Best Practices for Vendor Relations

By Randy Miller, Published May 2024

Board members have a fiduciary responsibility to act in the best interests of the community they are elected to represent. One crucial aspect of this responsibility is establishing effective vendor relations. Board members can enjoy a successful relationship with selected vendors by making sure they are adequately insured, establishing good habits for protection and compliance, and following through with a thorough vetting process. A detailed understanding of the following best practices is beneficial when selecting vendors for your community.

The Vetting Process

     The selection and oversight of contracted vendors is essential as effective and efficient management of vendor records and relations helps to further the ultimate goal of protecting your community. Vendor relations can be tricky and often complicated for board members to manage alone. Don’t worry! Your community association manager or management company can help with this process by scouting, selecting, and contacting vendors on behalf of the board and community through bids and RFPs with specific scopes of work. They not only serve as a communication channel for good vendor relations but also as a venue through which associations can find tried-and-true vendors!

     Once a vendor is selected, verify insurance coverage before the vendor is present on association property. Once on site, thoroughly discuss a tentative plan for expectations of service and payment and ask the vendor to provide a certificate of insurance (COI) and a valid employee identification number (EIN or social security number for independent contractors) to start the vendor setup! Remember: a good vendor is responsive and will not hesitate to provide previous references and verified documents.

Insurance and Liability

     Vendor insurance acts as a vital safeguard for associations. Ensure everyone on your board is aware of potential liability risks from vendor actions or contractual obligations, such as damage to people or property and the threat of injury or death. Vendor insurance defers or deflects a subsequent lawsuit to the vendor’s insurance carrier instead of the association’s insurance policy. It requires the carrier to absorb attorney’s fees, medical costs, and lost wages and can remove personal liability from the association. If a vendor lacks the required insurance or allows his or her policy to lapse, the association can be vulnerable to legal action from injured parties, so make sure to request appropriate legal documentation and proof of insurance before starting a new vendor relationship. Also make sure your board or manager has a way to track insurance so you know it does not lapse while your vendor is employed by your association! And don’t forget to name your community management company or the association as the certificate holder on the COI.

Selecting a Vendor and Signing a Contract

     Beware of the lowest price! While cost is undoubtedly a factor in vendor selection, boards must exercise caution when confronted with exceptionally low bids. Such offers may signal inadequate insurance coverage, bad practices, or even legal complications, potentially exposing the association or property to financial risk or damage.

     Make sure to review vendor contracts. When entering a contractual vendor agreement, the board and its attorney should review all documents before service is rendered. The contract should include a scope of work, terms of payment, requirement of proof of insurance, cost of contract with detailed line items, causes of termination, indemnification provisions, warranty of work or product and exclusions, a timeline, and any other important information for completion of service.

     When reviewing the contract, determine whether a vendor is classified as an independent contractor. If so, as part of the written contract for the project, the board will want the association’s attorney to address the vendor’s independent contractor status to ensure that the vendor does not claim their status as an association employee. This classification as an employee would mean additional labor laws applying to the vendor relationship, and the association may be responsible for providing employee or workers’ compensation benefits. By explicitly stating a vendor is an independent contractor in vendor-association agreements, the contractor must provide their own insurance and benefits.

Completion of Work

     Once the service is complete and before paying the final invoice, check to see if the work was completed and up to the established parameters set through the vendor contract. This ensures the board pays the invoice in a timely manner to reinforce the relationship with a trusted vendor, or it ensures they are not paying for incomplete or unsatisfactory work. Remember, it is the board’s fiduciary responsibility to ensure the community funds are spent in a way that benefits the community while also staying within the budget!

Successful Vendor Relations and Your Community

     The importance of understanding and managing vendor insurance cannot be overstated in community governance. By prioritizing thorough vetting, clear communication, and adherence to best practices, board members can fortify their communities against potential liabilities and ensure smooth operations. Cultivating strong vendor relationships and collaborating with community association managers further enhances its ability to protect the needs of the community!

Randy Miller

Division President, Sentry Management

     Randy Miller is a division president for Sentry Management, overseeing offices in Clermont and Kissimmee. He has been with Sentry in the community management industry since 2001. Sentry Management is a full-service community management company whose sole business is managing communities, homeowner associations, and condominiums. Sentry has 14 offices managing hundreds of condominium and HOA communities across the state of Florida. Sentry was recently named a National Top Workplace of 2024 by USA Today. For more information, visit www.sentrymgt.com.