How to Create an HOA RFP and Evaluate Responses

How to Create an HOA RFP and Evaluate Responses

November 2011
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An reader has asked for some help. He says he's sent a request for proposal (RFP) to six homeowners association management companies to rebid his HOA's current contract, and he'd like to know the process his board should follow in reviewing the bids and awarding the contract. Here, our experts provide some guidance.

Groundwork Before the RFP

"The custom in this area is that the management company will submit a proposal that states what it's going to do," says Robert Galvin, a partner at Davis, Malm & D'Agostine PC in Boston who specializes in representing condos and co-ops. "It won't say, 'We'll manage the association.' Instead, it should say, 'These are the reports we'll provide each month. When we send notices, we expect to be reimbursed this amount for postage. We'll come to one meeting without charge, and for meetings other than that, we'll be paid X dollars.' It's usually pretty specific."

But bids may not be that specific without your board's guidance up front. The key to success in evaluating bids and awarding a management company contract is setting the groundwork. To be sure you're comparing similar bids, create an RFP and ask management companies to price out all the important responsibilities you expect them to handle. That may include things like how many meetings they'll attend each year and whether they charge a fee for each letter sent to an owner.

"You can create your own RFP," says Galvin. "Otherwise, you'll be comparing apples and oranges. One company might have a lower fee, but it might not be sending a manager to meetings. It's usually not a problem to compare bids, but if it is, you can make up specifications that state things like: Manager will come to one meeting a month and provide these reports each month. But most boards don't do that."

But some HOA boards do, and not just with management but for all vendor contracts. "We really try to get with the board and set parameters initially," says Chris Yergensen, senior vice president and corporate counsel of RMI Management, a Las Vegas-based company that manages about 300 condo association and HOAs. "Some of our larger clients have done so many RFPs that they've got a process."

Yergensen says it's important to be specific in RFPs. "The biggest issue when creating an RFP is defining the scope of the contract," he says. "For some of our largest communities, if you set the scope at landscaping, that doesn't help. There are so many nuances on landscaping. Also, the communication to and from the board to the management company needs to be very clear. What we might think an RFP should include may not be the same as what the board thinks."

For large projects, Yergensen's company gives vendors at least a month to respond. For smaller contracts, they get 15-30 days. "Some of our larger clients will post the RFPs on their website," he says. "We also have a list of vendors--they're not preapproved, but they're ones we know are licensed. We'll say to the board, 'From whom do you want us to request an RFP?'"

Seek Professional Help

Galvin also recommends that you get expert help when you're bidding out complex projects. "A management contract is pretty easy to understand," Galvin explains. "You don't need a lot of expertise. When you're talking about things like roofs or insurance policies, unless it's for a very simple building, you should get an engineer or insurance broker to develop the specs. If you don't, you have no way to compare the bids.

"Let's take roofs," Galvin explains. "You could have four bids, and one is for a rubber roof, another is for a built-up membrane, and the rest are for other roof types. The engineer is responsible to the board to say, 'This is the kind of roof you should get.' Otherwise, there's no way to compare those bids. The same is true with insurance policies. Some directors and officers policies will indemnify you but not pay your legal costs even if you win. You need to be able to compare those types of provisions."

Galvin admits experts cost money, but he thinks it's well spent. "There are always people in the association who'll say, 'Spending money for an expert to tell us what to do is a waste of money.' I don't think it is. It'll also protect the board. If an engineer says you should get that type of roof and that type doesn't work out, nobody can say you didn't go through the right steps."

Opening and Reviewing Bids

If you've done the groundwork before receiving bids, evaluating them should be a piece of cake because they'll be similar enough that it'll be a snap to compare them. Is there a formal practice you must follow when reviewing bids? Check your state law to see whether it sets forth a process, as Nevada has.

"There was a lot of negative publicity in the past because board members wanted their best friends to get HOA jobs," says Yergensen. "So Nevada really regulates HOA bidding and requires all vendors to be licensed and insured. The bids must come back sealed and must be opened at a meeting. That can present a little bit of a problem when you're opening the bids. Depending on how large a scope the contract will cover and whether vendors have read the scope carefully, the responses could be very different.

"The board will then review bids for the next 30 days and come back and make a decision," adds Yergensen. "If the bids are different, during that 30 days, the board can also request that vendors clarify their bids. But that just delays the process of getting and awarding bids."

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