PM Charges Vendors for Contracts

NancyA4 (Florida)
Posts: 17

Posted:

I'm new to all this and am learning a lot on this forum. We (HOA) recently discovered that our PM was charging our landscape and pool contractors a monthly fee for the privilege of working for us. The contractors then charge us slightly more than their other customers to make up for this fee. So they are passing this fee along to us, essentiallly meaning that we are paying the PM twice for doing their job. I don't think this is ethical, but is it legal?

GlenL (Ohio)
Posts: 5,491

Posted:

I would say no kickbacks are usually illegal but I'm not an attorney and this is a question you should ask the HOA's attorney. I imagine it will all come down to what is allowed in the PM's contract.

Studies show that 5 out of 4 people have problems with fractions

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Your not paying the PM twice. Your PM is a paid contractor of the HOA. The dues paid in by the members to pay all of your bills/savings. The PM is paid to manage all of that on the HOA's behalf. The pool/landscaping contract gets paid out the dues collected. The PM is charging them a "Privilege fee" to do business. This in turn the contractors are passing onto the HOA. Are we doing the math here? Who is truly getting paid twice? Does it sound like the contractors?

Something does not add up here but it could just be bad math and business practices of your PM. I don't know if this an individual or a company? I would question the reasoning behind the charge and if the information is correct. there sounds like a disconnect here and may not be all the information.

Former HOA President

NancyA4 (Florida)
Posts: 17

Posted:

The contractors aren't getting paid twice. We were about to dump them because we're getting lower bids for the same work. The PM is being pd twice - once by us to manage our property, then by the contractor for the privilege of working for us. The PM may put forth some effort to find qualified contractors, but that's what we pay them for. They shouldn't double dip like this.

CarolR11 (Colorado)
Posts: 2,563

Posted:

Are you on the Board, Nancy? Even if you aren't, you should have access to your PM's contract with you. Read it. Is your PM a licensed Community Association Manager (CAM)? On a different thread, someone recently wrote that PM's must be in Florida. I believe that CAM's have a Code of Ethics, but I'm not sure.

If you have your facts straight, in my opinion, your PM's behavior is unethical at best. If s/he worked for our HOA, we (the Board) would get rid of the PM in a hurry!

DavidW5 (North Carolina)
Posts: 565

Posted:

Sounds to me like the PM is taking bribes.

AnnJ1 (Florida)
Posts: 122

Posted:

Hi Nancy,
This behavour is unprofessional and I agree that this PM should be replaced or at minimum given a review and told to cease this practice. I checked out the Florida CAM code of ethics....

http://www.floridacamcourses.com/material/storage/CAM%20Ethics.pdf

Here is an excerpt....

7. Provide written disclosure of any compensation, gratuity or other form of remuneration from individuals or companies who act or may act on behalf of the client.

Expanded explanation .... Provide written disclosure to the client of any compensation, gratuity or other from of remuneration from individuals or companies who act or may act on behalf of the client. Written disclosure shall be made to the client by the Manager, confirming receipt of all commissions, rebates, discounts, payments, or other benefits received in excess of $200.00 annually by the Manager from any vendor or vendor related client.

HTH,
Ann

BruceF1 (Connecticut)
Posts: 2,535

Posted:

Quote:

Posted By NancyA4 on 06/09/2012 12:12 PM
I'm new to all this and am learning a lot on this forum. We (HOA) recently discovered that our PM was charging our landscape and pool contractors a monthly fee for the privilege of working for us. The contractors then charge us slightly more than their other customers to make up for this fee. So they are passing this fee along to us, essentiallly meaning that we are paying the PM twice for doing their job. I don't think this is ethical, but is it legal?

I don't know if it's legal or not, but I think your board is shirking its responsibility.

It should be the board, not the PM, that decides on the contractor to use. It is the PM's responsibility to request bids from prospective contractors and then to present those bids to the board for their consideration. The board then reviews each bid and determines the acceptable terms of the contract, including all fees and costs. Once the board selects a bidder and accepts the terms of the contract, it is the responsibility of the PM to hire the contractor selected by the board and execute the contract approved by the board without modification. In other words, the board should not consider nor approve any contract that contains a "kickback" to the PM. If the PM is adding a fee after the fact, then the PM is essentially modifying the terms of the contract after it has been approved by the board.

I think you need to get a new PM.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Nancy,

Who awards the contracts, the Board or the management company?

If you want to avoid these things, don't have the management company involved in awarding any contracts. This is a function of the Board and, in my opinion, should not be delegated.

NancyA4 (Florida)
Posts: 17

Posted:

Unfortunatly, this looks like the code of ethics for the Community Associations Inst, rather than for the state of Florida. And it reinforces that this fee to the vendor is considered to be unethical in the industry (or at least the lack of disclosing it.) And it reinforces my concern that all of the PMs activities need to be reviewed. And that the Board needs to be more proactive in all areas. Thx.

LarryB13 (Arizona)
Posts: 4,099

Posted:

Quote:

Posted By TimB4 on 06/10/2012 5:48 AM
Nancy,

Who awards the contracts, the Board or the management company?

If you want to avoid these things, don't have the management company involved in awarding any contracts. This is a function of the Board and, in my opinion, should not be delegated.

Tim:

I disagree with you. The Board did precisely what they should have done; they properly delegated the authority for day-to-day operations to a management company. The board in this case is also doing its job in supervising the management company and has uncovered a problem which they are now trying to correct. The board should not be micro-managing mowing the lawn or trimming the trees.

RogerB (Colorado)
Posts: 5,067

Posted:

Quote:

Posted By LarryB13 on 06/10/2012 10:49 AM

Posted By TimB4 on 06/10/2012 5:48 AM
Nancy,

Who awards the contracts, the Board or the management company?

If you want to avoid these things, don't have the management company involved in awarding any contracts. This is a function of the Board and, in my opinion, should not be delegated.

Tim:

I disagree with you. The Board did precisely what they should have done; they properly delegated the authority for day-to-day operations to a management company. The board in this case is also doing its job in supervising the management company and has uncovered a problem which they are now trying to correct. The board should not be micro-managing mowing the lawn or trimming the trees.

Larry, the Board should never allow the Management Company to approve contracts for which they have not voted to approved and have delegated signing authority to the Manager. The example is a clear example of KICKBACKS. If I were on that Board the MC would be terminated and asked to refund all KICKBACKS to the HOA.

I the management company is authorized to conduct the day-to-day operations of the HOA to the extent specified in the management agreement and otherwise authorized, preferrably in writing, after being approved by the Board.

LarryB13 (Arizona)
Posts: 4,099

Posted:

Quote:

Posted By RogerB on 06/10/2012 11:14 AM
Larry, the Board should never allow the Management Company to approve contracts for which they have not voted to approved and have delegated signing authority to the Manager.

Disagree. The board's job is to see that everything gets done. The board is not responsible for doing everything themselves. Delegation of its authority is a normal function of a board.

In this case the wrong was done by the management company in taking kickbacks, not the board in delegating its authority. The board is a victim of a scam and the remedy is to remove the scammer by hiring a more trustworthy manager.

If a Wal-Mart employee was taking kickbacks from suppliers, would you argue that only their board of directors should thereafter sign all contracts? If an old lady gets scammed at the tire shop would you argue that she should change her own tires? We delegate tasks to others at all levels from personal to corporate and all of us get taken at some time or another. The remedy is not to become do-it-yourselfers or to take on tasks we are not prepared to do; the remedy is to be more vigilant when we delegate.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Quote:

Posted By LarryB13 on 06/10/2012 12:49 PM

Posted By RogerB on 06/10/2012 11:14 AM
Larry, the Board should never allow the Management Company to approve contracts for which they have not voted to approved and have delegated signing authority to the Manager.

Disagree. The board's job is to see that everything gets done. The board is not responsible for doing everything themselves. Delegation of its authority is a normal function of a board.

In this case the wrong was done by the management company in taking kickbacks, not the board in delegating its authority. The board is a victim of a scam and the remedy is to remove the scammer by hiring a more trustworthy manager.

If a Wal-Mart employee was taking kickbacks from suppliers, would you argue that only their board of directors should thereafter sign all contracts? If an old lady gets scammed at the tire shop would you argue that she should change her own tires? We delegate tasks to others at all levels from personal to corporate and all of us get taken at some time or another. The remedy is not to become do-it-yourselfers or to take on tasks we are not prepared to do; the remedy is to be more vigilant when we delegate.

Well said. As Henry Kissinger? said, trust but verify.

RogerB (Colorado)
Posts: 5,067

Posted:

Quote:

Posted By JohnC46 on 06/10/2012 2:18 PM

Posted By LarryB13 on 06/10/2012 12:49 PM

Posted By RogerB on 06/10/2012 11:14 AM
Larry, the Board should never allow the Management Company to approve contracts for which they have not voted to approved and have delegated signing authority to the Manager.

Disagree. The board's job is to see that everything gets done. The board is not responsible for doing everything themselves. Delegation of its authority is a normal function of a board.

In this case the wrong was done by the management company in taking kickbacks, not the board in delegating its authority. The board is a victim of a scam and the remedy is to remove the scammer by hiring a more trustworthy manager.

If a Wal-Mart employee was taking kickbacks from suppliers, would you argue that only their board of directors should thereafter sign all contracts? If an old lady gets scammed at the tire shop would you argue that she should change her own tires? We delegate tasks to others at all levels from personal to corporate and all of us get taken at some time or another. The remedy is not to become do-it-yourselfers or to take on tasks we are not prepared to do; the remedy is to be more vigilant when we delegate.

Well said. As Henry Kissinger? said, trust but verify.

John and Larry, I am thoroughly aware of delegation of authority. The Board is responsible when they delegate authority in the examples listed. When the Board hires a MC as their agent they delegate authority to perform the functions specified in the management agreement.

As I stated "the management company is authorized to conduct the day-to-day operations of the HOA to the extent specified in the management agreement and otherwise authorized, preferrably in writing, after being approved by the Board."

Our company would never violate the rules nor the take actions contrary to the agreement since it would be consided "wrong doing". Wrong doing, like fraud, is not covered by insurance and we live in a very litegious environment. Our management company signs many contracts with vendors but would never do so without written delegation of authority to do so. If you disagree with my postI suggest your management agreement may need to be amended. For your convenience I have attached an example management agreement which we use with our clients.

📎 Attachments (1):

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📝1610414960171.doc(41 KB)

CarolR11 (Colorado)
Posts: 2,563

Posted:

Per CA Corporations Code and our own Bylaws, our Board may delegate many tasks to our Prp. Mgr. The PM collects proposals and submits them--often with a recommendation- to the Board for our choice. We approve all contracts and renewal of contracts. Our HOA attorney reviews the large contacts. One officer executes the final contract.

Because we're a 25-story twin tower, 200+ unit HOA, we have 15 large to medium sized annual contracts plus a few little ones, e.g., postage machine. No one would be willing to serve on our Board if we had to do it all ourselves.

I believe that Tim's HOA is self-managed, so the Board necessarily, I would think, does a lot of the contract legwork.

It was Reagan, I think, who said, "Trust but verify." Kissinger, though, was at a White House dinner seated next to a woman who droned on & on at him. She: "Tee hee; am I keeping your awake?"
He: "No." : )

TimB4 (Tennessee)
Posts: 21,059

Posted:

Larry,

Overseeing the contract is not the same as awarding the contract. Obviously, if you have a management company or property manager, the board could/should delegate the responsibility of overseeing the work performed in those contracts. The Board should be the ones who, by majority vote, award the contracts.

It's possible that the OP had the MC solicit bids for the contracts and the MC required a fee to participate in the bid. Delegating the solicitation for bids would be a logical thing to do.

There are two things, irregardless of the work involved, that I believe should not be delegated. 1) Paying the bills 2) Awarding contracts.

Carol,

You are correct, we are self managed (130 lots).

LarryB13 (Arizona)
Posts: 4,099

Posted:

Tim:

I think I got this one wrong. The board in this case contracted with a management company to perform certain tasks, including landscaping and pool maintenance.

Normally, I would expect the management company's bid to include the cost of providing those services and to hire employees or subcontractors as needed to get the job done. In a place with a year-round climate like Florida I would expect someone who claims to be a property management company to have its own pool and landscape personnel and equipment. Hiring such a company would be a valid delegation of the board's duties to maintain the landscaping and the pool.

In this instance, though, the property manager was not equipped to perform the work himself nor did his bid include these costs. The board and the property manager had some sort of screwy agreement whereby the property manager hired subcontractors to perform the work and the board paid whatever prices the subcontractors charged. This was a very bad deal as it cut the board out of bargaining but left them in to pay the bills. The board bought the proverbial pig in a poke. The board should have rejected this property manager's offer as he was not able to perform the work required.