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The Necessity for Having Contracts and Contract Language
Outline from speech:
  • What is a contract?
    • An understanding between two parties that each party will do something in exchange for something received by the other.  Typically, one party agrees to pay money to the other party in exchange for receiving goods or services.  
    • May be either orally made or made in writing.  An oral contract is generally as enforceable as a written contract.  
  • When should contracts be in writing?  
    • Use written contracts for all agreements except for very minor matters.  
    • Written contracts better define the obligations of the parties and reduce the risk of misunderstanding.  
    • In the event of litigation, written contracts are easier to interpret and apply.  
    • Disputes regarding oral contracts digress to being one person’s word against another person’s word.  
  • In what type of agreements should written contracts be utilized?  
    • Management Contracts.  
    • Regular Maintenance/Service Contracts
    • Landscape/Snow Removal
    • Repairs and preventative maintenance
    • Trash removal, security, janitorial
    • Employment contracts    
    • Extraordinary Repairs
    • Road repairs
    • Roof repairs
    • Window replacements
    • Underground systems repairs  
    • Insurance Contracts    
  • How can an Association determine the need for contracts and develop a procedure to utilize them?  
    • Define areas of Association responsibility
    • Look to Master Deed (and sometimes Condo Bylaws)
    • Develop a list of all the common elements (both limited and general) over which the Association has the maintenance responsibility)
    • Association should not get involved in areas it has no responsibility  
  • Become familiar with contract types
    • Service contracts (landscape, snow, trash, etc.) -  determine the level frequency or what the level of service expected
    • Contracts for specific repairs
    • Contracts for preventive maintenance  
  • Become familiar with types of contract payment terms
    • Lump sum payments or periodic payments
    • Time and material contracts
    • Hourly pay or pay by the job
    • Cost plus a percentage  
  • Association should set a policy on the amount of a contract that requires detailed specifications and competitive bidding.  Even negotiate with contractor on minor repairs.  
  • Develop detailed specifications for the job to be performed.    
    • Consider consulting with a competent contractor or consultant to educate the Board on the nature of the “trade language” and the factors to be included in the job
    • For “repetitive” type repairs, prepare bids with space for the bidding contractor to reply on the bid specification sheets - avoids “reinventing the wheel” every time and reduces the risk of the contractor misinterpreting the job specifications  
  • General contents of job specification:
    • What job is to be accomplished?
    • Are there any qualifications on how the job is to be accomplished?
    • What material is to be used?
    • What is the timing of the work?
    • Will there be restrictions on the working hours?
    • Will the contractor be expected to complete the work within a specific period of time?  
    • What do you do when the specifications are complete?
  • Locate potential bidders - Referrals are the best option - consult with other Associations, customers, management companies, material suppliers, etc.
    • Send the same specifications to all possible/reputable bidders      
    • Give the potential bidders a time limit to respond
    • Follow up with potential bidders to encourage them to submit their bids  
  • Evaluating Bids
    • Check references (even try to talk with previously unsatisfied customers)
    • Be sure the bid responds to your specifications
    • Contact contractor to seek clarification on the bid                         
    • Should the highest and lowest bids be disregarded?  
  • What should contracts contain?  
    • Parties are clearly identified
    • Complete description of the work to be performed (incorporate the specifications?)
    • What is the timing of the work; when will the work commence, and when is it to be completed
    • Supervision of work/numbers of workers on job
    • Penalties and cancellation clauses
    • Inspections of work
    • Payment schedule
    • Materials to be used, location of storage, clean-up at completion
    • Liability for damages and injuries
    • Insurance requirements/hold harmless provision
    • Licenses and permits
    • Bonds
    • Warranties
    • Additional work encountered/prices charged/prior approval  
  • How does an Association reduce the risk of having a contract dispute?  
    • Avoid oral contracts - virtually all contracts should be in writing
    • Carefully investigate the background/references of the contractor,                   (Licensed?)
    • Get co-owner support - advise them well in advance
    • Be sure to use an adequately detailed written contract!!!  Probably don’t want to use the typical “office supply store” proposal form
    • Have legal counsel review the contract BEFORE it is signed
    • Include an indemnification clause in contract
    • Require contractor to be adequately insured, naming the Association as an additional or named insured; get a CERTIFICATE of insurance
    • Include a carefully worded and clearly defined termination clause
    • Include starting and completion dates (“Time of the Essence?”)
    • Avoid advance payments
    • Get sworn statement and waivers of liens
    • Get warranties in writing
    • Performance bond(?)