When hiring vendors and contractors to perform work in your community, you should always wait until the contract is signed before letting any projects begin. We’ve compiled a list of the important parts that should be included in every contract—which should always be reviewed by legal counsel.
Licensing. Does the contractor/vendor have the appropriate license(s) for the work they’re going to perform? You should always verify all necessary licenses are current through the Contractor License Board. While using unlicensed contractors may seem like a way to save money, it can end up costing much more in the long run.
Insurance. Besides having your own policies to protect your association and your liability, you’ll need to make sure the contractor carries any policies necessary for the project, such as workers’ compensation insurance. Be sure to require proof of insurance, and that your association is named on any appropriate policies as well. Make sure none of the policies contain a multi-family or condo exclusion.
Governing Documents. Check your governing documents to ensure that the contractor or the work they are performing does not violate any provisions.
Problem Provisions. You should have your legal counsel draft a contract or modify any contract or work order provided by the contractor. The language and provisions of the latter two generally favor the contractor and may not cover you when needed.
Have your legal counsel review the following issues and clauses in all agreements:
- Parties. Make sure the contract does not name the directors as parties to the contract. The party should always be the association. This protects the directors from being named personally in any litigation.
- Scope of Work. Make sure the entire scope of work is clearly defined. Ambiguity or missing parts could cause issues due to misunderstanding or miscommunication. Clarity will help you should you need to hold a contractor accountable for their work.
- Payment Schedule. Establish a schedule that pays out as work is completed. Never pay the full amount up front, as your community could then be at risk of significant loss should the contractor not perform the full scope of work. A percentage of the contract amount can be retained until final inspections and signatures are completed.
- Insurance. List the insurance policies (and minimum coverage limits) you require the vendor to carry. Also, include whether your association should be listed on any of the policies.
- Indemnity. Include a clause that requires the contractor to indemnify your association if an issue with their work causes you to be sued.
- Performance dates and times. Include your expectation for when contractors can perform work, as well as when it should be completed.
- Termination Clause. This should be included in the event the work is not performed satisfactorily.
- Attorneys’ Fees. This provision typically states that in the event of litigation, each side will cover their own legal fees.