Conflict of Interest?

Started by DeborahB6 • 23 replies • 2431 views

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DeborahB6 (New York)
Posts: 34

Posted:

Is it considered a conflict of interest for board members to privately hire the contractors they vote for to maintain the HOA property? I assume the private work should be done at a time the contractor is not working for the HOA.

Thank you for your input.

NpS (Pennsylvania)
Posts: 4,216

Posted:

Not sure if NY is an open meeting state. My state PA is not.

Here, it would not be considered a conflict if we hired a contractor at a private meeting - because there is no requirement that our meetings be open to the membership.

On the other hand, if one of our board members had a relationship with a contractor that was not disclosed to the other board members, we would consider that a conflict.

All relationships must be disclosed before a contractor is chosen. Even then, the board member with the relationship wouldn't vote on the decision to award the contract - That wouldn't be required by our rules - but we would do it that way anyway to avoid any complaints from homeowners.

Sikubali jukumu. Read all posts at your own risk.

KerryL1 (California)
Posts: 14,550

Posted:

1. A director should disclose to other directors that after the board voted on the contract, she hired that contractor for her personal property. The contractor, of course, should not work for the director during the hours of the contract.

2. When the contractor's contract comes up for renewal or if the Board wants to termite the contract, the director should remind the Board she has a conflict of interest and she should not vote (recuse herself) on the matter. She should even leave the room while the matter is discussed.

3. Basically see 2. If the contractor already works for her before the board considers the contract in the first place, she should disclose her conflict of interest and neither discuss nor vote on the contract.

NpS (Pennsylvania)
Posts: 4,216

Posted:

Quote:

Posted By KerryL1 on 05/31/2015 9:02 AM
1. A director should disclose to other directors that after the board voted on the contract, she hired that contractor for her personal property. The contractor, of course, should not work for the director during the hours of the contract.

2. When the contractor's contract comes up for renewal or if the Board wants to termite the contract, the director should remind the Board she has a conflict of interest and she should not vote (recuse herself) on the matter. She should even leave the room while the matter is discussed.

3. Basically see 2. If the contractor already works for her before the board considers the contract in the first place, she should disclose her conflict of interest and neither discuss nor vote on the contract.

Small point of difference - What you described is a potential conflict of interest. An actual conflict of interest only occurs when a person uses authority in one area to gain advantage in another.

Sikubali jukumu. Read all posts at your own risk.

DeborahB6 (New York)
Posts: 34

Posted:

Thank you both. Perception is everything so being upfront is good advice..

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Deborah

Your question is a bit vague as in like hired for what by whom?

I know one Member of the BOD that was so satisfied with the landscaper that he hired them to do his commercial property. Next year this BOD Member may have to excuse himself for voting on renewing the landscaping contract. Not an issue to me.

Our HOA does all landscaping except ones back yard. Our landscaper will do the backyard for extra. He sends a crew around to do backyards on a different day so no conflict.

DeborahB6 (New York)
Posts: 34

Posted:

John,

Several board members hired the HOA landscaper to do their personal landscaping behind their homes. I don't believe they refrained from voting when the HOA landscape contract was awarded. Perhaps they didn't think about it.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Quote:

Posted By DeborahB6 on 05/31/2015 4:38 PM
John,

Several board members hired the HOA landscaper to do their personal landscaping behind their homes. I don't believe they refrained from voting when the HOA landscape contract was awarded. Perhaps they didn't think about it.

You raised an interesting subject. The offer for backyard landscaping came after we hired them. They are on a yearly contract so come next spring there might be something to be said about those voting (the BOD) to renew the contract if any of them use the landscaper's other service (backyard, commercial, etc.).

As landscaping is our largest expense and our most controversial topic, we will "know" if people are happy or not. If they are happy, I expect the other services situation will not become a problem. If many are unhappy with the overall landscaping, the other services will become a topic of discussion.

Personally, I would not see a conflict but the potential does exist.

DeborahB6 (New York)
Posts: 34

Posted:

The landscaper's ability to handle small bed jobs is much better than his ability to handle the HOA property.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

We had a deal with our lawncare. They mowed the yards, blew leaves, and trimmed bushes in common shared areas. However, an owner can hire them additionally to trim trees, bushes, or extra work. The HOA did not provide those services.

We also had a policy that ANY member can submit a bid for contractors. They had to make sure they were licensed and insured. They also had to submit the bid for the board to vote on openly. Plus it was to be understood it did not guarantee the person was hired. We had to have 3 bids altogether.

A board member or any member could submit their own bid if they wanted as long as they fit the criteria. Not licensed then not hired. Did not hide or deny the oportunity. Conflicts happen if someone gets a benefit not offered anyone else. That did not happen keeping our rules in place.

Former HOA President

NigelB (Texas)
Posts: 254

Posted:

A conflict of interest is a situation in which an individual who has a duty to act for the benefit of the HOA exploits that relationship for personal benefits.

Does the awarding of the contract give the director a benefit in their private relationship with the contractor. If there's no quid pro quo then there's no conflict of interest. However, perception is everything. The wisest course is to avoid even the perception that there might be a conflict by not doing personal business with association contractors.

That's the way I see it anyway

MarkM31 (Washington)
Posts: 556

Posted:

Quote:

Posted By DeborahB6 on 05/31/2015 9:30 PM
The landscaper's ability to handle small bed jobs is much better than his ability to handle the HOA property.

That could explain it

KellyM3 (North Carolina)
Posts: 2,239

Posted:

If a vendor is hired for unrelated work - HIRED and not coerced - then there is no conflict of interest.

NpS (Pennsylvania)
Posts: 4,216

Posted:

Quote:

Posted By KellyM3 on 06/01/2015 9:25 AM
If a vendor is hired for unrelated work - HIRED and not coerced - then there is no conflict of interest.

Conflict of interest discussions not always so cut and dry. Without any coercion at all, contractor could offer a board member special pricing for a personal project. Could lead to a conflict.

Sikubali jukumu. Read all posts at your own risk.

KerryL1 (California)
Posts: 14,550

Posted:

I'm with NpS on both he is replies. This especially is the case if the contractor or the director agrees on a "special" price for the director's yard work in exchange for the contract (a quid pro quo). I agree with Nigel's approach too. The "perception" that the director might be getting a special price matters a lot.

Similarly, as a director, i should avoid voting in a situation where my brother is one of the bidders. Even if his proposal is best in all regards, H/Os might perceive he got the contract because I'm a director. Their perception easily could be that a different contractor would do a better job for the same or less cost.

CyrstalB (Maryland)
Posts: 457

Posted:

So because I am a board member, I am not allowed to use a company of my choosing because my neighbors are so very concerned that it's a conflict? Maybe the rest of the HOA should mind their own business as to who I choose.

Excuse me, but who here does not like to hire a company who came with a referral, or who's work you have seen for yourself? As someone posted, it looks like this is just another witch hunt as the OP doesn't seem to like what the vendor is doing and are now looking for a "legal" way to try and change it.

Board members are also homeowners, and have the same rights as the rest of the HOA and I will reserve my rights to pick and choose whomever I want to when bringing strangers in or around my home. So darn straight I would hire the same company. And for the HO's who want to biotch about? If you feel so strongly about my decision to hire the same company, get to proving that there are kickbacks etc. Otherwise shut up and put up. The latter being get on the board yourself.

Gheezzz...

KerryL1 (California)
Posts: 14,550

Posted:

Hmmm, Crystal, I seem to miss the "witch hunt" language you refer to above? I also think you misunderstood some replies.

No one said you--as a director-- canNOT hire whomever you wish for your yard care. But, instead, as a director you should not vote on renewing (or terminating) that contract. You are an "interested" director because you have a relationship with that contractor. Not only must you disclose your relationship with the contractor, you should "recuse" yourself.

In our high rise HOA all of our contracts state that none of our vendors' employees may work for individual residents (directors or not). So, for example, none of our custodians may clean inside any resident's condo.

Please re-read the above responses.

JonD1
Posts: 2,350

Posted:

I think some of the standards being put forth here in the name of avoiding perceptions are nonsense.

As a board member and property owner for a conflict to actually exist rather than only being found in the minds of some, there has to be a benefit received.

So if the property hires a painter or electrician that I use, there is no actual conflict just maybe both parties like to use responsible, hardworking, fair priced service providers.

And the notion I am now required to recuse myself in any decisions regarding this provider is ridiculous. Just so people don't THINK something shady is happening.

We have painters, HVAC, electricians, carpenters, plumbers who have done work for the property, board members and unit owners. To suggest this gives the perception that some conflict exists and that measures need to be taken to PROVE the righteousness of those involved to the satisfaction of all is way to much unnecessary effort for me. We have REAL issues to deal with not worrying about what people MIGHT THINK.

KerryL1 (California)
Posts: 14,550

Posted:

Jon, I think you're correct. But I also think your examples seem to have to do with contractors who sometimes do work for the HOA and sometimes to work for individual owners. I have had such contractors in my condo to, for instance, do an occasional wall patch job. These same vendors sometime do similar work for the HOA.

The OP was about a regularly scheduled landscaper vendor who also, it seems, regularly cares for a directors' separate interest. There IS the possibility Owners will believe the director is getting some benefit that the rest of the membership does not enjoy. Here are excerpts of opinions of some CA HOA attorneys. For the entire citation see the source below. In CA, the relevant statute is Corps. Code 7233.

"Conflicts of interest occur when a board member’s decisions are influenced by his/her personal interests rather than the interests of the association.

Example. A board member votes to award a roofing contract to a company owned by the director or the director's spouse, brother, son, granddaughter, etc. The award of the contract results in a personal benefit to the director.

Potential Liability. Conflicts or potential conflicts of interest, however, do not not necessarily create personal liability if:
1. Full Disclosure. The interested director makes full disclosure of the conflict.

2. No Influence on Vote. The interested director should leave the room so remaining directors can discuss the issue fully and freely, and take vote without the interested director.

Recusal. Interested directors may be counted in determining the presence of a quorum at a meeting of the board or a committee thereof which authorizes, approves or ratifies a contract or transaction. (Corp. Code §310(c).) However, directors must recuse themselves from discussion and voting on issues in which they have a direct personal or pecuniary interest not common to other members of the board. (Robert's Rules, 11th ed., p. 407.)

Burden of Proof. If the interested director makes full disclosures and recuses himself and if a disinterested majority of directors approves the proposal of the interested director, the burden of proof falls to the person challenging the transaction. (Harvey v. The Landing HOA.)

Problems. Even when a director recuses himself, associations should avoid contracting with companies where a director has a financial interest. Such arrangements are fraught with peril both politically and legally."

1. Political Problems. At election time, owners may accuse the board member of reaping secret profits, taking advantage of his or her position on the board, doing shoddy work, etc. and demand his/her ouster.

RECOMMENDATION: So as to avoid such problems, boards should adopt and carefully follow an ethics policy."

Read more: Conflicts of Interest http://www.davis-stirling.com/tabid/1299/Default.aspx#ixzz3bwL0bsxg
from Davis-Stirling.com by Adams Kessler PLC.

JonD1
Posts: 2,350

Posted:

With all due respect Kerry the OP never suggested there was now some element of family favoritism in their case.

And as you do on a regular basis you cite the CA Code and Davis-Stirling the latter of which I find to be waste of lots of paper.

Those codes and guidelines thankfully do not apply to us here in NY nor do they seem to apply to the OP's original posting.

There are no laws that will keep dishonest people honest. And DS is certainly not capable of that.

And I do not wish to waste my time trying to convince everyone that their perceptions as to what is right or wrong will be followed.

In this case you had a landscaper being used by the board for common area and then by board members to do the areas they are required to maintain.

Gee, why NOT use the same landscaper? Perhaps you might think having all the lawns mowed at the same time might improve the appearance.
Perhaps the contractor might give more attention to the property because they have additional work at the location. Perhaps they simply do a good job.To suggest any board member then needs to prove innocence by recusing themselves on contract renewals is nuts.

As much as you might like it to be so Ca. Code and DS do not serve as guidelines or as anything outside of your state. I would never reference DS as grounds for my views of what should be. I sleep better knowing that.

DeborahB6 (New York)
Posts: 34

Posted:

Just to clear up any misunderstandings I’d like to clarify that when I asked my original question I was not “witch hunting” or suggesting that any board member in my HOA has received any personal gain by using the landscaping contractor. I simply wanted to know if in your HOAs it’s considered a conflict/potential conflict of interest and how you responsibly handle that. I served several terms on the board and I understand that it is a tough job because our documents don’t spell out every possible scenario that a board has to deal with.

The issue I raised has been dealt with inconsistently in my HOA. While some board members disclose their association with a contractor, others do not. Seems like there should be consistency on this issue one-way or the other. I believe this is due to a lack of understanding complicated by the fact that our property manager hired his nephew to do paving work on the property several times without disclosing this to the board. He later claimed there was no conflict.

I have been reading posts on this site for years and feel that it is an outstanding resource for all of us in HOAs. I appreciate diverse opinions when they are presented in a respectful manner because they help me see all sides of an issue. I thank those of you who eloquently stated your thoughts and opinions, as they have helped me better understand the issue and ways of dealing with it.

NpS (Pennsylvania)
Posts: 4,216

Posted:

Quote:

Posted By JonD1 on 06/02/2015 3:19 PM
Gee, why NOT use the same landscaper? Perhaps you might think having all the lawns mowed at the same time might improve the appearance.

If we felt that positively about a contractor, we would ask the contractor to create a bulk purchase option that any one of our homeowners could sign up for.

We are doing that right now with pruning. The HOA pays for a certain level of pruning in our townhouse community. If a homeowner wants anything beyond that, they can take advantage of the bulk purchase option that we negotiated with our landscaper.

Several benefits to doing it this way:

1. Board members are never accused of getting special favors from contractors. Anyone can sign up for the same deal that a board member gets.

2. No board member recusals necessary or even considered.

3. For those homeowners who always complain that a HOA contractor is doing something special for someone else on the HOA's nickel - We have a better answer than we ever had before. No special treatment. If you want to pony up a few bucks yourself, you can have the same higher quality service. Amazing how many complainers disappear from view when you give them that option.

Setting up a bulk purchase program took some doing the first time we tried it a few years ago. But now we've done it successfully on a variety of services including deck sanding, handyman services, tree removal, etc. Generally get 15-40% participation. Very well received.

Sikubali jukumu. Read all posts at your own risk.

CyrstalB (Maryland)
Posts: 457

Posted:

Quote:

Posted By DeborahB6 on 06/02/2015 5:05 PM
Just to clear up any misunderstandings I’d like to clarify that when I asked my original question I was not “witch hunting” or suggesting that any board member in my HOA has received any personal gain by using the landscaping contractor. I simply wanted to know if in your HOAs it’s considered a conflict/potential conflict of interest and how you responsibly handle that. I served several terms on the board and I understand that it is a tough job because our documents don’t spell out every possible scenario that a board has to deal with.

The issue I raised has been dealt with inconsistently in my HOA. While some board members disclose their association with a contractor, others do not. Seems like there should be consistency on this issue one-way or the other. I believe this is due to a lack of understanding complicated by the fact that our property manager hired his nephew to do paving work on the property several times without disclosing this to the board. He later claimed there was no conflict.

I have been reading posts on this site for years and feel that it is an outstanding resource for all of us in HOAs. I appreciate diverse opinions when they are presented in a respectful manner because they help me see all sides of an issue. I thank those of you who eloquently stated your thoughts and opinions, as they have helped me better understand the issue and ways of dealing with it.

I'm sorry Deborah, my mood reflected how I read your question as it did not represent any type of witchcraft or such. Really sorry and I will work on my behavior, which is a work in progress. CB

DeborahB6 (New York)
Posts: 34

Posted:

Thanks, Cyrstal.

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