January 8, 2010

This week's tip deals with saving money by digging into your management company's relationships with the vendors it recommends for association projects.

"A lot of our competitors own plumbing, electrical, or insurance companies or landscapers, or painters—all types of ancillary vendors that provide services and products to associations," explains Robert White, managing director of KW Property Management & Consulting in Miami, which oversees about 125 associations totaling 30,000-35,000 units.

"They'll do the management and see that the building needs new paint and just get their vendors in there. Or they'll get bids from other vendors and then tailor their bid around the other bids. That creates a major conflict of interest. Some companies even reward managers for getting those vendors into those associations to begin with."

That doesn't mean your association will always get the short end of the stick. "In some cases, having an affiliated company do work for your community is not only perfectly appropriate, but you have an even higher likelihood of achieving satisfaction because the manager is working with you in another way and wants to preserve that relationship," says Lisa A. Magill, a shareholder and association attorney at Becker & Poliakoff PA in Fort Lauderdale, Fla.

"However, if the owners of the companies are affiliated, you may not have the same level of comfort that bids reflect arms-length transaction pricing."

One way to determine whether you're getting fair and independent advice from your management company when it comes to outside vendors is to include a question in your request or bids asking bidders to identify all the owners of the company and all the ownership interests those people have in any other companies the association does business with.

For more examples of how you might be losing money if your management company has failed to disclose a conflict of interest, and to learn more about protecting your association, see our new article, HOA Management Companies: Does Your Management Company Have Conflicts of Interest?

Best regards,
Matt Humphrey
President