When a community association needs to make repairs or improvements to community property, it typically does so by hiring a contractor. And you homeowner’s association would never hire an unlicensed or fraudulent construction contractor, right? Believe it or not, it happens. Police have issued warrants for a contractor in Utah in five jurisdictions. He is charged with stealing tens of thousands of dollars from homeowners and contracting without a license. This example demonstrates the need for HOAs to conduct a vetting process before hiring a construction contractor. Further, HOAs must have a properly formulated contract, approved by their attorney, before granting approval to any construction project.
In addition to fraudulent construction companies, it is important to recognize the impact that the pandemic has had on the home construction industry. Money set aside for traveling has turned into money used for home improvement projects. As a result, the cost of building supplies and services has risen. When you are paying a premium price for your HOA’s construction, hiring the right contractor is key.
Hiring the right contractor will make all the difference. If you contract with someone without a license or who lacks the ability to complete the project properly and on time, both the HOA board and homeowners will be unhappy. Here are a few basic tips for finding the right person or company for the job.
Do your research
While it might be tempting to call up the first result from Google, it’s important to do more research than a quick search. Vetting your contractor can save both time and money in the long run. Construction contractors must undergo a vetting process to be licensed, which includes a criminal background check. Be sure that your contractor is licensed and insured. Most states have online databases. Check out the National Association of State Contractor’s Licensing Agencies for more information. Speak to other HOAs in your state. Have they had good experiences, or perhaps more importantly, have they had bad ones?
Check their business practices
How does your potential contractor operate? Just like any other business, construction contractors should provide professional service.
The most important element of the business agreement is the written contract. Construction contracts should be specific, clear, and comprehendible. They should include provisions regarding the expectations of the project, the cost structure, the timeline of the payment, and the timeline of the construction. The contract should include provisions regarding approval of the work and the process of correcting work that is unacceptable. As always, have your lawyer read and approve any contract before board approval and acceptance. Seek a construction contact lawyer if necessary.
Your contractor should also provide timely and consistent communication. They should have the knowledge and experience to have intelligent conversations about building projects and payment schedules. If a contractor is sloppy in their professional practices, it is possible they are sloppy in their construction as well.
Structure your payment
Construction projects are notoriously lengthy investments. Even when a contract is properly formed, the project could be pushed off track. It is important to make the expectations regarding the completion of the project or specific milestones clear. The contract should outline when and how the contractor will be paid. For example, some contractors operate on a cost-plus model. This structure allows the HOA to make periodic payments to cover the cost of the building materials plus additional fees for the construction services. When using the cost-plus model, associations like to negotiate a maximum price for the project to protect themselves from wildly inflated prices.
Other contractors prefer to use a lump sum method. This structure sets a total price for the project which can be satisfied by deposit and subsequent payments or as a single payment. This number typically only changes when there are changes to the project or there are unpredictable circumstances that impact its completion. No matter the structure, however, all of these details should be expressly made in your contract.
Structure your timeline
Construction project timelines are often imprecise, but it is helpful for both the HOA and the contractor to set a realistic and desirable timeline up front. When projects are delayed, both parties experience setbacks. Agreeing on a timeline that works for both parties can alleviate some of the stress.
Be sure to address what happens if the project goes beyond its expected completion date. Typically, owners are entitled to liquidated damages, or the amount of money equal to whatever damage the owner suffers during the delay. It is often structured as a per diem rate. Nailing these details down before they become an issue is critical.
It can be difficult to find the right contractor for the job, but the time and effort is worth it. Rushing into a decision because it’s the cheapest or fastest can be a trap. There might be a reason it is fast or cheap, and it’s better to find out those things on the front end rather than the back end. Take your time so that each candidate is properly vetted so that you can be confident that any hire from your pool of candidates will be a good one.
By using these tips and taking the time to hire the right contractor, your HOA can save both time and money. Be sure to check out other articles at MaxHOA for more great tips for both board members and homeowners.
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