Hiring from within??

Hello,
I serve on the HOA Board for my community and one of my other board members is planning to start their own landscaping and pressure washing business. My question is, would it be legal and ethical to hire his business for taking care of our community? Would he have to resign his board position in order to do so?

Thank you,
Dave

If you want to hire your neighbor, your first step is to always get competitive bids plus references. Otherwise, the optics are bad. I don't think that the board member should resign at this point, but he should declare this conflict of interest and recuse himself from any discussion or voting on the landscape contract. If he is hired, then you should probably revisit this.

* Your neighbor may well do an excellent job for you. However, it doesn't sound like he'd have much of a track record. Part of the bidding process involves verifying references, and if he doesn't have any, that should take him out of the running he has that track record under his belt.

* As Melissa noted, your neighbor must be licensed and carry the proper insurance. Verify this as well.

* Consider what would happen if he did not perform acceptably. Are you comfortable with the steps you'd need to take? This will cost money, and it's the kind of thing that makes the "low bid" turn into the "high bid" quickly. Also remember that it's possible you'd end up taking legal action against the guy. Will it poison the atmosphere of the community?

In general we avoided hiring the "friends and family" folks just because of they introduce issues that don't exist with outsiders. It's easier for the board to fulfill its fiduciary duty to the association if the relationship between HOA and owner is strictly business with no conflicts of interest.

David,
Please read the definition of the term "Fiduciary Duty" it should clear up your concerns.

The landscape contract is usually the 2nd biggest expense in most HOAs. It has many adds for sprinkler repairs, replanting shrubs and tree care. It would be impossible for this person to not be involved in all of those proposals. It is also going to be hard for him not to know who he is bidding against and what they are proposing. This will cast a shadow that will effect your board.

If he wants to start a new business let him know that there are lots of other opportunities in every other HOA for good Lawncare companies.

My opinion is he could be hired to perform those tasks if:

1. Other bids were solicited and his is considered the best.
2. He recuse from bid discussions and voting.

There is something said about personal pride as in he would want to make his association look good.

Any vendor under consideration needs to be asked for references. It sounds like he is just starting up, so he may lack a work history. That certainly would factor in any decision the board might make.

Of course, he should recuse himself from any vote if he has a bid on the pile.

... plus you do realize that this board member has a competitive advantage over other landscaping businesses: He knows exactly what the budget will allow and what the soft spots are for specific directors. I think'competitive bidding' that passes legal muster is impossible when the guy has these advantages.

I can definitely understand your skepticism if the situation that I presented and it’s not that I’m considering it, I just wanted to know from a legal and ethical standpoint if it were a feasible solution. Every HOA situation is different and in my case, we have a lot of homeowners not paying and the bills continue to stack up. I was also looking at it from an angle for cutting costs. After reading this whole discussion string, I’m leaning more toward not entertaining this “idea” at all. However, if the board member wishes to resign and pursue his landscaping business and submit a bid like other companies then that’s a risk he can take as well. This discussion has been extremely helpful for me and I really appreciate your input as well.

I don't think the "optics" of the overall situation change much whether he is a Board Member who recuses himself from discussion and award of a contract to his own landscaping company or a recently-resigned Board Member who owns the new company that happens selected for the HOA's landscaping contract.

Either way is likely perfectly legal and can be done ethically; however, other homeowners' perceptions is all that will matters to them in the end. There will be enough folks in the neighborhood who cry foul and perceive the situation to be illegal, unethical, sketchy, favoritism, etc. to make this a situation that I would likely try to avoid.

Perhaps a first step in saving money on landscaping would be to minimize your contracted services to only those things absolutely necessary to keep the place from looking dumpy, put it out to bid to several interested contractors, and see what comes back. I'd suggest looking into a variety of contractors . . . those with well established business and large staff as well as those less established with a smaller crew.

David,
If this guy was the best Landscaper on the Planet and also the cheapest it would still be silly for the board to take the heat for 1 member of the HOA board. Why would it make sense to risk everyone's standing in the community? The downsides are all over the place. I have had 4 landscape firms in my 9 years on HOA boards. None of them are perfect and all can be picked apart by homeowners if you look close enough. I hope you have some nice trees in your community. You should pick 5 that your board wants to be hung from when this fails.

I do not know anything about the guy who appears to be having a mid life crisis and wants to start company. It does have very high startup costs for anyone doing it commercially. What if he is under funded and realizes have way through that he entered a business he can not handle? What if he does it on a shoe string? Guess who will be judged. You and the rest of the board.

The only thing that I can assume is you must be the guy that wants to do this. Please find another business to open.

David,
Good luck and please update us on what the board decides. We can all learn from others success and failures.

My only closing advice is try to remain natural and remember you are working for your supporters and the rest of your HOA.