When should the MC disclose a conflict?

ChrisP5 (Missouri)
Posts: 165

Posted:

Our association has contracts in place for large items in the association budget (landscaping, mowing, snow removal, pool, etc) but we have authorized the management company to hire other general labor on an as needed basis for various odd jobs. I was on a social networking site and noticed several of my friends had become fans of one of the firms our MC has used quite a bit recently. When I clicked through and took a look the page I discovered the company in question is owned by the spouse of our property manager.

While I don't think the company has done anything wrong, and I don't think that there are any billing issues would you have expected your management company to disclose this to your BOD?

We are one of the associations that allows the MC to sign checks for us (I disagree with the practice but haven't convinced the other board members as of yet). In this case, even with disclosure would you insist that the MC not sign checks payable to this company as the person who signs our checks is the spouse?

I have gone back and forth on this issue and if I should bring it up to the directors. Again I don't think they have done anything wrong I was just annoyed to find out in the way I did.

Your thoughts are appreciated.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Chris,

The Board authorized the MC to hire without seeking prior authority. Shame on the Board, as this opens the door to this type of thing. Good for you for discovering the issue.

The MC should have disclosed the conflict immediately, prior to hiring to avoid just such an issue, an appearance of impropriety. Had it been disclosed and the Board approved it, there would be no issues. That said, there is no requirement to disclose this other than an ethical one.

The question now is, are there any issues with the work completed by this company? Were bids received from other companies so you know the price was fair? Does your board require bids (they should)?

You should bring this issue up at your next board meeting. You should ask if bids have been received for the jobs and if not, start requiring them of the MC. The Boad should then meet in executive session (or at least without the MC) to discuss the issue and ways to address it.

Remember it's the Board that created this issue by not properly overseeing the management company. It's the Board who authorized the MC to hire whomever they desired to complete odd jobs. The Board needs to adjust how they are doing things to protect the Association. There might not be anything wrong with what is happening (as the work might be satisfactory, licensed contractor and at a fair price). Because of the lack of disclosure, an air of suspicion and lack of trust arose. This is what needs to be addressed and it's the Board that created the atmosphere for it to happen. No matter how great of a relationship a BOD might have with a MC, it's still a business and certain safe guards should be kept in place. These include requiring competitive bids for all work, prior approval before money is authorized, two signatures on all checks, etc.

Hopefully, the Board is the one who actually signs the checks and has not delegated this authority to the MC as well. If they have delegated this authority and you agree with this arrangement, please send me your personal check book and all future paychecks. Trust me, I'll take care of everything (wink, wink).

Tim

MicheleD (Kentucky)
Posts: 4,491

Posted:

Quote:

Posted By TimB4 on 04/04/2010 6:13 AM

Remember it's the Board that created this issue by not properly overseeing the management company. It's the Board who authorized the MC to hire whomever they desired to complete odd jobs. The Board needs to adjust how they are doing things to protect the Association. There might not be anything wrong with what is happening (as the work might be satisfactory, licensed contractor and at a fair price). Because of the lack of disclosure, an air of suspicion and lack of trust arose. This is what needs to be addressed and it's the Board that created the atmosphere for it to happen. No matter how great of a relationship a BOD might have with a MC, it's still a business and certain safe guards should be kept in place. These include requiring competitive bids for all work, prior approval before money is authorized, two signatures on all checks, etc.

Chris, I can't think of anything to add to Tim's advice except to pay special attention to the bolded material above.

The board may or may not be aware. So I would definitely make them aware and let them know why it concerns you. Not that anything untoward IS happening, but that there is an impression that there could be . . . and perception becomes reality. If the membership finds out, and many could find out just like you did, the distrust would fall back onto the board.

So for their own credibility, they may want to discuss it with the MC, and be sure to keep an eye on things going forward.

Be careful how you present it, though. Boards get "defensive" and may feel like they are being accused of something. Be sure to present it as an FYI and that your only goal is to avoid the perception of impropriety.

SusanW1 (Michigan)
Posts: 5,202

Posted:

If the board passed a budget for the work, then the MC got a company to do the work for that amount. While the MC should mention that the work was being done by a relative, the obligation was to find a vendor who could complete the work. That was done.

How much $$ for the contract are we talking about here?

ChrisP5 (Missouri)
Posts: 165

Posted:

Quote:

Posted By MicheleD on 04/04/2010 9:52 AM

Posted By TimB4 on 04/04/2010 6:13 AM

Remember it's the Board that created this issue by not properly overseeing the management company. It's the Board who authorized the MC to hire whomever they desired to complete odd jobs. The Board needs to adjust how they are doing things to protect the Association. There might not be anything wrong with what is happening (as the work might be satisfactory, licensed contractor and at a fair price). Because of the lack of disclosure, an air of suspicion and lack of trust arose. This is what needs to be addressed and it's the Board that created the atmosphere for it to happen. No matter how great of a relationship a BOD might have with a MC, it's still a business and certain safe guards should be kept in place. These include requiring competitive bids for all work, prior approval before money is authorized, two signatures on all checks, etc.

Chris, I can't think of anything to add to Tim's advice except to pay special attention to the bolded material above.

The board may or may not be aware. So I would definitely make them aware and let them know why it concerns you. Not that anything untoward IS happening, but that there is an impression that there could be . . . and perception becomes reality. If the membership finds out, and many could find out just like you did, the distrust would fall back onto the board.

So for their own credibility, they may want to discuss it with the MC, and be sure to keep an eye on things going forward.

Be careful how you present it, though. Boards get "defensive" and may feel like they are being accused of something. Be sure to present it as an FYI and that your only goal is to avoid the perception of impropriety.

I realize that my original post was a bit vague in clarifying that I am a board member. This is a fairly new MC for us and I have reviewed all of the minutes since they started and there was no mention of the conflict although I understand not everything makes it into the minutes.

I am relatively new on our board (3 meetings so far) and working to change some of the ways we operate but am trying to bring forward one or two items at a time. Since my first meeting we have implemented an investment strategy and switched banks to maximize interest, began contributing to reserves monthly, launched a website to improve transparency and signed a contract for our associations first reserve study (I shudder to think about what the results will be)

I need suggestions on how to get my board to want to be more involved with these sorts of things. Unless something goes wrong they seem content with letting the MC do whatever they want. We employ a MC to handle day to day things for us, where do we find the balance between letting them do what we hired them to do and micro-managing

I don't disagree that we should be more involved with some decisions but we are decent size association with a fair amount of maintenance work. I can't imagine seeking out bids every time we needed to do any small project. Do your association's have standing contracts with plumbers, carpenters, electricians, etc or how do you deal with that work when the need arises?

MicheleD (Kentucky)
Posts: 4,491

Posted:

Quote:

Posted By ChrisP5 on 04/04/2010 3:57 PM

I don't disagree that we should be more involved with some decisions but we are decent size association with a fair amount of maintenance work. I can't imagine seeking out bids every time we needed to do any small project. Do your association's have standing contracts with plumbers, carpenters, electricians, etc or how do you deal with that work when the need arises?

This is a great question, and will likely result in a variety of responses.

My standard reply to almost any question like this is: It depends.

It will depend on the actual size and type of HOA (are you a condo, patio home, townhouse association? a stand-alone, single-family home association? do you have buildings, fences, do you own the roads, do you have irrigation systems, the list goes on).

We have roughly 600 residents. We do not have a property management company and are single-family, detached homes, with county-owned roads and no gate.

We have a standard Request For Proposal/Quote template for each project that requires vendors.

As a result, we have contracts with landscapers, electricians, subcontractors (for stonework or concrete work), ironworks (for mailboxes and wrought-iron fencing), etc etc etc.

The length of the contract varies with the vendor, but we make sure to review and set up a bid process at least every 2 years.

ChrisP5 (Missouri)
Posts: 165

Posted:

Quote:

Posted By MicheleD on 04/04/2010 4:27 PM

Posted By ChrisP5 on 04/04/2010 3:57 PM

I don't disagree that we should be more involved with some decisions but we are decent size association with a fair amount of maintenance work. I can't imagine seeking out bids every time we needed to do any small project. Do your association's have standing contracts with plumbers, carpenters, electricians, etc or how do you deal with that work when the need arises?

This is a great question, and will likely result in a variety of responses.

My standard reply to almost any question like this is: It depends.

It will depend on the actual size and type of HOA (are you a condo, patio home, townhouse association? a stand-alone, single-family home association? do you have buildings, fences, do you own the roads, do you have irrigation systems, the list goes on).

We have roughly 600 residents. We do not have a property management company and are single-family, detached homes, with county-owned roads and no gate.

We have a standard Request For Proposal/Quote template for each project that requires vendors.

As a result, we have contracts with landscapers, electricians, subcontractors (for stonework or concrete work), ironworks (for mailboxes and wrought-iron fencing), etc etc etc.

The length of the contract varies with the vendor, but we make sure to review and set up a bid process at least every 2 years.

We are a condo association with 27 dwelling units and garages in 13 additional buildings, streets are public but lots of association owned driveway, sidewalks, irrigation system, fire sprinkler system, pool, mailboxes. We don't have gates or fence surrounding our development.

So how do you set up contracts with people like plumbers/electricians since the jobs vary widely from call to call? Do you just negotiate an hourly rate?

ChrisP5 (Missouri)
Posts: 165

Posted:

Just for clarification there are 216 units in 27 buildings

SusanW1 (Michigan)
Posts: 5,202

Posted:

The board should not have to micro-manage all business. That's what the MC was hired for.

Pass a policy that no relatives can be hired by the HOA if that is the main issue.

Otherwise, until the job gets done poorly and there are complaints, the hired company is doing its job - relative or not.

MaryA1 (Arizona)
Posts: 7,043

Posted:

Whether the contractor is doing his job or not is not the issue. The issue is whether there is a conflict of interest or not. IMO, there definitely is since the MC would tend to benefit monetarily if her spouse (the contractor) were awarded the contract. The MC should know to inform the board of this conflict of interest so the BOD can decide whether or not this contractor should be hired. Frankly, for all we know, this may have been done. Does the OP know for sure the MC didn't inform the board of this?

ChrisP5 (Missouri)
Posts: 165

Posted:

I can't say for certain that it wasn't disclosed in the 3 months we were with the MC before I was on the board but I do know it isn't in the minutes and it didn't come up at a recent meeting where we discussed what would count as a conflict and what wouldn't when reviewing a sample ethics policy.

I posted here to get everyones feedback because after hearing this groups thoughts I sometimes have a different outlook on things before getting totally bent out of shape about an issue that really isn't an issue.

I do plan to bring this up to the board in the near future though just so everyone can at least be aware.