To us, it's clear why it is important to hire insured and certified vendors for your HOA, but sometimes members of the HOA Board might need some convincing. Here are five reasons to consider doing so.
Why hire vendors at all? The HOA's Board of Directors consists of a group of people who are homeowners in the community like all HOA homeowners. Some of them may have special background in certain areas of business that help them function as excellent board members but they cannot do all the small and big jobs that come with the capital improvement projects and community maintenance/repair responsibilities that every day HOA business requires.
Arborists, landscapers, painters, sidewalk repairers, plumbers, workers, roofers, pool maintenance, carpenters and attorneys are just a few of the professionals the Board must hire each year. The Board has a duty to the HOA and its homeowners to conserve money but also to hire the best person for the job.
The HOA's professional management company has experience in the area's vendors through all the work done for other client HOAs and can often give sound advice on who to hire.
Hiring vendors requires written labor contracts. With all that can go wrong between hiring contractors and the project's completion, sealing a deal with a handshake is not among the best business practices for the HOA. Include the HOA attorney as part of the conversations about the work the Board wants done because legal counsel is the best person to draft the document that will protect the HOA's rights with respect to the work project.
What to look for in a vendor. The following are best practices the Board should consider when hiring outside vendors. Remember: Using non-licensed, non-bonded, or uninsured vendors may subject the HOA to financial and legal ramifications if bodily injury or property damage results from vendor bad acts under the contract.
- Use only certified vendors. The Board owes a fiduciary duty to the HOA (and, therefore, to its members) to use vendors that are fully licensed by government authorities, bonded, and insured (e.g., workers' compensation, general liability insurance) for the project desired. The Board should investigate area vendors to make sure the one they finally select will have the financial, professional, and legal capacity to fulfill obligations to the HOA under the contract. Professional management companies often have certification programs they use to recommend local vendors and can provide lists of certified vendors working in your HOA's area.
- Only hire vendors willing to sign the HOA attorney's contract. Hiring vendors willing to work under the written contract the HOA attorney draws up is the best way to protect the HOA's rights and to make sure that the terms of the contract fairly represent the terms negotiated from the HOA point of view.
What evidence should the Board have with respect to the vendor's insurance? The Board should require outside vendors to provide certificates of insurance that show the following policy information with regard to insurance covering that contractor:
- Policy Number
- Insured Name (make sure it covers the vendor you hire)
- HOA named as Additional Insured
- Policy Period
- Insurance Company
- Liability Limits and Deductibles
- Certificate Holder Identification
The Board should require the vendor to provide insurance certificates issued from his insurance companies that provide $1,000,000 comprehensive general liability coverage per location (for bodily injury and /or property damage), workers' compensation, and fidelity bond coverage for its employees.
This may sound like a lot of work but it's really incumbent on the vendor to obtain these certificates from his insurers and submit the certificates with his proposal. The Board's biggest responsibility covers asking for the certificates and then reviewing them when they arrive. Remember: the HOA may face lawsuits and even become liable for the wrongful acts of the vendor they hire -- even where the HOA is not directly at fault.
Vendor Independent Contractor Status. As part of the written contract for the project, the Board will want the HOA attorney to address the vendor's independent contractor status. The last thing the Board wants or needs is for a vendor (who may do many jobs for the HOA during the year) to argue that he is the HOA's employee.
Classification as an employee means a whole raft of labor laws may apply to the vendor relationship and the Board then owes employee benefits and/or worker's compensation benefits, etc. The IRS has complex rules setting out classification of employee versus independent contractor status. The HOA attorney is the best guide for that delineation. Clarify within the contract terms that there is no employment relationship and that the vendor is an independent contractor.
