Contracting For Services –
What You Should Know?
Contracting for goods and services plays an important
role in the operation of a community association. Most
community associations find it necessary to deal with contracts
on a regular basis. This includes considerations such as hiring
personnel, purchasing materials, and maintenance contractors. It
is important to acknowledge the need for clearly written contracts
and contract clauses. Components that create a legally binding
and comprehensive contract include:
Parties to the Contract – Require complete
legal names, addresses, and phone numbers of the two parties
to the contract. It must be crystal clear that the association
is one of the contracting parties. Directors or managers should
not execute contracts individually for the association. Make
sure the NAMED PARTY is the legal name of the association.
Check the governing documents if you are unsure of the legal
name!
Scope of Work – include specific written
detail regarding what work is to be done by the contractor:
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The contractor must meet all requirements of
building trades codes, perform to industry standards
and product manufacturer specifications.
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A clear commitment must exist by the contractor
to properly staff and supervise the project to
satisfy the requirements of the contract.
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Acknowledgement that the area is to be returned
to pre-construction condition immediately after
conclusion of the project is essential.
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Clearly define working hours. This should include
regular hours during the week and a statement regarding
hours allowed on weekends and holidays.
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Responsibility for tools and equipment should
be acknowledged. Where is storage? Who is responsible
for rentals and repairs? Who is liable for stolen
items?
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List the various materials that will be used
in the project. Be specific regarding quality,
quantity, and colors. If the contract is not specific
as to what kind of paint or stain is to be used,
the contractor may choose an inferior product than
that you would choose. Who is responsible to provide
the materials? It should be spelled out who will
accept delivery of the materials and at what location.
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Compensation – The contract should state
the total agreed amount for the product and/or service. Work
outside the scope of the contract should only be authorized
by a written "change order" that details the work
to be done and the price.
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Be specific regarding the timeline for payment(s),
what constitutes acceptable payment methods and
under what terms payments will be made. This could
reasonably include an acknowledgement for progression
payments (payments released to the contractor based
upon predefined acceptable progress of the project).
Be clear that final payment will not be released
until the products or services have been accepted
as complete by the community association. The amount
of the final payment should be sufficiently large
to act as an incentive for the contractor to complete
the contract.
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A certain percentage of the contract price could
be held back to ensure that all subcontractors
or suppliers are paid. The contractor should be
required to provide lien waivers from all these
parties before releasing the "hold back" money.
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Time Period – The contract defines the
start date of the project and the deadline for completion. "Time
is of the essence" should be specifically stated in the
contract, even apart from specific timelines. This tells all
parties that time is an important factor and deviations should
be avoided. It is preferable to include a clause for a reduction
in the amount of the contract if the deadline is missed through
the actions of the contractor.
Standard of Performance – State what constitutes
acceptable and expected standards. The contract will typically
mandate that trade and industry standards be met.
Warranty – Clearly defined warranties
are critical. Be specific as to what constitutes acceptable
terms and list all of the details. This includes acknowledgement
of what is to be covered, the timeframe for coverage, and the
actions required of the contractor if the warranty terms are
invoked.
Restoration – Include a clause that the
contractor is responsible for all damages caused by his employees,
agents, or sub-contractors.
Indemnification – The contract should
require the contractor to indemnify or reimburse the association
for all amounts the association is legally required to pay
(including legal costs) for any loss due to any claim of any
type due to the contractors work.
Insurance – Require that the contractor
procure and maintain all necessary insurance coverages including
liability, workers compensation, and a schedule of insurance
coverages for all vehicles the contractor will use on the project
(include a specific reference to each vehicle). The contractor
must provide to the association certificates of insurance listing
the community association and management agent as additional
insured on the various policies.
Licenses and Permits – The
contractor should produce sufficient evidence to the association
prior to the start of the project that all license and permit
requirements have been met. The contract should also acknowledge
that the contractor is responsible to meet requirements of
all federal, state, and local laws, codes and all other regulations
that may be in effect or pertinent to the project.
Notices – As previously discussed in Parties
to the Contract, it is important to clearly state the names
and address of the contracting entities. In this context the
information will be utilized as the official addresses for
all correspondence relevant to the contract.
Termination – The association should be
safeguarded by a provision to terminate the contract. This
would include a provision that the contract may be terminated
with cause after sufficient notice to the contractor.
Default – Clearly acknowledge what constitutes
the failure of either party to hold up their end of the contract.
What are the rights of each should the other party fail to
perform?
Requirements offering Financial Protection
to the association include:
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Performance Bond – This is a guarantee
by a third party to protect the association if
the contractor does not perform or does not finish
the scope of work. A bond is most typically used
for larger projects due to the cost factor to the
association.
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Payment Bond – This is a part of
the Performance Bond and will assure that the contractor's
suppliers and sub-contractors are paid if the contractor
fails to meet this obligation.
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Waiver of Lien - This is
documentation proving that the contractor's suppliers
and sub-contractors have been paid.
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Elements that serve to legally bind the parties
to the contract include:
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Assignability – Both parties are responsible
to perform their contractual obligations. The parties
cannot assign its contractual obligations to another
without the express written consent of the other
party to the contract. In addition, the contract
should specify that the contractor cannot use sub-contractors
unless agreed to by the association.
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Modification - As previously stated when
discussing compensation, work outside the scope
of the contract should only be authorized by a
written "change order" that details the
work to be done and the price.
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Waiver – If a breach of a provision of
the contract is allowed, it does not mean that
future breaches will be allowed, unless specifically
authorized.
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Governing Law - This details that
the laws of a specific state will be applied to
any disputes arising after the contract has been
signed.
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Severability – This is a key element to
any contract. The concept is that if a court has
a problem with any clause in the contract that
particular clause shall be severed from the contract,
thus allowing the remainder of the contract to
remain valid.
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Entire Obligation – Assures that the signed
contract is the entire agreement. Unless a document
is specifically referenced in the contract, it
is not a part of the contract.
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Now that you know the essentials, be cautious,
always verify references, and utilize the services of a licensed
attorney for document review and drafting whenever possible. As
they say, an ounce of prevention is worth a pound of cure!
Association Times' Staff Writer
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