Three Ways to Know That a Vendor Won't Put Your HOA at Risk

Posted on Friday October 27, 2017

So your homeowners association (HOA) needs to hire a vendor. Nothing to it, right? It may seem simple to ask around and choose the one that has the lowest price or that your board likes best. However, you might be surprised to learn that it’s not necessarily that straightforward.

No matter what kind of vendor your HOA needs – a caterer for your onsite party, a roofer to repair post-hurricane damage or a painter to spiff up your lobby – your board should never take a casual approach to the hiring process. Why? “Neglecting to do your due diligence when hiring a vendor can create liability issues,” says Jamie George, Vice President of FS Insurance Brokers. “Your association could face serious legal or financial consequences as a result.”

Suppose a vendor wows your board with a bid that is significantly lower than all the other bids you have received. “It’s possible that the reason they can offer such a low price is because they aren’t properly insured or are even uninsured,” George suggests. “If you don’t thoroughly evaluate them in advance, you may fail to find this out until a big problem arises and it’s too late.”

To ensure that your association is adequately protected during the entire length of any contracted work, only hire vendors who meet the following three criteria:

1. They have all the required credentials, licenses and certifications.
The state of Texas – and in some cases your local town or city – has specific licensing requirements for certain types of vendors. You can verify that a vendor is licensed through the Texas Department of Licensing and Regulation. For food vendors, request licensing verification with the Texas Department of State Health Services.  Also check that vendors are bonded. This protects your HOA in case they fail to meet their contractual obligations.

Example: In San Antonio, tree care vendors are required to have a tree maintenance license. Therefore, you wouldn’t want to hire a lawn maintenance company to trim your trees unless they had a tree license.

Did-you-know-bubble-(1).png2. They can provide evidence of insurance.
Vendors should carry liability insurance that also names your association, and your management company, as additional insured parties. Ask to see the vendor’s Certificate of Insurance, along with the policy’s Declaration Page. Make sure that the policy is still in effect and that the vendor’s name on your contract matches the name on the policy. Also verify that the policy does not contain any exclusions that would impact coverage of your association.

Example: Children have occasionally sustained injuries jumping in bounce houses, so the bounce house vendor needs to have liability insurance.

In addition to liability insurance, vendors should carry Workers Compensation in case someone from their company is injured on the job.

Example: While hanging Christmas lights, one of the vendor’s employees falls off a ladder and fractures his ankle. The vendor’s Workers Compensation coverage will cover that employee.

3. They have been vetted.
One advantage of working with an experienced community management company is that they will already have done the heavy lifting when it comes to vetting vendors. A management company with deep resources will be able to provide a list of preferred vendors for your board to choose from. If your management company has a national presence, you may be able to leverage its buying power to obtain the best possible pricing from vendors who are part of a larger company.

Example: When flooding caused damage to the floor and carpeting in a high-rise lobby, the association was able to find a vendor quickly to replace it – before mold set in. This was possible thanks to the preferred list of vetted flooring vendors the association’s management company was able to provide immediately.

Sticking to vendors who fit these criteria will give your board the peace of mind of knowing that you’ve done your due diligence in protecting your community association. However, even if a potential vendor checks out on all counts, it’s a good idea to have your community manager and HOA attorney look over any vendor contracts before you sign them.

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Would you like to know more about insurance policies and proper coverage to keep your association safe? Download 5 Things You May Need to Know About Community Insurance