During the course of a year, community associations buy lots of stuff. They hire managers, accountants and pool attendants. They replace roofs and windows. They purchase insurance and filing cabinets and defibrillators. And they don’t want to overpay for them. Going out to bid may or may not be the answer.
“It’s a dilemma for the board,” said attorney Jordan Shifrin of Shifrin Kovitz Nesbit in Buffalo Grove and Chicago. “It’s hard to establish continuing relationships with qualified people. When you find someone who is providing the services you need at what appears to be a reasonable price, why would you change? On the other hand, the board has a fiduciary responsibility to control the budget and buy the best services for the least amount of money.”
Board expenses fall into two categories: those that don’t come up very often, such as boilers and lobby furniture, and those that are routine, such as trash removal and grass care.
Large non-recurring contracts should be put out to bid. The process typically involves writing specifications that describe the product to be purchased or the work to be done. Qualified vendors are then asked to submit their price for fulfilling those specifications. Sealed bids, which are considered more secure than unsealed bids, are opened at the same time, usually by the board, a committee or property manager.
Three bids are usually sufficient providing they come from independent sources, said Eugene Fregetto, professor of managerial studies in the College of Business at the University of Illinois at Chicago and a 25-year veteran of government purchasing.
After the bids come in, don’t automatically choose the cheapest one, said certified public accountant Mark Cantey of Wheaton.
“Getting excellent work done at a fair price is more important than the lowest bid,” he said. “You might select the guy in the middle of the pack because of his reputation and references from properties similar to your own.”
Some boards select a dollar amount and go out to bid for those that exceed it. One association of 200 units instituted such a limit when it hired a new property manager. For any expenditure over $3,000, the board required a minimum of three sealed bids. After working together for a couple of years and developing rapport, they upped the amount to $5,000.
The threshold you set should relate to your total budget and level of trust, said Fregetto. To a small association, $3,000 could be a large purchase, but to a large one, it’s relatively minor.
Many government agencies mandate formal bids for expenditures over a certain amount, but lesser expenditures are still monitored, he said.
“The key is to get competitive quotes,” he said. “You don’t have to get formal sealed bids, you can get telephone quotes.”
With recurring services and products, positive relationships with long-term suppliers and their employees provide value that is difficult for newcomers to emulate.
“These vendors understand the property and what the board wants,” said Cantey. “They have key knowledge that might get lost in transition to the new vendor.”
If you are happy with your vendors and their price increases stay within the rates of inflation or the cost of living, you needn’t go through an annual bid process, said Shifrin.
“Every few years you could go out on the marketplace and see what other people are paying, but that doesn’t mean you have to re-bid it,” he said.
Check with other associations in your neighborhood or network with attendees at educational seminars for association volunteers. A rule of thumb is that service contracts should be no longer than three to five years in length because of changing economic conditions, said Fregetto.
Two more ways associations can save money on their purchases are to form buying consortiums with other associations and open commercial accounts at retail stores, he said.
– Contract guide. “Bid Specifications and Contract Preparation,” published by the Community Associations Institute, is a 24-page report that guides readers through the procurement process. Included are adaptable samples of specs and contracts. The price is $15 for members and $25 for non-members. Call 703-548-8600 or order online at www.caionline.org.
