Condominium associations often struggle with their management teams on the right balance between bidding significant projects and the business strategy of a management company to self-perform not only routine maintenance, but significant construction and capital replacement projects. While Boards are “promised” fair pricing and good value, without the “arm’s length” specification and Request for Proposal (RFP) process how does any community really know they’re getting best value for their condo dues investment?
Although practices will vary from community to community, our office routinely advises that maintenance and capital replacement projects north of $5,000 should be competitively bid. Management teams should do just that…manage of delivering maximum value to their clients. While it often makes sense to have property management teams address maintenance projects that are quick and can be accomplished within a couple days; the pressure Boards may experience from some managers that want to use “their own” construction division raises questions on transparency and the validation of competitive bids. At another level, as management contracts typically include indemnity clauses that significantly limit recourse of the Association for management errors and quality failures, how do you deal with quality and even warranties?
In a community that recently joined the New Star portfolio, one of their buildings requires substantial work which was provided by the management provider’s “construction” or “special services” division. This project was valued in excess of $80,000 and there were no notes indicating the project ever went out for bid. Here we are $80,000 later, with leak paths into the building from the former management construction team and little recourse going forward.
In contrast, we hear from communities that their management team does “bids out” projects. However, management collects the bids and, “miraculously” the management team seems to always turn in the “winning bid”. In our world, here at New Star, if we bid on a project for our client,; we request all RFP’s (including ours) go to an identified Board Member. That way New Star bids are created without the review of incoming proposals from other potential suppliers.
Our recommendation to Boards is to follow your instinct. Significant projects should be bid by RFP. Except for very unusual situations, having your management team engage on significant projects invites complications that often start with the real question of value delivery. If the Board is not requiring competitive bids, how does anyone know whether you your community is capturing the best value?
Excellent financial management is a collaborative responsibility between the management team and the Board of Directors. While there should be a good working partnership with your management team, business is business and Board’s owe it to the community to manage significant projects with a competitive RFP process. Good management partners shouldn’t allow anything less!
For more information, call Tim Wege, New Star President at 603-432-8778.
