The dispute arose because the vendor performed a flow test to what it claimed was the correct standard, but the city fire department insisted that the test had to be performed to a different standard and rejected the vendor’s test results. The vendor refused to comply with the city fire department’s requirements without additional compensation because they were more expensive to conduct, leaving the association without a completed fire inspection.
This dispute could have easily been prevented by simply including a provision in the contract that “all inspection and testing will be performed to current applicable local, state and federal requirements.” That would have put the risk on the vendor to make sure they were familiar with the current local testing requirements. Instead, the association is now looking at potentially thousands of dollars in additional costs and legal fees to resolve the situation.
When preparingornegotiatingavendorcontractfor a community association, the association’s attorney is going to make sure the association’s interests are protected and risks clearly identified. Instead of one-sided terms and conditions favoring the vendor (or none at all), the association’s attorney will includeprovisionsprotectingthe associationfrom foreseeable risks and will make sure the board is informed of any remaining potential risks before signing the contract.
In reviewing a vendor contract, the association’s attorney is going to ask various questions, including the below.
• Are the parties to the contract clearly identified? • Is the scope of work clearly identified? • Arethe termsofthe contract andschedulefor performing the work clearly identified?
• Is theamount, manner,and timing of compensation clearly identified?
• Are the payment terms fair and reasonable? • Are lien releases necessary as the work is performed? • Is the use of subcontractors clearly addressed? • Arethere anyspecial conditions forperforming the work?
• Arevendor insurancerequirementsclearly identified (including general liability, workers compensation, and vehicles)?
• Is there an acceptable indemnification provision? • Are vendor licensing and permit requirements clearly identified?
• Are any applicable warranties for the work addressed? • Canthe associationterminate thecontractwithor without cause?
• How will disputes be resolved?
As can be seen from the above list, there are a lot of factors that need to be carefully considered when evaluating the acceptability of a vendor contract. The larger the dollar value and complexity of the work, the greater the importance of having comprehensive and balanced terms and conditions included in the contract.
In conclusion,yourassociation’s legalcounsel canand should be used to not just resolve vendor problems after they arise but to prevent them through review and negotiation of appropriate vendor contracts before the contract is signed. The old adage “an ounce of prevention is worth a pound of cure” certainly holds true when it comes to contracts. It is generally much more cost-effective to prevent potential problems by having legal counsel prepare a good contract before entering into it than having legal counsel deal with a bad contract after entering into it.
—Doug Bickham has been practicing real estate law for more than twenty years and is a Partner at Nordberg | DeNichilo, LLP, serving as corporate counsel to community associations throughout California. He can be reached at
doug@ndhoalaw.com.
Vendor contracts
are typically written by the vendor’s attorney (or sometimes just by the vendor) and, not surprisingly, favor the
vendor. Vendor contracts are often incomplete,
inconsistent, and lack any legal protections for the association.
www.caioc.org
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