PREFERRED VENDORS
VS. THE BOTTOM LINE:
SOMETIMES CHEAPEST ISN’T BEST
By John Barnes
M
any Board members
understand they have
a fiduciary duty to the
Association to monitor and
reduce expenses. Some
boards get into difficulty dealing with
preferred vendors, which may have higher
costs. Understanding this relationship is
key to maximizing the value of services
provided to the community-especially
when the least expensive option isn’t
always the best.
In performing their due diligence,
some boards (especially those with new
members) decide to send every project
out to bid-even when they already have
a relationship with a preferred vendor.
This can result in initial savings. However,
this approach can have unintended
(and expensive) consequences for the
community.
A preferred vendor is a service
provider that has a long-standing
relationship with a community, which the
Association “prefers” to perform services
in their area. Landscapers, pool services,
tree care and maintenance are typical
preferred vendors. These vendors offer
substantial value with their institutional
knowledge of the property, and they can
often take care of issues sooner. The
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FALL 2019
reason they have preferred vendor status is they continually perform quality
work and have a good relationship with the Board and Management.
Like anything of quality, a preferred vendor is often not the cheapest (a
Cadillac community cannot be maintained at used car prices!). Preferred
vendors hire quality workers, and quality workers receive quality wages.
It is in the community’s best interest to work with vendors who have
qualified, motivated employees with a real interest in caring for the property.
Preferred vendors value their relationship with a community, and in turn
provide valuable services.
By way of example, consider the experience of the (hypothetical) Happy
Valley HOA. Happy Valley wanted a proposal for replanting of a park area
and adding a walking path. The Preferred landscapers proposed to complete
the project for $5,000. The board put the project out to bid and received two
competing offers of $4,000 and $2,000. The board chooses the cheapest
option, initially saving $3000.
However, the winning vendor quickly proved that the Board got
what it paid for. In order to keep their own costs down, they purchased
discounted (and substandard) plants and their crew focused on speed,
rather than quality. It looked great on completion, but soon, many of the
plants had died and the pathway was not graded correctly. After the first
big rain the path had to be regraded to repair erosion damage, in addition
to the cost of removing and replacing the dead plantings. This work was
done by the Association’s preferred vendor-for $5,000. Thus, the “cheap”
$2,000 project actually ended up costing the HOA $7,000-in addition to the
damaged relationship between the Board and their preferred vendor, who
was sidelined by the low bid and then brought back in to clean up the low
bidder’s mess!
Boards should consider the potential cost of cleaning up after a poorly done
project against the quality work and long-standing relationship of preferred
vendors. Tim Flanagan, Partner at the law firm of Birding and Weil, thinks this