Selecting a vendor for a project or professional service is one of the more important duties of the board of directors in a homeowners or condominium association. It is one of the areas where the board must exercise its best business judgment.
The NC Nonprofit Corporation Act (“Nonprofit Act”) gives guidance on the duties and liabilities of board members. Specifically, board members must discharge their duties:
- in good faith;
- with the care an ordinarily prudent person in a like position would exercise under similar circumstances; and
- in a manner the director reasonably believes to be in the best interests of the corporation.
The board should keep these principles and duties in mind when they are making any decision for the association, but it comes into play quite frequently when selecting vendors. As we all know, there are good vendors and bad. There are vendors with more qualifications than others and vendors that run the full spectrum of cost for their services.
Tips to consider when selecting a vendor:
- Don’t always choose the cheapest vendor. Qualifications matter. Often, those that are more qualified for the task at hand are more experienced and have a better reputation in the industry. That usually justifies a higher price point.
- Do get multiple opinions. It is not always wise to go with the first quote received for a project. It makes good business sense to get a few quotes to compare when selecting a vendor.
- Do check reviews. Reviews are helpful when picking a vendor. It speaks to their reputation and the work they have done in the past. That said, understand that happy customers do not always leave reviews. So, ask your community manager if they have had real world experience with a potential vendor.
The goal for the board should be to be well informed when making a vendor selection. In hindsight, they do not always have to be “right” when selecting a vendor, but they should exercise their best business judgment, with their fiduciary duties to the association in mind, to make a reasonable decision on behalf of the corporation. This is often referred to as the business judgment rule.
Additionally, consider selecting vendors who are familiar with community associations and who regularly work in the industry, as they typically have a better understanding of some of the unique particularities that are common to community association management. To that point, consider vendors who are involved with the Community Associations Institute (CAI). These vendors know the industry and often even receive industry specific education.
Our attorneys at Law Firm Carolinas are always willing and able to discuss vendor selection and the selection process that should be exercised. Should your community association need assistance, one of our community association attorneys would be happy to help.
Author: Adam Marshall
Articles have been Reprinted with permission from Black, Slaughter, Black.
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