Get 1 year of free community web site hosting from Community123.com!
Wednesday, October 28, 2020











HOATalk is a free service of Community123.com:

Easy to use website tools to help your board
Only members have access to all features.
Click here to join HOATalk for Free! Members click here to login and access all features.
Subject: Homeowner-Contractor Conflict of Interest?
Prev Next
Please login to post a reply (click Member Login on the menu).
Author Messages
NpB
(Arizona)

Posts:413


10/15/2020 1:29 PM  
I could find nothing in the Arizona Planned Communities Act that would prohibit a recorded owner in an HOA who is a licensed contractor from bidding on and winning contracts for HOA common area work. Are there any state conflict of interest laws that would prohibit this?
MelissaP1
(Alabama)

Posts:9648


10/15/2020 2:22 PM  
Why would it be a conflict of interest? If it is disclosed they are a HOA member/owner, then what does anyone care? Matter of fact, many people might appreciate the fact they are a fellow owner. A fellow owner has an interest in doing a good job do they not? They are "invested" with everyone else.

This reminds me of the story of only 2 barbers on an island. 1 Barber's hair looks great. The other Barber hair's a mess. Which barber do you choose to cut your hair? The barber with the messy hair. Why? Cause they are the barber cutting the other barber's hair...

Former HOA President
NpB
(Arizona)

Posts:413


10/15/2020 2:47 PM  
Posted By MelissaP1 on 10/15/2020 2:22 PM
Why would it be a conflict of interest? If it is disclosed they are a HOA member/owner, then what does anyone care? Matter of fact, many people might appreciate the fact they are a fellow owner. A fellow owner has an interest in doing a good job do they not? They are "invested" with everyone else.

This reminds me of the story of only 2 barbers on an island. 1 Barber's hair looks great. The other Barber hair's a mess. Which barber do you choose to cut your hair? The barber with the messy hair. Why? Cause they are the barber cutting the other barber's hair...





It might be a conflict of interest if that contractor has completed or is completing renovations of private units in the HOA, perhaps Board members' units.

I thought it would be akin to having a licensed real estate agent on the Board who also sells units in the HOA.
JohnC46
(South Carolina)

Posts:10014


10/15/2020 3:15 PM  
Posted By NpB on 10/15/2020 2:47 PM
Posted By MelissaP1 on 10/15/2020 2:22 PM
Why would it be a conflict of interest? If it is disclosed they are a HOA member/owner, then what does anyone care? Matter of fact, many people might appreciate the fact they are a fellow owner. A fellow owner has an interest in doing a good job do they not? They are "invested" with everyone else.

This reminds me of the story of only 2 barbers on an island. 1 Barber's hair looks great. The other Barber hair's a mess. Which barber do you choose to cut your hair? The barber with the messy hair. Why? Cause they are the barber cutting the other barber's hair...





It might be a conflict of interest if that contractor has completed or is completing renovations of private units in the HOA, perhaps Board members' units.

I thought it would be akin to having a licensed real estate agent on the Board who also sells units in the HOA.



But he is not on the BOD. You want to deprive him of making a living?
CathyA3
(Ohio)

Posts:1315


10/15/2020 3:20 PM  
It may be OK if the bids are submitted to the board for review with identifying info removed. Still, I can see possible issues:

* if he is privy to information that gives him an unfair advantage (eg. info that is disclosed during open board meetings).

* if the board tries to negotiate a quid pro quo arrangement (eg. they'll overlook a violation of the CC&Rs in exchange for a low price).

In general, I think boards should avoid even the appearance of wrongdoing, and something like this could raise questions in the minds of other homeowners )eg. favoritism). So I'm leaning toward not accepting bids from homeowners. But I could be persuaded to change my mind if someone comes up with good arguments in favor.
NpB
(Arizona)

Posts:413


10/15/2020 3:20 PM  
Posted By JohnC46 on 10/15/2020 3:15 PM
Posted By NpB on 10/15/2020 2:47 PM
Posted By MelissaP1 on 10/15/2020 2:22 PM
Why would it be a conflict of interest? If it is disclosed they are a HOA member/owner, then what does anyone care? Matter of fact, many people might appreciate the fact they are a fellow owner. A fellow owner has an interest in doing a good job do they not? They are "invested" with everyone else.

This reminds me of the story of only 2 barbers on an island. 1 Barber's hair looks great. The other Barber hair's a mess. Which barber do you choose to cut your hair? The barber with the messy hair. Why? Cause they are the barber cutting the other barber's hair...





It might be a conflict of interest if that contractor has completed or is completing renovations of private units in the HOA, perhaps Board members' units.

I thought it would be akin to having a licensed real estate agent on the Board who also sells units in the HOA.



But he is not on the BOD. You want to deprive him of making a living?





Absolutely not. However, many people would not sell a used car to a neighbor in case the car turns out to be a lemon. Same principle to a contractor who is a member of the HOA.
MelissaP1
(Alabama)

Posts:9648


10/15/2020 3:33 PM  
There isn't anything wrong with a licensed real estate agent being on the board. A HOA isn't real estate...

So what if one hires a homeowner with a valid business with a business license/insurance? A contractor has to live somewhere. If they own one of the best businesses in town why not allow them?

You all do realize that many judges and attorney's also live in HOA's... Is it a conflict of interest to hear a HOA case?

Former HOA President
GeorgeS21
(Florida)

Posts:3275


10/15/2020 3:57 PM  
NpB,

Can't tell - is this occurring in your HOA at this time?

Additional background on why this has come up now? Lead up the circumstance?

Or, is this hypothetical?
KerryL1
(California)

Posts:7579


10/15/2020 5:31 PM  
How could it be illegal-actually against thee law--- for a realtor or a contractor of any kind to serve on their HOA's Board?

There could be issues though as Cathy summarizes.
CathyA3
(Ohio)

Posts:1315


10/16/2020 7:30 AM  
Some other thoughts:

People's rights and obligations as homeowners are legally clear. People's rights and responsibilities as paid contractors are also legally clear.

Hiring a homeowner as a paid contractor blurs the distinctions in possibly unhelpful ways. For example, if a contractor fails to perform according to the terms of his contract, or does poor quality work, the board has options to correct this. However, the board may be reluctant to go after "good ol' Joe who lives down the street" because they have a personal relationship outside of the professional one.

Refusing to hire homeowners shouldn't prevent them for earning a living, as one other commenter mentioned. If he does good quality work, he should have plenty of clients, and savvy business owners understand the folly of depending on a single client to stay afloat. If he doesn't do good quality work, why would you want to hire him anyway?

So I've talked myself around to "don't hire homeowners". It may or may not be a conflict of interest, but even leaving aside the optics, there are enough pitfalls to make it not a smart move.
AugustinD


Posts:4152


10/16/2020 7:58 AM  
-- No law prohibits a non-director HOA/condo Owner from bidding on and winning contracts for HOA/condo common area work.

-- Excluding a HOA/condo member from bidding and possibly winning a contract, when there are zero lawful grounds to do so, appears to me to be bid-rigging, anti-competition, and a likely violation of various laws.

-- I believe such conduct is a certain invitation from the contractor/HOA/Condo Owner, denied a chance to bid and win a contract, to file suit against the HOA/Condo for tortious interference with a business.

-- In the for-profit corporate world, I believe it is common for contractors to hold stock in said corporation. In other words, the contractors are shareholder/members of the corporation but of course are free to bid and win bids.
AugustinD


Posts:4152


10/16/2020 8:00 AM  
Posted By AugustinD on 10/16/2020 7:58 AM
-- I believe such conduct is a certain invitation from the contractor/HOA/Condo Owner, denied a chance to bid and win a contract, to file suit against the HOA/Condo for tortious interference with a business.
Post-o. Such conduct is a certain invitation // to // the contractor/HOA Owner/Condo Owner to file suit for tortious interference.
CathyA3
(Ohio)

Posts:1315


10/16/2020 8:05 AM  
Posted By AugustinD on 10/16/2020 8:00 AM
Posted By AugustinD on 10/16/2020 7:58 AM
-- I believe such conduct is a certain invitation from the contractor/HOA/Condo Owner, denied a chance to bid and win a contract, to file suit against the HOA/Condo for tortious interference with a business.
Post-o. Such conduct is a certain invitation // to // the contractor/HOA Owner/Condo Owner to file suit for tortious interference.




Is an HOA obligated to solicit bids from every company that can perform the work? I'm pretty sure it isn't.

However, I think that a board would have to take extra steps to avoid the pitfalls associated with hiring a homeowner, which steps would not be necessary for other contractors, and can they justify this?

I actually agree with everything you said. I also agree with what I've said. This issue isn't at all clear to me.
AugustinD


Posts:4152


10/16/2020 8:23 AM  
Posted By CathyA3 on 10/16/2020 8:05 AM
Is an HOA obligated to solicit bids from every company that can perform the work? I'm pretty sure it isn't.
If the Owner/contractor learns that bids have been solicited but her/his company was excluded, and the Owner/contractor can see no lawful basis for her/his company's exclusion, I think the owner has a viable winning lawsuit.

Small aside, somewhat related: Around 2012, I was on the Board of a 2000+ home HOA with landscaping needs worth a few hundred thousand dollars to the lucky company who won the bid. The HOA sent out RFPs to really as many companies as the Board could think of that were large enough to handle the work. A week or so later a landscaper contacted the Board demanding to be included in the bidding process, and ya know, sounding kind of legal. Fortunately the HOA had retained all the emails it sent out soliciting bids and was able to respond: 'Here is a copy of the email the HOA sent to your company on . Did you not receive it? The landscaper put its tail between its legs; found the email from the Board; and put in its bid.
Posted By CathyA3 on 10/16/2020 8:05 AM
However, I think that a board would have to take extra steps to avoid the pitfalls associated with hiring a homeowner, which steps would not be necessary for other contractors, and can they justify this?
I do not find a lawful basis for a claim that these so-called pitfalls preclude inviting a bid from a condo/HOA Owner. In Arizona, even if it is a director's business, the board can still have the director's business bid on and win a contract, as long as disclosure, meeting certain statutory requirements, is done.

From the Arizona Condo Act, Section 33-1243:

C. If any contract, decision or other action for compensation taken by or on behalf of the board of directors would benefit any member of the board of directors or any person who is a parent, grandparent, spouse, child or sibling of a member of the board of directors or a parent or spouse of any of those persons, that member of the board of directors shall declare a conflict of interest for that issue. The member shall declare the conflict in an open meeting of the board before the board discusses or takes action on that issue and that member may then vote on that issue. Any contract entered into in violation of this subsection is void and unenforceable.
CathyA3
(Ohio)

Posts:1315


10/16/2020 8:51 AM  
Posted By AugustinD on 10/16/2020 8:23 AM
Posted By CathyA3 on 10/16/2020 8:05 AM
Is an HOA obligated to solicit bids from every company that can perform the work? I'm pretty sure it isn't.

If the Owner/contractor learns that bids have been solicited but her/his company was excluded, and the Owner/contractor can see no lawful basis for her/his company's exclusion, I think the owner has a viable winning lawsuit.

... snip ...




I'm not sure about that.

It sounds like you're saying that the HOA has an obligation to consider the homeowner's bid simply because he's a homeowner - and that's the kind of blurring of legal rights and obligations I was referring to earlier.

From my experience, we solicited bids from companies that our PM's company had worked with successfully in the past and who had track records of doing good work. We did not solicit bids from all companies in the area who could do the work. Many of the communities in this area work the same way - otherwise a board could conceivably spend all of its time evaluating bids. As far as I know, they're not being hit with lawsuits from all of the other companies who felt wrongly excluded.

I wish I were still on the board and could run this question past our attorney.
MelissaP1
(Alabama)

Posts:9648


10/16/2020 9:32 AM  
If a business is insured and license what does it matter where the owner of that company lives? Just as long as they are not running it out of their home?

Basically, any business that has a license and is insured can be considered for business opportunity if they choose to bid. Any professional business knows it's just a BID it's NOT a contract. You don't award a contract based on they are a HOA member. You award a contract for them being licensed/insured, offering good price (not cheapest), and is an expertise.

So I don't see any conflict of interest in hiring a bon a fide company whether or not they live in the HOA. Just disclose it and done.

Former HOA President
AugustinD


Posts:4152


10/16/2020 9:47 AM  
Posted By CathyA3 on 10/16/2020 8:51 AM
We did not solicit bids from all companies in the area who could do the work. Many of the communities in this area work the same way - otherwise a board could conceivably spend all of its time evaluating bids. As far as I know, they're not being hit with lawsuits from all of the other companies who felt wrongly excluded.
Right, and I do hear you. To try to get a handle on what a court might say, for one I am contemplating the following extreme case: Suppose a HOA will not solicit bids from a company (that by all appearances, is capable of doing the work, and even though the company asked to submit a bid) because, say, the company is owned by African Americans. Suppose there are signs that the HOA board does not like African Americans. Could the African American-owned company come back and sue successfully? I tend to think yes. I think a HOA has to have a good, legal reason for refusing to let a company, that wants to submit a bid, to bid and compete against other companies.
GeorgeS21
(Florida)

Posts:3275


10/16/2020 10:03 AM  
Does anyone concern themselves with questions like this one where it sounds hypothetical?

NpB - ya didn't answer my question - is this hypothetical? You probably owe it to everyone here to tell us, yes?
CathyA3
(Ohio)

Posts:1315


10/16/2020 10:24 AM  
Posted By AugustinD on 10/16/2020 9:47 AM
Posted By CathyA3 on 10/16/2020 8:51 AM
We did not solicit bids from all companies in the area who could do the work. Many of the communities in this area work the same way - otherwise a board could conceivably spend all of its time evaluating bids. As far as I know, they're not being hit with lawsuits from all of the other companies who felt wrongly excluded.
Right, and I do hear you. To try to get a handle on what a court might say, for one I am contemplating the following extreme case: Suppose a HOA will not solicit bids from a company (that by all appearances, is capable of doing the work, and even though the company asked to submit a bid) because, say, the company is owned by African Americans. Suppose there are signs that the HOA board does not like African Americans. Could the African American-owned company come back and sue successfully? I tend to think yes. I think a HOA has to have a good, legal reason for refusing to let a company, that wants to submit a bid, to bid and compete against other companies.





I think you'd come back to the issue of trying to prove intent in court. There are many reasons not to solicit bids from a company - starting with the pragmatic one of needing to winnow a too-large group down to something more manageable.

One advantage of working with a reputable PM is that they'll have a stable of contractors with proven track records, and I think that's a reasonable way to cut down the numbers. Can this institutionalize past injustices of all sorts? You bet. On the other hand, it's not an HOAs function to right past wrongs, and I think many homeowners would be up in arms if they felt that an activist board was choosing to go out of their way to do so.

Still, going back to the issue of the homeowner who wants to bid on a job:

If an HOA is not legally obligated to solicit bids from all companies in that line of work - and as far as I know, they're not - then if a homeowner is feeling put out at not being asked to bid, he's already off on the wrong foot in that he's expecting special treatment simply for being a homeowner. I'd consider that a warning sign of likely future issues with him. If a board has many companies without any red flags to choose from, why should they choose one with potential issues?
CathyA3
(Ohio)

Posts:1315


10/16/2020 10:32 AM  
I should have added: boards should always try to evaluate bids "blind", without any info that identifies particular companies. That way they will be evaluating bids on their merits. On the other hand, a past history with a company who has performed well should also be taken into account, since they are more likely to quote attractive rates and be easy to work.

AugustinD


Posts:4152


10/16/2020 10:35 AM  
Posted By CathyA3 on 10/16/2020 10:24 AM
If an HOA is not legally obligated to solicit bids from all companies in that line of work - and as far as I know, they're not - then if a homeowner is feeling put out at not being asked to bid, he's already off on the wrong foot in that he's expecting special treatment simply for being a homeowner.
I do not see your reasoning here. To me, the condo owner's company is expecting to be invited to bid because the condo owner's company has a reputation indicating it is capable of doing the work.

I too do not see how a HOA/condo can be required to solicit bids from every company that appears to be capable of doing the work. But if a company hears that bids are being solicited, while it has not been invited to submit a bid, can the company submit a bid anyway and demand that it be considered, with the law behind its demand? I have in mind the principles behind the Sherman Antitrust Act when I say, "Maybe so."

Maybe this is too academic. I agree that a company bullying its way into having its bid considered is likely to be turned down. For the greater part, I believe the law fully backs a Board that declines to explain why it turned down the bid.
CathyA3
(Ohio)

Posts:1315


10/16/2020 10:36 AM  
Posted By GeorgeS21 on 10/16/2020 10:03 AM
Does anyone concern themselves with questions like this one where it sounds hypothetical?

NpB - ya didn't answer my question - is this hypothetical? You probably owe it to everyone here to tell us, yes?





I actually think this is an interesting discussion because the issues are not clear cut. And it's something that boards in larger communities may run into.

We do have a homeowner in my community who works for one of our contractors, although he's an employee, not the owner of the company. He actually found our community after doing a job for us and decided he wanted to live here. Most important, though, is that he doesn't benefit personally from working for that contractor, except indirectly. It would be different if he owned the company.
CathyA3
(Ohio)

Posts:1315


10/16/2020 10:42 AM  
Posted By AugustinD on 10/16/2020 10:35 AM
Posted By CathyA3 on 10/16/2020 10:24 AM
If an HOA is not legally obligated to solicit bids from all companies in that line of work - and as far as I know, they're not - then if a homeowner is feeling put out at not being asked to bid, he's already off on the wrong foot in that he's expecting special treatment simply for being a homeowner.
I do not see your reasoning here. To me, the condo owner's company is expecting to be invited to bid because the condo owner's company has a reputation indicating it is capable of doing the work.

... snip ...

Yes, I agree that he'd have more reason to be annoyed if his company had a good reputation and lots of clients. On the other hand, I'm sure there are many, many others who do not ask him to bid on jobs. If he has no issues with that and just considers it the nature of the job, then he does in fact have expectations due to his being a homeowner.




SheliaH
(Indiana)

Posts:3512


10/16/2020 11:28 AM  
Good discussion!

So, what have we learned NpB? Here's one person's opinion.

No, there's nothing that specifically prohibits a homeowner from bidding on association work. I believe I've said before, it's impossible for everything in HOA land to be legislated. Communities need flexibility to make and amend rules that make sense in their communities. As long as those rules don't violate local state or federal law, you're probably ok.

If you don't see something mentioned in the law of your documents (that's where you should start anyway), try applying common sense. This is where Cathy's comments come into play and they're a great start to what you should consider if a homeowner should make such a bid.

Same with a realtor serving on the board. In fact, whatever you do to make a living, you need to ensure there aren't any possible or actual conflicts of interest when it co.we to association issues.

Declining to vote or participate in a discussion due to conflict of interest concerns doesn't make you a crook, but it can help ensure no one has an ulterior motive in pushing for something.


KellyM3
(North Carolina)

Posts:1559


10/17/2020 7:59 AM  
Posted By NpB on 10/15/2020 1:29 PM
I could find nothing in the Arizona Planned Communities Act that would prohibit a recorded owner in an HOA who is a licensed contractor from bidding on and winning contracts for HOA common area work. Are there any state conflict of interest laws that would prohibit this?




An HOA resident should absolutely be allowed to bid on your projects if they're qualified to do so and are not on the board.
JenniferG11
(Texas)

Posts:659


10/24/2020 11:50 AM  
Posted By CathyA3 on 10/15/2020 3:20 PM
It may be OK if the bids are submitted to the board for review with identifying info removed. Still, I can see possible issues:

* if he is privy to information that gives him an unfair advantage (eg. info that is disclosed during open board meetings).

* if the board tries to negotiate a quid pro quo arrangement (eg. they'll overlook a violation of the CC&Rs in exchange for a low price).

In general, I think boards should avoid even the appearance of wrongdoing, and something like this could raise questions in the minds of other homeowners )eg. favoritism). So I'm leaning toward not accepting bids from homeowners. But I could be persuaded to change my mind if someone comes up with good arguments in favor.



Unfair advantage to other contractors, which has nothing to do with the HOA.

We have a homeowner who does work for other homeowners and the HOA. Works out great. He bids lower everytime, lacking any inside information. He has lived here forever and done work here forever, knows the place like the back of his hand. I consider that an advantage. I consider his low bids to be an advantage. I consider him living on property to be an advantage. He is not some guy who could potentially screw us over and not care about our business enough to make it right. We knew where he lives ;-)
Please login to post a reply (click Member Login on the menu).
Forums > Homeowner Association > HOA Discussions > Homeowner-Contractor Conflict of Interest?



Only members have access to all features.
Click here to join HOATalk for Free! Members click here to login and access all features.







General Legal Notice:  The content of forum messages are from the posting member and have not been reviewed nor endorsed by HOATalk.com.  Messages posted by HOATalk or other members are for informational purposes only, are not legal or professional advice and do not constitute an attorney-client relationship.  Readers should not act upon this information without seeking professional counsel.  HOATalk is not a licensed attorney, CPA, tax advisor, financial advisor or any other licensed professional.  HOATalk accepts ads from sponsors but does not verify sponsor qualifications nor endorse/guarantee any sponsor's product or service.
Legal Notice For Messages Posted by Sponsoring Attorneys: This message has been prepared by the sponsoring attorney for informational purposes only and does not constitute legal advice. This information is not intended to create, and receipt of it does not constitute an attorney-client relationship. Readers of HOATalk.com should not act on this information without seeking professional counsel. Please do not send any sponsoring attorney confidential information unless you speak with the sponsoring attorney or an attorney from the sponsoring attorney’s firm and get authorization to send that information to them. If you wish to initiate possible representation, please contact an attorney in the firm of the sponsoring attorney. Sponsoring attorneys that post messages here are licensed to practice law in a specific state or states as indicated in their message signature or sponsor’s profile page. (NOTE: A ‘sponsoring attorney’ is an attorney that is a HOATalk.com official sponsor and is identified as such in the posted message or on our sponsor page.)

Copyright HOA Talk.com, A Service of Community123 LLC ( Homeowners Association Discussions )   Terms Of Use  Privacy Statement