Workman's Compensation Insurance

All, question - I have been notified that our community pays for the workman's comp. insurance for our MC's site personnel. Isn't that normally something that the MC should cover on their own? We have been told that they requested this to cover their employees, and for any contractors who perform work on property who do not have W/C coverage. I was under the impression that you always check the insurance coverages of contractors performing work in the community for proper policies.

Roger understood on the contractor's requirement to have W/C - I can draft that into a contract with them, with conditional requirements, so that the HOA does not need to carry. "If.. and.. then" clauses/conditions in a contract would sufficiently cover the HOA in the event of the contractor dropping after contract awarding as you described.

On the second part of the question, is it "normal" for an MC to request that the HOA pay for site employee(s) W/C coverage? They are not employees of the HOA, and are bona fide employees of the MC. Under our current contract, entered into by developer board, most if not all of our MC's charges are payroll pass-thru's, or items which are paid by the HOA, but are typically MC expenses. Under the current contract our options are very limited with respect to challenges and/or termination. As much as I hate to say this, it appears that this contract was deliberately written to favor one-side, at the expense of the other.

Jadedone:

It is not uncommon for the MC to be asked to be an additional insured on the HOA policy, but I have never heard of the MC employees being covered under the HOA's WC policy?????

Jadedone,
If I was on your Board I would be against providing W/C insurance to the MC and to any contractor. To my knowledge, most HOAs do not have employees and do not carry W/C; they hire only independant contractors and require them to carry their own insurance.

Jadedone: IMO, something doesn't sound right. I have never heard of an assn. paying for 'insurance' for a vendor the assn. is using to perform work.

QUESTION: Why would the Management Company 'HAVE EMPLOYEES' performing work (for them?) on your assn. property? You state that..."We have been told that they requested this to cover THEIR EMPLOYEES, and for ANY CONTRACTORS who perform work on property who do not have W/C coverage.."

Is the MC an 'umbrella company' for all the contractors your assn. uses? Has the MC 'offered' to get the contractors for you? Who are the parties involved in the contracts for vendors to do work for your assn.? Who are the signees?

When a company (any company) files income tax, aren't their insurance costs listed as part of their operating expenses and a deduction for them?

Reminds me of an incident quite a few years ago when we were looking to buy a car. We got to the point of sitting down with the car salesman (in this case, a woman) to go over the figures...
When she added the dealers' 'advertising cost' to our price for the car, guess what??? We walked out.

Paul,

Thanks for full response... I am aware of the issues raised by this agreement, and yes the MC was hired by developer, and the contract was renewed two months (for three years), prior to transitioning to members/owners.

My responses are in CAPS....

Jadedone: IMO, something doesn't sound right. I have never heard of an assn. paying for 'insurance' for a vendor the assn. is using to perform work.

I AGREE - THE "EXPLAINATION" WAS THAT IF THE CONTRACTOR ALLOWS THE W/C INSURANCE TO LAPSE, OR CANCELS AFTER CONTRACT AWARDING BY HOA, THEN THE HOA "COULD" BE RESPONSIBLE IF THEIR EMPLOYEE FILES CLAIM.

QUESTION: Why would the Management Company 'HAVE EMPLOYEES' performing work (for them?) on your assn. property? You state that..."We have been told that they requested this to cover THEIR EMPLOYEES, and for ANY CONTRACTORS who perform work on property who do not have W/C coverage.."

THE MC HAS A SITE PERSON ON PROPERTY, AND HAS ABOUT 3 MORE OF THEIR EMPLOYEES PERFORMING DUTIES ON SITE, AT ANY GIVEN TIME DURING THE WEEK. THE "ADDITIONAL" COVERAGE, IS ALIGNED WITH THE "COVER CONTRACT" THAT THE MC ENTERS INTO WITH THE VENDORS - AND FOR THE "PROTECTION" OF THE HOA FROM THE ABOVE SCENARIO OF LAPSE/CANCELLED INSURANCE.

Is the MC an 'umbrella company' for all the contractors your assn. uses? Has the MC 'offered' to get the contractors for you? Who are the parties involved in the contracts for vendors to do work for your assn.? Who are the signees?

UNSURE IF MC IS "UMBRELLA" FOR OTHER COMPANIES - HOWEVER THERE IS SOME SUSPICION AS THE MINOR CONTRACTORS HAVE SUBMITTED CONTRACTS WHICH ARE ALMOST VERBATIM - CHANGING ONLY LETTERHEAD, SPECIFICS TO JOB/SCOPE OF WORK, ETC. YES THE MC "SOLICITS" BIDS/RFP'S FOR THE HOA - HOWEVER, I HAVE REQUESTED, AND HAVE NOT YET RECIEVED SELECTION/SPECIFICATIONS FOR THE BIDS/RFP'S. PREVIOUSLY THE MC WOULD ENTER INTO CONTRACTS "ON BEHALF OF 'XYZ' HOA," I IMMEDIATELY PUT A STOP TO THAT "DEVELOPER" ALLOWED PRACTICE WHEN I WAS ELECTED PRESIDENT.

When a company (any company) files income tax, aren't their insurance costs listed as part of their operating expenses and a deduction for them?

UNSURE ON THIS... WOULD NEED TO CHECK WITH TREASURER

Reminds me of an incident quite a few years ago when we were looking to buy a car. We got to the point of sitting down with the car salesman (in this case, a woman) to go over the figures...
When she added the dealers' 'advertising cost' to our price for the car, guess what??? We walked out.

HONESTLY, WOULD WISH WE COULD "WALK-OUT" ON THIS, BUT LEGAL COUNSEL HAS INFORMED US THAT THE CONTRACT IS VALID, AND THAT AS NEW OWNER HOA WE DO NOT HAVE "EXIT" CLAUSES IN OUR STATE STATUTES WHICH ALLOW US TO TERMINATE. AND OF COURSE TERMINATION CRITERIA IN CONTRACT SIGNED BY DEVELOPER BOARD, FAVORS MC.

PaulM
Posts:376

07/06/2007 1:59 PM Quote Reply
Jadedone4: in reading your additional post, I am seriously concerned and prompted to raise some questions.

1. The MC you have is the same one the Developer had prior to the transition. What type of arrangement did the developer and the MC have together? and is it being carried over?

YES, MC WAS HIRED FIRST AS "CONSULTANT" TO DEVLOPER, THEN AWARDED CONTRACT. UNSURE OF "TYPE OF ARRANGEMENT" BETWEEN MC AND DEVELOPER - AS MC ATTEMPTS TO LIMIT HOA'S INTERACTION WITH DEVELOPER, AND DEVELOPER PRETTY MUCH HAS IGNORED THE OWNER BOARD.

2. Don't you (a contract person) think it strange that the MC has 'employees' or 'employee companies' who perform work for the assn. You state..."They are not employees of the HOA, and are bona fide employees of the MC." ???

HENCE THE ORIGINAL POST - I CAN TELL YOU WHAT DoD, FAR, DFAR AND MOST OF UNCLE SAM'S "RULES" ARE, BUT STILL THE FIRST OWNER HOA PRESIDENT FOR THIS COMMUNITY. THAT IS WHY I TURNED TO THE FOLKS HERE.

3. .."our MC's charges are payroll pass-thru's, or items which are paid by the HOA, but are typically MC expenses.' Do you mean
the VENDOR BILLS/CHARGES ARE PAID TO THE MC? or, do you mean the vendor expenses are lumped together on the Budget and included as MC expenses? Vendor expenses (landscaping, trash, etc.) are NOT typically MC expenses.

MC, COLLECTS MONIES FROM THE HOA, PER CONTRACT FOR THEIR EMPLOYEE'S PAYROLL, MEDICAL, DENTAL, AND W/C INSURANCE.

Our MC has 'ties' with vendors in that they are able to suggest 'good and reputable vendors' for our assn. to arrange services with; however that is the extent of their involvement.
A reputable vendor shows their 'reputation' by carrying appropriate insurance. That is as it should be. It is not for the receiving client to fund.

UNDERSTAND THAT FULLY, HOWEVER IT WAS DRAFTD INTO DEVELOPER'S CONTRACT, SIGNED INTO FACT BY DEVELOPER BOARD, AND VALID FOR THE PERIOD OF THE CONTRACT - THEREFORE ABSENT ANY OTHER MEANS TO TERMINATE CONTRACT, WE MAY WELL BE "STUCK" WITH THIS.

I strongly question what the MC is actually gaining with this business tactic they are using?

MC'S ARE BUSINESSES, WHEN YOU LIMIT YOUR OVERHEAD (PAYROLL, MEDICAL, DENTAL, W/C ETC) YOU INCREASE PROFITS. BASICALLY OUR CURRENT ARRANGEMENT IS LIKE HAVING A TEMP EMPLOYEE - YOU PAY SALARY, AND THAT IS ABOUT IT, NO MEDICAL, DENTAL, W/C IS INCLUDED. WHAT DOES A DEVELOPER REALLY 'CARE' IF THEY HAVE A HEFTY MC CONTRACT, THEY ARE NOT FULLY PAYING THAT BILL, SO LONG AS THE DEVELOPER'S AGENTS (BOARD) MAKE THOSE DECISIONS. IT IS THE HOA THAT SUFFERS. WHILE I CAN ONLY "SUGGEST" THAT THE ARRANGEMENT BENEFITS THE MC IN THAT FUTURE BUSINESS INTEREST COMING THEIR WAY FROM SAME DEVELOPER - AS THERE IS NOT HARD EVIDENCE TO SUPPORT.

I think it doesn't matter whether it was the Developer's Board or the Homeowners Board that signs a contract, it remains a valid contract. One thing I would look at is the CC&Rs; some state no contract can be executed for a term of more than one year. If that statement is in the CC&Rs, and if there is nothing in the contract which allows for early termination of the contract, then I think the HOA may have legal grounds for a suit against the Developer if the contractor refuses to terminate or modify the contract. I would get the Board's approval to discuss the options available to the HOA with an attorney who is independent of the Developer.

Jadedone4:
..."I fully understand that the developer board "should" have had a fiduciary duty to the HOA and not developer, or the M/C when entering into this contract.."
The 'developer board' is created and appointed by the developer--this process is addressed in your docs as part of 'Declaration'. Very often the developer board is appointed during the latter phase of the building plan and he is able to ensure his interests are being looked after through this board and the MC he has contracted with.

Paul,

I agree, and presented timeline above where the M/C was hired by developer as a "consultant" prior to officially awarding of M/C contract. This is not "Area 51" material here - there was/are somethings in this contract which should never be in a contract - and the reasons (as you suggested) are quite obvious. As such, the "remdies" are either costly to the HOA, or time-consuming for a new board. Option B is the "damage control" element that the board can take to limit what the community incurs as a result of the contract.

Brad,

I agree fully with your position, however it was drafted into our contract, signed by developer board - and it is valid as such. IC's are what most HOA's have, since they do not directly employ anyone. The issue is, short of the "nuke," option (going to war with M/C in a legal suit), we do not have many options.

All, (and I apologize to HOA-Talk if the following comments offend),

This is a crappy situation, where the M/C has been basically "drafted" by the developer to ensure interests prior, during and through the M/C's contract - to assure that "powers" are retained by the M/C. I have no insecurity in stating that this was a borderline collusion contract as entered/signed. The agreement itself (M/C contract) is almost thirty pages, and reads like a tangled spider's web. There are many ambiguious sections that the M/C likes to inflate to support their positions, and that I routinely conservatively scale back so as there is balance in the relationship. It was not secret that this was drafted to benefit the developer-M/C relationship, either here, or as a prelude to continuing business relationships down the road. The issue then becomes what the board is willing to do, and what the community is willing to sacrifice to right the wrong and at least balance out the contract/agreement. Is this a hugely frustrating position for a President.. YES!! But the more I learn in this situation (and the remedies/adice you folks offer) will only assist me and my community.

Paul, I understand how this could be confusing...

The developer board (acting as agents for developer), IS IN FACT still the bona fide HOA board. The contract was entered, signed, executed by developer board (agents) under the NAME of the HOA. Therefore it is valid contract, just as any contract that I as President enter into now, will be binding on the HOA, if/when I leave office (hypothetically, in a padded wagon, and a "reversed buttoned" jacket), next week, for the during of the period of performance as mandated/agreed upon in the contract.

Now what you are referring to, or having trouble segregating is the relationship of the developer to (same) M/C hired as "consultant" (where the documents were drafted in favor of developer), is strictly a developer-M/C relationship, which has NO bearing on the HOA.

As stated above once the developer "assigned" his/her employees to the board (and while I make the distinction of them being developer board), they are in fact the HOA's first board, then when owners take over, we are the first owner-board for the HOA. Contracts entered are with/between vendor and HOA, and never developer (unless developer to HOA). When I mentioned developer contracts in previous post (and that was my fault as it can be confusing), I was referring to the developer's active contracts (stand alone from the HOA), where developer was still performing work on property.

There should be a clause either in your CCR's or perhaps your state that will defer to "Termination of contracts and leases of declarant:

To read something like NC Planned Community Act Chapter 47F-3-105. "If entered into before the executive board elected by the lot owners pursuant to G.S> 47F-3-103 (e) takes office, any contract or lease affecting or related to the planned community that is not bona fide or was unconscionable to the lot owners at the time entered into under the circumstances then prevailing, may be terminated without penality by the association at any time after the executive board elected by the lot owners pursuant to G.S. 47F-3-103 (e) takes office upon not less than 90-days notice to the other party. (1998-99, s.1.)"

Therefore you may terminate the contract between the MC in accordance with their termination clause of their contract.