Contract / Service prepayments

Do your associations have any rules around prepaying a vendor a partial amount on a contract for services? We have two projects right now where the vendor has asked for a 50 percent prepayment. These are both long established maintenance and landscape vendors with our community. Both of these request came after we approved a scope of work with them. On one hand I have little concern that they won’t perform the work but on the other hand this hasn’t been common practice for us and generally I don’t like paying before any work has started. I’m more that happy to pay multiple invoices throughout a project as the work is being completed. Do you have policies or practices around this?

When a contractor requires a pre-payment, I suspect they're having financial problems and need the upfront money to pay for materials. Even experienced, responsible vendors can get themselves into trouble, so this doesn't necessarily reflect badly on them. But you have to be aware of the increased likelihood of problems as a result.

Generally if I'm going to pre-pay for anything, I expect discounts. But a business that's in financial difficulty probably won't be in a position to discount their product or service. If I were on the board, I'd probably look elsewhere unless this particular vendor provides something that compensates the HOA for the increased risk of going with them.

We take every prepayment for services on a case by case basis.

In our area, you cannot secure any kind of services without some kind of prepayment. There is just too much work here and not enough contractors. While you should never pay the whole amount up front, it is very common to pay 50% up front. You just need to make sure that your contract has remedies and performance dates so that you can do something if the work is not performed.

The only thing we don't pay a deposit on are our yearly contracts for maintenance, pest control, irrigation, etc.

The companies that we use for services are either well known to our property manager, referred by other vendors, or ones that we have checked references for in advance.

Prepayments in these cases are relatively safe. I don't see any issue with it. I do the same thing at home - recently had my gutters replaced and had to py 1/3 up front to reserve a spot four months later. But it was a reputable company that I vetted and felt secure that I was doing the right thing.