Conflict of interest

Our condo association's board hired a management company who also owns to one extent or another a property maintenance company and a painting company.

Although the management company says they go out and get bids how can I be sure all the bids lower than their own companies bids are not tossed out into the garbage?

Does this sound legal, fair, honest or transparent?

How come the management company is not allowing association members to go out and get bids for the projects?

Is there a fear these bids will be lower and the management company will not score a high profit job?

Does anyone know of any NJ Condo Laws or regulations this violates?

Michael

It is not uncommon for a management company to have preferred vendors much of which is based on past performance. When our PM gets bids (such as or landscaping) he will list his preferred vendors.

Last year we had an incorrect rumor going around that the PM owned a piece of our landscaping company. Are you sure of the relationship you have accused yours of having?

I sent this letter to each board member's home address today.

Subject: A plea for transparency to avoid problems with Directors and Offices Liability Insurance and personal liability should insurance not provide coverage.

Every resident of xxxx must be able to have confidence our board members are spending our money (association funds) wisely and are not wasting money by paying more for services than necessary. The board members have a fiduciary duty to spend the associations funds wisely and to take reasonable steps to avoid accusations of being complacent to bid fraud. Accusations

TRANSPARENCY is the way to go here. To error on the side of TRANSPARENCY is in everyone's best interest.

XYA Property Management. may very well be 100% honest. I have no proof they are not nor am I accusing them of any dishonest or illegal acts. XYA Property Management. should be championing 100% TRANSPARENCY as it will show the board and the association members they are the best management company ever with the best contracting companies under their ownership and management.

If XYA Property Management. is getting bids from ABCD Home Improvements and ????? Painting "their companies " it is only fair they prove to board and association members the bids they are providing and those they are obtaining from other contractors are 100% fair and 100% above contempt by demanding the board obtain at least three bids for all projects completely independent of the bids being obtained by the management company. These bids must be obtained from contractors without a business or personal relationship with the management company or the management company employees.

Are there any checks and balances in place? If checks and balances are in places I am not aware of them.

For those of you who have been around you may remember a previous management company got two bids for paving our streets that were in the $175,000 +/- range. It is my recollection I got the "winning bid" from the reputable contractor who actually performed the work for about $100,000 less.

The real problem is the members of the community who are paying for all these very expensive projects have not told association members what steps the board is taking to make sure the management company is not doing any of the following when the management company are the ONLY ones obtaining bids due to the lack of TRANSPARENCY.
These types of fraud are so common there are terms for them as per:
https://en.wikipedia.org/wiki/Bid_rigging

Bid rigging is a form of fraud in which a commercial contract is promised to one party even though for the sake of appearance several other parties also present a bid. This form of collusion is illegal in most countries. It is a form of price fixing and market allocation, often practiced where contracts are determined by a call for bids, for example in the case of government construction contracts. Bid rigging almost always results in economic harm to the agency which is seeking the bids, and to the public, who ultimately bear the costs as taxpayers or consumers.

Bid rotation occurs where the bidders take turns being the designated successful bidder, for example, each conspirator is designated to be the successful bidder on certain contracts, with conspirators designated to win other contracts. This is a form of market allocation, where the conspirators allocate or apportion markets, products, customers or geographic territories among themselves, so that each will get a "fair share" of the total business, without having to truly compete with the others for that business.

Bid suppression occurs where some of the conspirators agree not to submit a bid so that another conspirator can win the contract.

Complementary bidding, also known as cover bidding or courtesy bidding, occurs where some of the bidders agree to submit bids that are intended not to be successful, so that another conspirator can win the contract. For example, the cover bids might contain prices that are uncompetitive in relation to the prices submitted by the conspirator who is designated to win the contract, or alternatively, the cover bids might contain conditions that the conspirators know will be unacceptable to the agency calling for the bids.

Even if sealed bids are opened at an open board meeting there are NO assurances any bid rigging, bid rotation, bid suppression, complementary bidding, cover bidding or courtesy bidding are not occurring as they can be prearranged
PRIOR to when the bids are mailed to the management company and or association board.

Check out http://www.justice.gov/atr/preventing-and-detecting-bid-rigging-price-fixing-and-market-allocation-post-disaster-rebuilding

VI. WHAT PROCUREMENT OFFICIALS CAN DO # 1 Expand the list of bidders to make it more difficult for bidders to collude. Buyers should solicit bids from as many suppliers as economically possible. As the number of bidders increases, the probability of successful collusive bidding decreases. While there is no magic number of bidders above which collusion cannot occur, past experience suggests that collusion is more likely to arise where there are five or fewer competitors.

Obviously the above is intended for public projects one can "get the idea" of how to apply the concept to our situation. The board must be obtaining at least three bids for all projects completely independent of the bids being obtained by the management company. These bids must be obtained from contractors without a business or personal relationship with the management company or the management company employees.

Now that the board has been made aware for the POTENTIAL for problems I think it is a fair question to ask the Directors and Offices Liability Insurance carrier if they are ready, willing and able to defend board members with the existing arrangement? If not are you as an unpaid board member willing to accept personal liability should insurance not provide coverage?

I trust the board will deal with this issue at its next meeting on Tuesday November 3, 2015 and that the board will send me a written document showing the steps they will implement to protect the members of the association's financial interest within ten days.

Seems Michael you have your own idea of how bids and bidding projects must be handled.

Under some of your terms the MC and board would run out of bidders when disqualifying those with personal or business relationships.

And many documents that require bidding do not then require board members to seek bids separate from those collected by the MC.

Your veiled threat about risking personal liability should the insurance refuse covering the costs of some possible .itigation. Do you have any actual examples of that occurring?

My guess in the circumstances you have put together the chances board members would be faced with personal liability is far fetched at best.

Perhaps you should consider seeking a position on the board if you have not done so already. Then you can work within the agreed upon system of governance to implement YOUR methods of how things should be done.

My concern where would volunteer board members get the knowledge as to how to solicited bids? How many bids would you require for each project 6?
And which board members can and who can't solicite bids?

Sounds to me like this could become overkill, messy, and unnecessary.

Michael

I have several issues with your letter.

1 You are accusing the MC of having a financial interest in some or all of the companies bidding on projects. Are you sure of this?

2. Limiting bids to no one personally knowing anyone associated with a company is very unreasonable. You just limited your pool of suppliers quite drastically. It is a small world out there.

3. One of the advantage in having a MC is the experience and knowledge they bring to the table especially when an HOA needs a vendor.

4. You insinuate the BOD is committing acts that D&O insurance may not cover when it comes to getting bids. This is quite a reach.

5. You arrogantly tell the BOD to submit a plan to you. Arrogant as in you did not say inform the owners but you demanded it for yourself. Maybe a Freudian slip?

6. The letter is quite lengthy and the message got lost in the excess verbiage. I am afraid the impact has been lost.

In our last major bidding process (landscaping) we relied quite heavily on who the vendor was presently serving. We were especially interested in them servicing HOA's similar to our own. We toured several and spoke to a few of their BOD Members. What was of interest was cost, ability, experience, and proven performance. We did not delve into who the owner was as that was of no interest to us.

In our case, we originally asked 4 vendors to quote. Two recommended by the MC. Our existing vendor and one vendor selected by the BOD. Based on performance and recommendation we wanted one of the ones the MC recommended but their price was out of line. We went with our 2nd choice which was one that had been selected by the BOD. We are 6 months into our one year contract with the landscaper and I expect we will renew next year and probably without bids as we are satisfied.

I think Mark nailed it, MichaelD. But, Mark, did you mean “self dealing”?

Are open board meetings required in NJ? Or if not, does your board hold open meetings anyway?

And I agree with Jon's & JohnC's objections. And I agree it's a real stretch to assert that Your current board could have liability issues.

Our HOA has about 20 contracts in place and there'd be mass resignation from the Board if we directors had to run around town trying to get vendors to bid on one-shot contracts to fix something, or on our annual contracts.

We directors review the scope of work with our PM, who actually manages our vendors. She knows through who wide range of contacts with other PMs in our urban area to whom to submit RFPs. In some cases there are very few who'll do the work we need, e.g., window washers for our high rise. In fact, we have an unusual need right now and our PM has found only one vendor who'll even give us a proposal! None of us directors would know how to find such a specialist without a lot of legwork.

Nothing wrong with members contacting vendors or contractors they know and encouraging them to submit competitive bids, but the bids should not go "through" the members. The board should be handling this, not your PM. While there are good ones, there are just as many unscrupulous property managers out there that may or may not be getting kick backs or other incentives to do business with particular companies. The PM can receive the bids and forward them to the board. If your contact submits a bid and then it mysteriously does not get to the board, then you have a problem.

It is not a hard thing for a board to fairly scrutinize bids and proposals on many projects. The lowest bid is not always the best bid. But your board should articulate "why" they went with a particular company over a lower bidder if that is the case.

Kerry, homeowners do have a right to watch the board evaluate and select a proposal over others...UNLESS the board decides to exercise the process in executive session. But the board is not obligated to do that.

When I was a board member we always discussed bids and proposals openly. Anyone in the membership could come and listen and watch the process unfold. The membership appreciated this. And the contractors bidding could care less.

When we did this the same companies continued to bid year after year on whatever project we put out for proposals. Not a single one of them ever cared that we openly discussed their proposals...most even expected as much.

The idea that a board is doing a disservice to potential bidders by discussing their bids openly makes no sense in an HOA. A board's duty is to the members, not any contractor or vendor.

I personally wish executive session was outlawed.