Every board has been there; a repair is needed, or a building system is due for an upgrade. The request for proposals (RFP) goes out. As the bids come back for consideration, the board must keep their community’s financial realities foremost in their mind as they weigh options. They owe it to the community to make the right choice, but all too often that choice is made on one specific consideration: Price. The lowest bid frequently wins—but sadly, a rock-bottom price doesn’t always equate to a ‘win’ for the community. In fact, it’s often quite the opposite.

Think about it this way: choosing a vendor to complete work in your building is a little like choosing a wine for a weekday dinner. The bottles range from $8.99 into the hundreds. Tempting as that $8.99 price tag may be, you know the contents will probably be disappointing. But it’s a Monday, and you’re not going for the $50 bottle, or even the $25 bottle, to drink with your burger. But the $15 bottle recommended by the wineshop owner…that might strike a perfect balance between budget and bouquet.

Now let’s look at why that’s an apt comparison.

Hidden Costs

Unlike with wine, the stakes can be quite high in choosing a vendor or contractor to do a job in your building. Hiring the lowest bidder doesn’t necessarily mean getting the best deal—or even a good one. The vendor may have lowballed, or may have a pass-along clause in the small print in your contract. They may even have lied outright to get the job. 

All too often, going with the lowest bid may end up costing you considerably more, says Harold Berlowe, director of sales and project manager for Denali Property Management, a real estate management firm with offices in Chester, New Jersey and clients in both New York and New Jersey.  “Oftentimes, the lowest bid can be deceiving,” he says. “Depending on how much lower—say 20% under the next highest bid—it can mean that something important was not included.  Depending on how the bid specifications were written, it can mean that a bidder is attempting to ‘low-ball’ the bid in hopes of making it up on excessive change orders during the actual job. Other times, it simply means that a bidder is intending to put their ‘B-Team’ on the job, thereby adversely impacting the quality of the work.”

According to Avery Feldman, vice president and senior account executive with Maxwell-Kates, a Manhattan-based management firm affiliated with Associa, “A low bid can signal that a vendor is planning to recoup their margin through change orders or corner-cutting that surfaces as an ‘emergency’ in the midst of the job—at which point your negotiating leverage is gone. There’s also the possibility that a vendor appears more competitive [than they actually are] because of gaps in their insurance coverage—and that poses an immediate threat to building owners and boards.”

“For any cooperative or condominium board, the lowest bid is not always the best bid,” says Mark Hakim, a partner specializing in shared community law with Schwartz Sladkus Reich Greenberg & Atlas, a New York based law firm. “In fact, it can often become the most expensive choice in the long run. The real question should always be which bid provides the best value with the least long-term risk.” 

Proper Focus

Board members are fiduciaries invested in protecting the fiscal health of their building, so a low number may look attractive at first—especially when the board is trying to control costs and avoid increasing maintenance or common charges. But as the pros have noted, price alone does not tell the full story. A too-good-to-be-true bid could be a sign that important items were left out, that the scope of the project was not fully expressed or understood, that cheaper materials were used, or that the contractor plans to make up the difference later through change orders. Any and all of these can create serious problems for the building. 

One way boards can reduce the chances of this kind of thing happening is by adopting a standardized RFP process to ensure that they’re comparing apples with apples.

One good way for the board to do this is to engage an engineer or architect as a consultant to help guide them, both through the bidding process, and when workboots are finally on the ground. “Generally, the consultant prepares a report on the condition of the property, and suggests scope of work for the project, which may include more than one option,” says Kris Kasten, a partner with Chicago-based law firm Bartzen Rosenlund Kasten. “The board uses that report to determine what will be done. The consultant then prepares a uniform request for proposal or bid package that is provided to all potential contractors, which the contractors must complete and return. This process helps ensure that the board is comparing ‘apples-to-apples.’”

If a board and/or their manager doesn’t want to hire a professional to draw up the RFP documents for a project, or feel the job isn’t big enough to justify the cost, it can be done in-house—as long as the proposal adheres to certain guidelines, says Scott Wolf, CEO of BRIGS LLC, a real estate management firm based in Boston and serving New England. “Draw up the RFP with a thorough chart detailing the work, and require a format for estimates that breaks down all the components, so you get a really accurate overview. Your managing agent can assist with this.” Wolf also notes the importance of accounting for unexpected contingencies: “A facade siding project may seem straight forward,” he says, “but what happens if there is wood rot? How will that be handled in numbers? Every detail must be in there before a job starts.”

That being said, some pros note that if a board automatically discards any prospective bidder’s proposal that’s not executed flawlessly, they risk missing out on hiring an otherwise great contractor. Michael Simone, principal at the Simone Law Firm in Cinnaminson, New Jersey, points out that a contractor may be very good at their craft, but terrible at paperwork. “When I represent associations, I try to have a standardized form for RFPs,” he says. “However, the problem is whether the actual vendors will comply and submit all the information needed. A lot of times there are good vendors who are not so good at paperwork, so to be too strict about documentation may preclude you from hiring a really good contractor.”

So the takeaway here is to standardize your bidding process as much as is sensible, without being so ironclad that your vetting process excludes competent, skilled contractors on minor technicalities. 

Long-Term vs. One-Off

Should a board’s bidding, vetting, and hiring process be different when seeking a long-term vendor like a landscaper or snow removal firm than it is for a one-time contract, like repairing an intercom system, or a capital improvement like a roof replacement? As with so much of community governance and administration, it depends. 

“The same issues apply to both types of service providers,” says Berlowe. “However, contracts are always important, especially for long-term services. Spelling out what constitutes a breach of the agreement, for example, and what happens if that occurs, are even more critical when engaging a vendor for long-term services.”

“It’s a bit more complicated,” says Feldman of longer-term jobs. “For capital projects, the bid is the primary document. For recurring services, the reference call is. Both matter on every engagement, but long-term vendor relationships reward responsiveness, staff continuity, and communication culture—qualities a bid price won’t show you. A capital contractor needs to deliver one outcome, while a service vendor needs to be a reliable partner for years.”

“It is in the project size where there may be a substantive difference in choosing a vendor,” says Kasten. “With a smaller project, whether that’s regular mowing or minor tuckpointing, the contract may be less comprehensive, and the board may choose a lower bid because the risk of an expensive future problem is low. With larger and more expensive capital projects, the board will want to have a more comprehensive vetting process and have a more comprehensive agreement to minimize risk of expensive problems arising after the project is completed.”

Red Flags

Choosing a vendor can be a process rife with red flags. When reviewing a vendor, boards should look beyond the proposal itself and consider whether the vendor is financially stable, properly staffed, and capable of standing behind their work. A vendor may present well during the bidding process, but problems with finances or references can be a warning sign that your project may face delays, disputes, or unfinished work later. Mark Hakim provides a case in point:

“I am now involved with a community on Long Island that hired a low bidder for a roadway replacement and resurfacing project,” he says. “Putting aside what was clearly mismanagement at the beginning, and absolute chaos during the work, the warranty in the original contract was lacking, the contractor unresponsive and ultimately faced charges stemming from an issue with payments to employees.  You get what you pay for and here, the cheapest has become the most expensive as a mere five years later the board is now seeking proposals to replace the entire roadway again, at double and triple the original costs. Avoidable, sadly.”

What About References?

One of those universal truths is that while everyone asks for references for just about everything, no one gives a reference that will report badly about them. With that said, what should we be looking for with reference to references.

“Even if a vendor has glowing references, that itself isn’t enough,” says Simone. “It’s going one step further and seeing how long ago the vendor knew or worked for the reference and seeing the work that was done vis a vis the work you need done. They may have done a great job somewhere in the past but if the scope is different there can be a different ultimate result.”

A Matter of Scale?

While community size may be a factor in getting a better deal on goods and services, the real factor is the size of your management company. The bigger and more extensive your management company’s network both from the community and vendor ends, the more likely you will take advantage of economies of scale.

“There’s no bundling from a vendor—that’s a management firm thing,” says Wolf. “And vendors may be giving a better deal to a management company with many clients who can get them more exposure and contracts. That doesn’t result from community size; It’s the vendor’s relationship with the management firm, not one-off associations.”

Getting the most from your vendors is of utmost importance to shared interest communities.  Lots of factors affect pricing and success.  Be vigilant and fair to yourselves and your vendors.  Picking the lowest bid is not a guarantee of success.

A.J. Sidransky is a staff writer/reporter for New England Condominium, and a published novelist. He may be reached at alan@yrinc.com.