payments. You can also include other clauses like the time and days the contractor can work.

Any penalties for not honoring the agreement should be included in the contract.

Ensure that the means for canceling the contract, whether by either party or by mutual agreement, are stated before project completion.

Compensation is frequently cited as a major source of contention between contractors and the association. Before the job begins, agree on everything with the contractor, including when you should pay them, the method of payment, and even the amount of work to be performed before payment.

3.  How to Resolve Disputes

There will surely be disagreements between you and the contractor; thus, when writing the service contract, consider appropriate strategies for resolving these disagreements.

Before beginning, agree on a dispute resolution formula to ensure that all conflict is handled correctly within the contract duration.

4.  The Work to Be Done

The work for which you are employing a contractor should be detailed. Clarifying all of the work to be done in the contract guarantees that all parties sign the contract knowing exactly what has to be done. Images, maps, sketches, and anything else needed to supplement the written contract should be included as well.

5.  Warranty Details

If the contractor provides a warranty for the service done, all warranty specifics should be mentioned in the contract. What the contract covers, how long the warranty contract is valid for, and how the contractor will pay out the warranty should all be specified.

Writing a Comprehensive Service Contract

Given the diverse nature of service contracts, the agreements are often insufficient and mostly lead to disputes between contractors and the Homeowners Association. When writing a service contract, make sure you include the above essentials to avoid future conflict.

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