special assessment transparency

The board is planning a special assessment but has not shared what seem like important details owners need before taking a vote.
There is some distrust following a prior assessment where things did not go as planned, and only reasons given are "Covid, supply chain, inflation".

Should the board share names of contractors who would be involved?
What is the typical number of bids required to do due diligence?
Should the board have an actual dollar bid to share before a vote to approve, or is an 'estimate' adequate?
What details of the contract are important to protect owners from future issues (siding, painting)?
Is it ethical to take monies from other areas of the annual budget to 'pad' the special assessment if needed?

By the by, "Covid, supply chain, inflation" hides a whole lot of financial misery in those three words.

I work for a new home builder, and during the pandemic the price of building supplies rose constantly because of supply chain issues. Labor costs were also higher. And when covid started to simmer down, we had a hot housing market in much of the country which increased the demand for building supplies and kept upward pressure on prices.

Any price that was quoted was higher a week later. In the last five years, the average home price in my area doubled. Crazy.

Anyway, community associations compete for supplies along with the home builders. So the board plans a roof replacement project, budgets the money, gets bids and discovers they're 10-30% higher than they'd expected. Delaying the project won't make it any cheaper - just the opposite. So homeowners either cough up the money, or they deal with leaking roofs that need to be repaired - and the repairs are pretty much wasted money because the roofs themselves have reached the end of their useful lives.

There is no painless solution to this.

And community association boards can't do anything about it - they don't have special skills that are unavailable to the professional builders. In fact, boards have fewer options because of the nature of non-profits. For example, community associations are limited in what they can safely invest money in, while the professionals can have large piles of profits that they can invest in higher risk assets to tide them over the lean times.

No argument with anything Cathy said, but here’s one person’s comments to your questions:

1. Should the board share names of contractors who would be involved?

This sounds like you want to know who else bid for the job and what those bids involved, but the only things you should be interested in are (1) what was in the request for proposal (RFP, which the board should provide – all contractors should have received the same information; (2) the contract specifications for the company selected (usually you have a right to request and review a copy) and (3) what else the board did for due diligence.

2. What is the typical number of bids required to do due diligence? I prefer three, especially if the work will be very extensive and expensive. Get your association attorney to review the contract before it’s signed to ensure the association’s interests are protected. Board members should still review the contract because at least one or two officers will be signing it and they need to get a good understanding of what it says.

And speaking of due diligence, for every contractor you take a second or third look at when considering the final choice, your board should:

Ask for references and check them, preferably other HOAs that are similar in size and had the same project as you. Better yet, visit that community to inspect the area and have a chat with its Board president or whoever spearheaded the project.

Check with the Better Business Bureau and Consumer Protection Division to see if there are any complaints against the company and how they were handled. Getting complaints is part of business, no matter how reputable you are – that’s ok as long as the company doesn’t ignore the complaint and makes an effort to resolve it (contrary to popular belief, the customer isn’t always right). City or county building departments or whoever issues building permits or licenses might have the same information.

While you’re at the city/county building department, check if the contractor has the has the appropriate and current licenses, insurance (e.g. workman’s comp) and surety bond (in case something goes haywire and they go under, you can file a claim against the bond to get the work completed.

3. Should the board have an actual dollar bid to share before a vote to approve, or is an 'estimate' adequate? As Cathy noted, the cost may change because some things won’t be known until after the contractor starts the work and discovers it. That’s why your contract should contain language stating how changes are to be handled

4. What details of the contract are important to protect owners from future issues (siding, painting)?

That depends on the work that will be done – there’s all sorts of information on the web. Some of it’s better than others, which is why you read more than one source and ask the contractor as many questions as you need to. If he/she can’t or won’t explain things in plain English, you may need to thank him/her politely and get someone else. One thing you should do is ask if the contractor will be using subcontractors, and if so, the association should get a lien release from all of them. This way, if the general contractor runs into financial difficulty, the subcontractors can’t file a lien against your property to get the money.

As for other details, consider this work in the same way you’d hire someone to work on your own home, except this time you’re extrapolating to the association’s common areas. That means looking for things like start and end dates, specifics on the quantity and type of materials, a description of what will be done, who cleans up and payment terms. Once again, board members need to read the contract along with the association attorney to ensure they understand the terms and the association’s interests are protected. If you don’t understand the contract, don’t sign it (just like you should do when hiring someone for your own property)

Ideally, I don’t like paying more than 20% for a deposit – 25% at the most. Otherwise, you lose the incentive to compete, and you don’t want people who underbid the work and then say “I can’t finish if you don’t pay me more money” (because he/she used your money to complete work on another project that was also underbid). Instead, pay 20% to start, 20%-30% as one phase of the work finishes and another begins and the rest at completion – after you’ve inspected the work and the area to ensure the workers cleaned up, subcontractor lien releases are in place, etc.

5. Is it ethical to take monies from other areas of the annual budget to 'pad' the special assessment if needed?

Reread Cathy’s second post about pricing. If you do fall short, you might not have a choice but to look at the rest of the budget to find more money to complete the project, depending on what’s being done. Just like your own household budget - when something unexpected happens, the money for the vacation you'd been saving for may have to be used to install a sump pump because the basement flooded. This is why you want to do as much as you can on the front end of the project. Perhaps you’ll need to divide up the work – areas with the worst problems first and work your way down. Also take a hard look at what you need vs. your wants. You might want a certain type of shingles for a roof replacement, for example, but if you have a lot of roofs to do, you may have to settle for another type that can do the job and be compliant with building codes, but is less expensive. This is also why you need at least three bids.

In the end, your board should be transparent as possible about the process – nothing they do should ever be a surprise to the homeowners. The homeowners should also review the information carefully instead of focusing only on costs. That’s important, but homeownership isn’t cheap, home components like siding, roofing and water heaters eventually wear out and have to be replaced, inflation is a thing and some household budgets are more fixed than others, so you’ll never make everyone happy at the same time, nor can you continue to put it off and hope you’re long gone by the time the shit hits the fan. Good luck!

What careful, excellent replies came from Cathy & Shelia, both with long HOA leadership experience.

And tho' a CA HOA law firm, visit Davis-stirling.com, Main Index, Contracts, for solid info that's good anywhere in the USA.

Vs. Terri, there is no requirement for the Board to open sealed bids at an open meeting and discuss all, say, 3. When there are competitive bids, they almost always are discussed by the board in executive session*. In addition, for big projects, the board generally interview a team from each of the vendors' firms in executive session. This easily takes an hour apiece and is one good reason boards often limit the # vendors to seriously pursue to 3.

In the contract of our ex mgmt. co (MC), they were required to bring at least 3 bids for jobs over $1,500. sometimes it's difficult to find 3 who're interested & have the right skills.

Boards don't share names of contractors until they've approved a bid with their votes in a board meeting. Once approved, very importantly as Shelia points out, and are vetted by your HOA's attorney, one or more board officers signs it, it is available for owner review. Request it politely in writing to the manager or board member.

Your HOA attorney will make sure that "change orders" are spelled out to benefit the association. As Cathy notes-- "things" do appear that are unknown very commonly. Her example about roofing is good. DO note that the funds to pay to repair this underlayment to the roof's unexpected damage should come from your reserves account. If reserves are underfunded badly, the Board may need to use funds from your operating budget. Not sure what "ethical" has to do with it?

It's not clear that the distinction between reserves accounts and operating budgeted is obvious to LynneP.

Finally, often board may level special assessments without owner approval. In CA & others places, the board may every a special session of up to 5% in one year on its own. What do your CC&Rs or OR state statutes say about special assessments?

Finally, if you're willing & able to say, Lynn, what "following a prior assessment where things did not go as planned" entailed, I might understand your concerns better.

*Our HOA Board usually discusses bids for small contracts in open meetings , e.g, copier servicing vendor, bottled water delivery.

Kerry, I didn’t say 3 sealed bids was a requirement. I said it was typical. The poster wanted transparency. Opening bids at an open meeting is transparent. That doesn’t mean contract formation would occur in open meeting.

I would have 2-3 local attorney's review all proposals and make recommendations to the BOD. Also hire one of the attorney's to oversee the projects.

KerryL1, the reason I know you are inept is because you use ad hominems (often based on falsehoods) to debate. You do not have facts. You are left with a jabberwocky of personal attacks.

Kerry, I think you are slipping. You basically say I’m too inexperienced to answer the question then you give the same answer I gave! 3 bids! And being on a board for a long time does not always equate to the best answer 😊

Kerry, you think that experienced board members can better answer the question on how many bids to get? Here's how our board does it. The board director who works for a paving company first gets a written bid ONL from her boss's competitor. She prints the quote and passes it to members. Then she gets a quote from her boss! And she plans to vote on whatever contract is chosen. We haven't any other quotes since the first one.

II’m sorry, Cathy, that I attributed something to you that you didn’t state. I think I got mixed up with Shelia’s.

The reason I know that elle’s one maybe two brief stints on HOA board(s?) shows that the Board did not adhere to the BJR is that they did not practice “due diligence” before signing contracts. Now if these were a small simple ones, it doesn’t matter. But if complex and expensive, Boards should rely on experts’ opinion. I’m pretty sure this is an aspect of any BJR in the USA (which, btw, do NOT "vary widely.")

I recall elle writing that she was involved with landscaping. 1st, I believe, as a committee member. Then, perhaps as a short-timer director. She also has written than one of her HOAs had many, what? Condos? 1,000? 500? Unless the gardners would solely mow, blow & go, the contract probably needs no attorney review.

BUT, if it included tree replacement, redesigning large landscape areas, etc. resodding large areas, irrigation repair, contract inspection expertise is warranted AND advised. My city-square block high rise has about 5,400 sf of planter raised beds.. The contract is $27,200ann. It includes several budgeted tasks, including irrigation repair. It’s about 20 pages long. And, yes, we did have our GC review it AND he added text to further protect our HOA.

A few years ago we moved tree replacement to our reserves Study when the trees reached 20 y.o. I personally untangled our 3 reserve studys over s 3-year period with help, of course, from our reservers specialist (RS). If elle would like to test my knowledge of reserves, start a new thread. Both our HOA attorney & RS praised my ability to comprhend very complicated reserve “splits” among the three areas, etc.

Elle, “taxes?” Really? I never said I cared about or knew about taxes. Per MC & CPA handle that. It’s lovely that you and also Tim can help posters with their tax topics.

However one feels about the Community Association Insitute—CAI—it IS regarded as the expert in HOA matters. See their T of C below for their “Board Members Toolkit.” Wha.??? No Taxes???? I haven’t looked at this pub in z long time, but it has all kinds of great info in it! Somehow I was able to get it free from CAIonline.org.

Contents
INTRODUCTION
1. Governing Documents
2. The Role of the Board
3. The Role of the President
4. The Role of the Secretary
5. The Role of the Treasurer
6. Working with a Professional Manager
7. Working with Professional Partners
8. The Importance of Meetings
9. Electing Board Members
10. Finding Volunteers
11. Finances
12. Reserves
13. Selecting Contractors
14. Communicating with Residents
15. Rules
APPENDIX A: How to Get the Most from Your CAI Membership
APPENDIX B: Community Association Fundamentals
APPENDIX C: Rights and Responsibilities for Better Communities
APPENDIX D: Model Code of Ethics for Community Association
Board Members
APPENDIX E: Governance Guidelines

Elle sneers I have “profound ignorance” about why appeals to authority are not permitted in formal debate. So what; this is not formal debate. I do know it when I see the “fallacy of of misplaced authority,” which dribbles occasionally from elle.

In a previous thread, elle declared that it’s OK to be a little uncivil here. That way, see, she can try to insult by saying I’m ignorant and inept (oh, there’s been much more than those). I asked readers if any agreed with her. No one did. NO ONE.

The question was what is typical for due diligence.

You cannot cite one statute or any case law that says a Board must have an attorney review a contract in order for the board to have done its due diligence.

Pfft. Good job. You just contradicted yourself.

Getting 3 bids and opening them at an open meeting is not typical due diligence. Nor is accepting the lowest bid just because it’s the lowest bid.

At least you are aware that such qualifications count.

Please try harder.

thanks. helpful!

I hope Lynn that you did see value in Cathy's & Shelia's thoughtful & serious replies and assume you're thinking them.

My own replies got mired in contracts, which are crucially important, but just one aspect of your concerns. Sorry if of no use. Still the list of who should be incorrect might be good.

I would say....

The board should disclose the contractors' identities for information purposes.

3 or more bids are sufficient for expensive projects w/ the understanding that specialized projects may have very limited vendor options.

The board should establish an assessment amount that covers the quoted cost + a double-digit percentage above that as a contingency as projects rarely go according the plan

Warranties, including local labor warranties, are certainly up for discussion but the HOA board would be charged with those details above seeking a community-wide input. There's no feasible way to protect against future issues as there will always be future issues.

I would say it's ethical to tap other areas, including the operational budget, to lessen the impact of
a special assessment as long as the board is fiscally prudent in doing. Tapping operations money will
require new focus on daily maintenance decisions, but should be done in my opinion....or, at least, explored