A PAPER BY

ROBERT E. WADLOW, PCAMâ

This paper was authored by Robert Wadlow, PCAM(R), author of the Homeowner Associations Questions and Answers Column which appears in various newspapers, under various column titles. Mr. Wadlow has been in association management since 1968 and is employed by Rossmar Management for whom he serves as the Disclosure Officer and consultant to large-scale master-planned communities. He is a public speaker who holds discussion and question answer sessions at association or annual meetings and with boards of directors.

Revised July 1, 1997

The following definitions are for clarification of the rest of this paper, and are relatively limited to the scope of agreements or contracts between associations and their suppliers or contractors. The material contained herein is intended to assist associations in their seeking and contracting for services. This material is not intended as legal advice, rather as a reference to things to look for and to check on in the contracting process. These ideas can be used to build your first draft of a solicitation for bids. In the case of any solicitation or contract that has considerable dollar value, liability exposure, or political sensitivity, you should seek the advice of an attorney for details and guidance.

As with many things in the operation of an association, it is a matter of having enough experience and/or knowledge to know when you are getting into a situation where it is reasonable and practical to have a specialist, attorney, or consultant assist the association and keep the association out of legal or financial trouble.

The binding agreement between two or more parties, such as a contractor and an association, which is hopefully the result of consideration of any terms, conditions or any other matters that are potentially relevant to the process of getting a job or service done including the end result, it's quality and payment.

A contract should reflect the exchange of value by parties to the contract, such as 'payment made' exchanged for 'services rendered'.

A person who offers and prepares a contract bears some responsibility for how the terms are agreed upon. It is important that the terms of a contract be negotiated to the acceptance of both parties. If a contract is presented on a 'take it or leave it' basis without any opportunity for bargaining on the details and is highly oppressive to one party, it may become unenforceable in court, (Adhesion Contract).

If the terms of the contract are so heavily weighted to one party as to be grossly unfair to one of the parties, it may become unenforceable in court, (Unconscionable Contract). A final contract that is of substantial value or potential conflict should be reviewed by your attorney, at which time you can ask if the concepts of Adhesion Contract, or Unconscionable Contract might apply to your contract situation.

Often technical information used in the specifications may be provided by an engineer, material supplier or a consultant. Care should be taken that the specifications do not create a situation behind which the contractor can hide if the job turns out wrong.

An example would be specifications that contained such detailed engineering data that the contractor could come back and say:

"I am not an engineer and I did not hold myself out to be an engineer. The association supplied the engineering on this job. I did it to the specifications that they prescribed, which included their own engineering".

Your attorney can help you in this matter.

An invitation issued or advertised to potential suppliers or contractors to bid on the providing of certain services or products. A solicitation usually contains technical and other pertinent information necessary to be able to submit an intelligent and comprehensive bid in response. Specifications are usually part of the solicitation package.

A meeting of an interested bidders and the association to go over details of the project being considered for a contract. A bidding conference is usually announced in a solicitation when it is sent out.

The use of a bidding conference is usually limited to contracts that are of considerable size, have a lot of complications, or require an extensive tour of the property. Questions asked and the answers given in a bidding conference are usually recorded and transcripts sent to all bidders including those who may not have been able to attend, so all bidders have equal knowledge and access to the information provided. Sometimes a bidding conference can result in contractors pointing out problems that had not been addressed. If these are extensive it may result in an amended solicitation having to be sent out.

The process of establishing that a contractor is qualified to provide the work or services that is required. This may be based on references to similar jobs of like size and scope, financial research on the contractor, Better Business Bureau checks, client reference checks for satisfaction on other jobs, technical training, certifications, professional designations and other information and research appropriate to the situation at hand. The contractor may be requested in the solicitation to provide information on a Contractor Qualification Form that will be helpful to determine the contractor's qualifications.

The responsibilities of the association are usually defined in the legal documents and any other agreements such as noted above. There may be provisions in the legal documents where the association may make repairs or corrections to a private owner's property if the owner has failed to do so, but the legal documents also usually provide that the owner is responsible to the association for the cost of such work.

Several types of bonding are provided by contractors, especially for certain types of public construction and government services. Bonding requires certain collateral to be tied up for some types of bonds, resulting in some companies not bidding on solicitations requiring bonds, rather than tie up their collateral, credit line, or cash flow.

A type of bond filed at the time a bid is made to protect the organization soliciting bids, in the event the bidder backs out on the bid before the contract is awarded or fails to enter into the contract after it is awarded.

A type of bond that guarantees the contractor will perform the contract and protects against a breach of contract. The proceeds of this type of bond may be used to complete the contract or compensate for losses that occur as a result of breach or noncompliance. This type of bond may guarantee the performance of the terms to the contract, as in a service contract. It may guarantee the completion of the contract such as completing a construction project. It may guarantee the payment of subcontractors, suppliers, labor, or other secondary interests in the contract.

It should be noted that the writer of this paper has included some of the items and terms that might be applicable to a contract for an association of homeowners. Not all these items are necessarily needed, and others that are not listed may be desirable for some types of contracts. As noted at the beginning of this paper, you should seek the advice of an attorney for details and guidance on your specific contract situation.

Date that the solicitation is issued.

Number to be used in the control of the mailing and return of the bid packages, or for identifying pre-qualified bidders.

Organization's name, address and phone number that is soliciting the bids, being sure to use the appropriate legal incorporated name, (which is sometimes different from sales or promotional names).

Name, address, phone number of authorized contact person if outside management company or agent that is handling the administration of this contracting process.

Notice of bidding deadline and late bids provision

Example

"Sealed bids will be accepted at the address of xxxx xxxx xxxx until 12:00 noon on the 7th of December, 1991. Late bids will not be considered unless no other bids are received on a timely basis."

Blanks to fill in the name, address, telephone and authorized contact person.

This should include the name and title of the person who is authorized to negotiate details of a contract.

Example:

Show spaces for writing in the price for the bid. Define the scope of the price; is it an annual price for a service, or monthly, or is it a lump sum price for a total specific project or construction project?

Request any variations in price that may result from using specifications that are different from the solicitation that is issued. Be strong and direct in requesting variations and recommendations.

Example:

Variations from the solicitation specifications are encouraged and welcomed if you feel that a better quality product or a more satisfactory end result will be achieved. Detailed explanations for reasons, recommendations and prices must be noted below by the bidder.

Failure to bid on the standard bid specifications that were issued for this job could result in rejection of the bid due to inability to compare competitive bids of like nature. Indicate page number that the variations effect or replace.

Provide proper spaces for signature names, printed names, company names, company seal, company secretary and notary.

Repeat time and place of bid deadline, and any terms of bid opening, if it will be a public opening, when bidders can expect to be notified of the result.

Where it will be held, time, any special dress, reservations required, any reservation deadline, phone number and person to give reservations to.

Detail types and amounts required.

Define all parties entering into the contract, name of the association accurately, as it is incorporated and define any abbreviations used in the solicitation to refer to certain parties to the contract.

Put in a clause that makes the specifications a part of the final contract.

Example:

These specification are intended to be attached in whole to the bid as part and parcel of the contract bid format, and the contractor's bids shall contain the following reference to the specifications:

"The Bid Solicitation for Construction/Renovation at the XYZ Property dated December 1, 1991, is attached hereto and all terms and conditions stipulated therein are hereby considered to be binding inclusion in this bid proposal/contract format."

Define the project in overall terms that the contractor is to be responsible for.

Example:

"The contractor shall provide all labor, equipment and supplies as well as supervision required to replace and repair the ramada areas that are being submitted to bid and which will be exactly defined in the bidding conference."

Example:

"The work will be performed in the months of June and July, 1992 during which time work will be coordinated with the association manager, as the pool area will be closed to use during reconstruction time. Work must be between 8:30 am and 5:00pm in order to reduce impact on residents in the area."

Spell out your expectations of the contractor involvement and attention in the operation of this contract, and any limitations on other subcontractors, sub-assignments, or any assignments of payments.

Example:

"The contractor will give his personal attention to the faithful performance of this contract: he will not assign, transfer, convey, sublet, subcontract or otherwise dispose of this contract, or any portions of this contract, or his right, title or interest in or to the same or any part thereof without the previous consent of the Board: and he will not assign, by power of attorney or otherwise, any of the monies to become due and payable under this contract unless by and with the previous consent in writing of the Board."

When a contract goes sour, at what point can the Association step in and proceed to get the job done by someone else without creating further conflict with the first contractor? This needs to be defined.

Example:

"The Contractor shall employ only competent workmen in performing this contract. The contractor holds himself/herself to be an expert in the construction field and must point out any problems foreseen in the reconstruction of the ramada that may effect the final product quality, performance, or life span. Recommendations should be handled under the terms of the variances on the price page."

Talk About Security And Access To Work Site

Example:

"The keys furnished for building access shall be turned in every night, or whenever leaving the property. In the event of failure to comply, or lost keys, the contractor shall be responsible for re-keying costs."

Painting shall include a high quality oil based primer and two finished coats of high quality paint to match the existing building trim. Hidden joint surfaces shall be primed before assembly in order to reduce water getting into wood through opening joint areas. Any galvanized metal brackets, clips or other parts shall be first primed inside and out with a primer designed for galvanized metal, before assembly. Any regular metal brackets, clips or other parts shall be first primed inside and out with a primer designed for regular weather exposed metal, before assembly. After assembly, both regular and galvanized metal parts shall be painted with two coats of final paint as used on the wood.

The successful bidder shall be responsible for providing all tools and equipment for this project, and maintain such in good and safe working condition. The successful bidder shall provide all materials, supplies and parts necessary for the reconstruction.

The successful bidder shall be responsible for any damage to buildings, garages, vehicles, trees and other landscaping, or any other aspects of the property, or injury to people, occurring as a result of work or presence on this property. The successful bidder shall correct or cause to be corrected, any such damage immediately upon occurrence, such correction to be at the expense of the successful bidder.

All scrap material, dirt, or debris shall be removed from the site on a daily basis so that the site remains clean.

No material shall be stored at the job site, unless specifically approved by the President or Manager of this association.

The successful bidder shall be responsible for the storage and security of all materials, supplies and equipment used in the project, including any material left overnight or stocked on the job site."

Example:

"All captions and headings used herein are for convenience only and are of no meaning in the interpretation or effect of this request for bid proposal, or any resulting contract."

Define matters to be considered in making a selection of a successful contractor.

Example:

"Any bidding contractor shall submit a bid proposal containing all details of work to be performed, how it will be performed, and materials to be used, and schedule of production. All aspects of the bid proposal will be considered in selecting the successful bidder, not just bid price. Written acceptance of the bid proposal by the Association Board shall constitute a contract for performance of the contract term."

Example:

"The bidder shall furnish, with the bid, certification of insurance evidencing general public liability insurance covering both public liability and motor vehicle liability with single liability limit of not less than $500,000.00 and worker's compensation and employees liability insurance as required by law. All such coverage shall be kept in force and current during this reconstruction. If any subcontractors are to be used, they must be disclosed in the same detail as the bidder's firm and must meet the same insurance requirements as noted herein."

Example:

"The bidding contractor states that they have, or will obtain, all permits and licenses necessary to perform this work. The successful bidder shall pay such cost of said permits and shall keep such permits posted, as required by law, during the reconstruction. Copies of related licenses, including state or Arizona contractors licenses, shall be made available at time of bidding, and shall be kept current during this reconstruction."

Example:

"All phases of the reconstruction are subject to inspection and approval of the association president or such person as he may delegate. Acceptance of the reconstruction shall in no way void the contractor's responsibility for latent defects and/or the ability of the reconstruction to perform satisfactorily. All phases of assembly may be inspected, as the association may wish, during construction for conformance to the contract. Certain information for the timing of inspection may be requested by the association, but the contractor may not be delayed waiting for inspection to occur by the association."

Example:

"The bid submitted shall, if accepted, constitute the entire contract agreement, and no representations, warranties, or certifications, expressed or implied, shall exist between the parties except as stated therein in writing."

Example:

"The Contractor shall have on hand at all times adequate and in good working order, the necessary and proper equipment to perform all the functions required."

Some types of contracts such as ongoing service contracts will result in requirements of hazard notices and information that need to be made known to all persons in the area in order to comply with Federal Regulation 1910.1200. You may need to discuss this with your attorney, bidding contractors and suppliers of materials for the job at hand.

Example:

"The total price shall be clearly stated in the bid. A prior approval (change order) shall be required in writing and signed by both parties before commencing any work which would result in a change in the total price. This change order shall include all cost increases/ decreases with, where applicable, a price structure breaking down cost details on a per unit basis."

Example:

"The successful bidder shall submit an invoice for the completed work to this association. Payment will be made within ten days of approval of both the invoice and work performed. Items and prices must agree with bid/contract as accepted and approved by this association. If the contractor wishes partial payments or down payment, such schedule for payment shall be detailed in the bid for the consideration of this association."

Include any retention requirements, such as 10% for cleanup

It is a good idea to specify ahead of time what kind of price structure or system is agreeable in the event change orders are needed. It may be based on several systems, such as time and material, unit pricing, etc., but it is wise to have a prior agreement on these matters.

You may want to include a check list of items for the bidder to be sure to have with his bid. 

Example:

1. Pages 1 through 3 of the solicitation filled out with names principals of your firm and signed by proper persons in your firm.

2. Hazard Communication Program information as may be required.

3. Any variations/recommendations to specifications, and resulting price changes.

4. Insurance certificates, bonding documents, license and permit information as required.

5. Reference to the specifications and solicitation as being part of the bid and any resulting contract"

A map of the facilities may be very helpful to bidders, as well as in bidding conferences, especially in larger sites.

There is this wonderful agency in Arizona that can help you when you have a problem with a contractor who does not fulfill his contract. If you have a good contract and a solid case, the Registrars office is likely to be of great benefit to you. You can call them at the main office in Phoenix, (602) 542-1525. There are satellite offices in Mesa and in Tucson. There are also regional offices in Flagstaff, Lake Havasu City, Kingman, Sierra Vista, Prescott, Show Low, and Yuma.

All contractors pay licensing fees which establishes a recovery fund that can be used in certain cases. According to an article in the Arizona Business Gazette dated August 14, 1992, the Arizona Supreme Court ruled that individual condominium owners qualify as "injured parties" and can collect up to $15,000, which was the limit at that time per homeowner, from a Residential Contractors' Recovery Fund. The state Supreme Court reversed rulings by trial-court and appeals level that limited recovery to one $15,000 claim by a homeowners' association. This case opened the door for claims by individual condo owners up to the cap on the amount the fund can pay for damage caused by one defunct contractor. That cap has been raised by legislation from $75,000 to $100,000 and the cap per home has been raised to $20,000. I understand that legislation since then has underscored the position that condo unit owners can recover up to the $20,000 per unit of the condominium.

The Registrars Office has a number of publications and every association should have a copy of each of the following:

Consumers and Contractors, a guide to contraction for residential construction (17 pages)

Consumers and Contractors, handling a dispute in residential construction (12 pages)

State of Arizona, Registrar of Contractors Statutes and Rules (67 pages)

A Consumer Guide To Filing Construction Complaints

The head of the Registrar's office, Michael Goldwater, and other department people are available for speaking to groups regarding their services.

_________________________________

Name of Association

Date of Inspection: __________________________________________

Name and affiliate of individuals participating in Final Inspection: ______________________________________________________________________________________________________________________________________________

1. ____________________________________________________________________

2. ____________________________________________________________________

3. ____________________________________________________________________

4. ____________________________________________________________________

5. ____________________________________________________________________

6. ____________________________________________________________________

7. ____________________________________________________________________

8. ____________________________________________________________________

9. ____________________________________________________________________

10. ___________________________________________________________________

11. ____________________________________________________________________

12. ____________________________________________________________________

FINAL ACCEPTANCE date for the total repair, replacement and maintenance of ALL of the above items are ______________. NO OTHER PUNCH LIST ON THE ABOVE
AREAS WILL BE ACCEPTED.

______________________________________________________________

Association Representative/Contractor Representative