Contract Terms You Won't Agree To

Since a primary responsibility of any Board is to negotiate and approve contracts, I thought I would start a thread asking for contract terms that your Association won't accept.

My favorite unacceptable terms are found in many management contracts. If it was stated in plain English, it would go something like this: If the Association terminates the MC contract, then before the termination is completed, the Association must pay any outstanding balance of any contractor that the MC introduced to the Association.

Quite often, a major reason for terminating the MC relationship is the poor quality of contractors that the MC brought to the table. Payment is delayed until service deficiencies are corrected. Yet the boilerplate clause puts the protection of the contractor above the best interests of the Association. While it is unlikely that any MC will actually try to enforce this clause, it indicates a mindset that we don't tolerate.

We did have an MC that supposedly inspected and actually approved poor quality work by a "preferred" contractor after receiving our notice of termination. We got burned.

I wonder who else has encountered boilerplate contract terms that their Association refuses to accept.

BTW - We did have them remove the proposed clause completely.

Contracts can be negotiated. If the company doesn't want to negotiate, then find another company.

We also had a contract proposal that said the contract could only be broken for cause. However, cause was not defined. The company would not define it in writing and would not remove the language. Therefore, we simply did not seriously consider their proposal.

Here's one we DO put in the management contract: MC agrees to abide by all CA statutes and xxxHOA's governing documents. The reason for it is if an ignorant board is in place, one might direct mgmt. to break the law or refuse to enforce our documents, we can dismiss the MC. What we hope, of course, is the clause will keep stupid boards in line.

The MC contract also states that the MC must follow all legal Board directives. Our PM often makes recommendations to the Board that the Board does not accept. The board approves something else instead. THE PM doesn't like it or is pressured by directors on the losing side of the vote & refuses to implement the Board's decision.

More later.

This seems to be a good START and, in this case, does not only apply to Calif., but to all HOAs. We on't have counsel review all our contracts especially our small maintenance ones, e.g, monthly serve of our copiers. But we have several very large annual contracts, and usually two-three RFPs a year for spacial projects.

CONTRACT CHECKLIST
Before entering into a contract with a vendor, boards should make sure the agreement has been reviewed by legal counsel. The association's attorney will be looking for issues such as the following:
1. License. Associations must verify that the contractor/vendor has the appropriate license for the work he will perform and that the license is current. Licenses can be verified through the Contractor License Board. Associations should be aware that using unlicensed contractors can be costly.

2. Insurance. Make sure the contractor carries workers' compensation insurance and other insurance appropriate to the task being performed for the association. The contractor needs to provide proof of insurance and, where applicable, names the association as additional insured. Work with your association's insurance broker on these issues and make sure the contractor's insurance does not contain a multi-family or condo exclusion.

3. Governing Documents. Make sure the contract does not violate any limitations in the association's governing documents.

4 . Legal Review. Signing the vendor's contract or the vendor's work order is generally poor business practice. The agreement/work order is usually written to favor the vendor, not the association. Associations should have their legal counsel review all contracts before they are signed by the board and either modify the vendor's contract or draft one that protects the association. Following are some issues and clauses that need to be reviewed in all agreements:
Parties. The opening paragraph of a contract typically names the parties to the agreement. The contract should NOT name the directors as parties. Instead, the party to the agreement should be the association itself. If directors are listed as parties to the agreement, they could be named personally in any litigation that might result because of any alleged breach of the contract. The contracting party is the corporation which the directors sign on behalf of the corporation.

Scope of Work. The scope of work must be clearly defined. An ambiguous or incomplete description of the project gives rise to disagreements and makes it difficult to hold the vendor accountable for his work.

Payment Schedule. Define the payment schedule. Generally, payments should be phased so that monies are paid to the contractor as work is completed. As a rule, full payment should not be paid up front, since it exposes the association to significant risk of loss if the contractor does not perform. Normally, a percentage is paid up front so the contractor can purchase materials and begin work. A percentage, usually 10%, is retained by the association at the conclusion of the work until everything is signed-off. (NOTE: For consumer home improvements, contractors cannot charge a downpayment of more than $1,000 or 10% of the contract amount, whichever is less. This restriction does not apply to commercial contracts, i.e., contracts with associations.)

Insurance. Define the types of insurance and minimum limits the vendor must carry and whether the association is named as additionally insured on the policy.

Indemnity. Vendor agrees to indemnify the association if the association is sued because of some act or omission of the vendor.

Time for Performance. If performance dates and times are important, put them in the contract.

Permits and Licenses. Vendors must be licensed and pull permits whenever appropriate and provide the association with copies of both.

Warranties. If the vendor promises to stand behind his/her work, be sure to put it in the contract. You should also have the manufacturer's warranty against defects in the products (not necessary for service providers).

Mechanics Liens. Mechanics lien provisions should protect the association in the event the vendor fails to pay his subcontractors or material suppliers.

Termination Clause. If work is not performed satisfactorily, there should be a provision for terminating the agreement.

Evergreen Clause. The contract automatically renews if notice is not given to the vendor of the association's intention to not renew the agreement.

Escalator Clause. The association's payments to the vendor automatically increase each year. The increases may be predetermined or may be linked to the CPI.

Alternative Dispute Resolution. An ADR provision is often included in contracts so as to keep litigation costs to a minimum and to speed resolution of any disputes.

Attorneys' Fees. Without an attorneys' fee provision, typically each side bears their own fees and costs.

Read more: Contract Checklist http://www.davis-stirling.com/MainIndex/ContractChecklist/tabid/3128/Default.aspx#ixzz36dIWM1Xs
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