Question rate increases for management company.

Recently, our HOA management company 'notified' us that they were going to increase their fee by 5%. There was no formal communication of this rate increase. Instead, we found out at a monthly meeting when we were reviewing our budget. One of the line items in our spread sheet is for management fees. The new figure was shown and a comment was added that the fee was increased 5%. I asked the manager about this and she replied, "Honestly, the proposed budget and increase in management fee has always been presented in the exact same fashion."

I've only been on the board for a year but I was shocked that the management company did not speak with us before or provide a written notification that their rates were going up. My professional back ground was in the I.T world and I managed many vendors as part of my job. Whenever any of them wanted to raise their rates they gave some kind of justification for the increase. It often provided highlights of their accomplishments during the prior year. It just seems odd to me that we should blindly accept rate increases because that's how it's always been done.

Am I over thinking this and is this typical?

John,
It is a little late this year to fix this and it is probably in their contract fine print.

What I have done that has been very successful in the past is 3 months before the first budget meeting get the board to approve a simple letter that is to go out to every vendor and it states that IF any vendor that chooses to increase fees in the coming year the board will automatically go out and get 3 bids for services and they will have to compete for the business. This includes the PM company. Give them 30 days to send a notice if they plan an increase. You can't bluff so be prepared to follow through if they send a increase request. We had a 1 million annual budget and 3 years in a row we had no increases. This was when I was President of my Ca. board.

A couple suggestions:

1) Fees, automatic increases to fees and auto-renewal of contract should be stipulated in your current contract w/ the MC. If there's no mention in the contract, I'd have a discussion w/ your Board as to how you want to proceed. If the MC has been w/ you for a while, does good work, and may deserve an increase, then you may not want to make waves (just be aware for next year). However, if the MC is mediocre or otherwise underserving of an increase, then you should be able to politely point out that it's not in the contract and an increase is not happening.

2) Do a little investigation yourself to see if they're telling the truth. You should be able to see prior years' budgets and contracts to see if it has been a usual thing for them to increase each year. Ask former Board Members about their experience. If the stories don't agree, it could be that the MC is trying to pull one over on a new Board.

One thing I learned from contracts for routine services like landscaping, management, etc. is that you can't always be so fixated on price (I'm not saying you are, but helping you think longer term as a Board Member). You're developing relationships w/ these contractors. Paying a bit more for good services to a company you trust and have developed a good relationship w/ over the years is well worth it. While saving money is good, there is a learning curve for new contractors that may involve significant time from Board Members as well as the unknown possibility of the new contractor being a dud. Ending up in that situation is tough since you're stuck with a crummy contractor for a while, will need to eventually redo the process of finding a new contractor, and have destroyed the relationship w/ the previous contractor.

Good suggestion. Thanks!

Amen. Every vendor and contractor should be bending over backwards to make sure you're happy with the goods and services you're receiving. There's nothing wrong with having a good working relationship with your vendors but YOUR happiness is paramount since YOU are the customer.

For 20 years we had the same landscape contractor. There was a period of several years when they'd ask for more money just about every year due to the "rising price of fuel". Then came a few years when gas prices went down. You could hear a pin drop when they wanted another increase. The new board at the time, over the objection of the landscape committee who had become very friendly with that vendor, cut them loose after an attempt to negotiate went nowhere.

Vendors will say anything to get what they want. An association should stand firm by what it wants. Fair is fair.