BOD Member contracting with Association

A new member of our BOD wants to do work for the Association to save money on projects normally sourced from qualified contractors. Before retiring he was a licensed contractor and has the ability to provide all the insurances and licences we require from all our contractors. Being retired, he can charge very low rates on the time involved in the projects. This would give him a hands down advantage over other bidders.

My questions are regarding our By Laws which under the title "compensation" state:

1. No Director shall receive compensation for any service he may render to the Association

2. However, any Director may be reimbursed for his actual expenses incurred in the performance of his duties.

I see these as two separate and distinct statements on compensation. One being compensation for "services rendered" and the other for expenses incurred "in the performance of his duties".

Our By Laws specifically define the duties of the BOD which include supervision of agents and employees, keep complete records, fix annual assessments, procure insurance, cause officers to be bonded, maintain common property, etc - typical duties found in most Association By Laws.

I interpret the first to disqualify the BOD member from doing contract work in which he will be compensated for his time to do the work, no matter how little is charged.

The only way for the BOD member to do the work might be on a time and material type contract where the hourly labor rate is zero and no cost plus provision on the materials (cost of materials only). If so, this will eventually lead to a situation where the Association will have no bidders except the BOD member since other contractors have absolutely no way to compete and decline to offer future proposals.

Looking to hear whether or not you agree with my interpretation of statement 1, and would really like to hear comments and input into this issue in general.

Thanks for listening.

BillB

The language about compensating a director for services rendered to the association is interpreted to mean services in connection with the discharge of the duties of the office to which the person has been elected, not services rendered under a separate contract or agreement such as you have described.

However, while well intentioned, this director must compete with other bidders on an equal footing basis and must recuse himself from any aspect of considering his general offer or future "bids" which may be received from him for projects to be completed on behalf of the association.

There are a number of reasons why using the services of a member of the association, director/officer or not, can be problematic. Others will undoubtedly weigh in with their thoughts.

I agree that the statement "no Director shall receive compensation for any service he may render to the Association" applies to both normal board duties and to any other activities outside of that. That may not have been the intention of the statement, but I think that "any service" does include work normally performed by other vendors.

"Any Director may be reimbursed for his actual expenses incurred in the performance of his duties" would apply if the director paid out-of-pocket for something like printing the newsletter.

Personal opinion here:

I'm not a big fan of hiring any homeowner (board member or not) to perform work normally contracted to outside vendors, because it blurs personal and professional roles and can create expectations where there shouldn't be any. This includes volunteers. Managing a homeowner can be problematic. The board may hesitate to deal with issues because Good Ol' Joe Down the Street is a neighbor. Or Good Ol' Joe may think he doesn't have to work as hard as he would for a "normal job" (this is more likely if he's not accepting normal levels of compensation for his work). Or Joe may feel entitled to preferential treatment because he's a homeowner.

If Good Ol' Joe is also a board member, these issues become magnified. He won't be able to do his share of managing the work, putting the burden onto the rest of the board. He may not be willing to accept direction from the other directors. Work issues can become board issues and can cause more serious problems than you'd have if he were just a homeowner. Sometimes you won't be able to predict how Good Ol' Joe will behave in such a situation, and you'll find out the hard way.

Family-owned businesses in general are notoriously dysfunctional because of the blurring of personal and professional roles. The same sort of thing is going on here, just to a lesser degree. If Good Ol' Joe brings some unusual skills to the table that you can't find elsewhere or can't afford, it may be worth taking the risk. But it's also worth anticipating all the ways this can go wrong so that you're prepared to deal with them.

Thank you BillH

Trying to understand your point in your paragraph 1. If language compensating a director for services rendered to the Association is interpreted to mean services in connection with the discharge of the duties of the office, what is the point of the second sentence in our ByLaws?