Before entering into a contract with a vendor, boards should make sure they cover each of the following points:
1. License. Verify that the contractor is licensed.
2. Insurance. Make sure the contractor carries workers' compensation insurance, provides proof of insurance and names the association as additional insured. Made sure the contractor's insurance does not contain a multi-family or condo exclusion. 3. Governing Documents. Make sure the contract does not violate any limitations in the association's governing documents.4. Legal Review. Have legal counsel review all contracts with attention to particular contract clauses. Following are some issues and clauses that need to be reviewed in all agreements:
Parties. The opening paragraph of a contract typically names the parties to the agreement. The contract should not name the directors as parties. Instead, it should be the corporate name of the association. If directors are listed as parties to the agreement, they could be named personally in any litigation that might result because of any alleged breach of the contract. The contracting party is the corporation which the directors sign on behalf of the corporation.
Scope of Work. The scope of work must be clearly defined. An ambiguous or incomplete description of the project gives rise to disagreements and makes it difficult to hold the vendor accountable for his work.
Payment Schedule. Define the payment schedule. Generally, payments should be phased so that monies are paid to the contractor as work is completed. As a rule, full payment should not be paid up front, since it exposes the association to significant risk of loss if the contractor does not perform. Normally, a percentage is paid up front so the contractor can purchase materials and begin work. A percentage, usually 10%, is retained by the association at the conclusion of the work until everything is signed-off.
Insurance. Define the types of insurance and minimum limits the vendor must carry and whether the association is named as additionally insured on the policy.Indemnity Provision. Vendor agrees to protect the association if it gets sued because of some act or omission by the vendor.Time for Performance. If performance dates and times are important, put them in the contract.Permits and Licenses. Vendors must be licensed and pull permits whenever appropriate and provide the association with copies of both.Warranties. If the vendor promises to stand behind his/her work, be sure to put it in the contract. You should also have the manufacturer's warranty against defects in the products (not necessary for service providers).Mechanics Liens. Mechanics lien provisions should protect the association in the event the vendor fails to pay his subcontractors or material suppliers.Termination Clause. If work is not performed satisfactorily, there should be a provision for terminating the agreement.Evergreen Clause. The contract automatically renews if notice is not given to the vendor of the association's intention to not renew the agreement.Escalator Clause. The association's payments to the vendor automatically increase each year. The increases may be predetermined or may be linked to the CPI.Alternative Dispute Resolution. An ADR provision is often included in contracts so as to keep litigation costs to a minimum and to speed resolution of any disputes.Attorneys' Fees. Without an attorneys' fee provision, typically each side bears their own fees and costs.
RECOMMENDATION: Boards should have the association's legal counsel review all contracts before they are signed by the board. Contact us for assistance in preparing and enforcing contracts.