5 Risks of Working With Vendors and How to Avoid Them

5 Risks of Working With Vendors and How to Avoid Them

Properly vetting vendors helps you avoid major risks like financial burdens or lawsuits. Here are the top risks and how to avoid them.

Key takeaways:

  • Top five risks of working with vendors
  • How to avoid vendor risks
  • How VendorSmart’s vendor vetting guide and management platform can help you

Working with vendors is part of running a community association, whether you’re managing a condo association or homeowners’ association (HOA). But managing these relationships requires a successful vetting process, which ensures you’re not putting the association at risk by hiring shady vendors.  

The top five risks of working with vendors are:

  1. Financial
  2. Legal
  3. Compliance
  4. Community systems
  5. Reputational

Let’s dive a little deeper into each of these risks and see how you can avoid them.

1. Financial risks

First, consider the financial risks when you’re working with vendors. What is at stake if a vendor doesn’t perform a duty? One common example is hiring vendors without proper insurance. If a vendor is injured while doing work on the property and they don’t have workers’ compensation insurance, you could be liable for any workers’ compensation claims they make. 

Another example rests in failing to review vendor contracts fully. While it’s always wise to go over each section with an attorney, be aware that indemnification terms could mean that the responsibility for certain costs is with the association, not the vendor. 

These matters are extremely expensive and can have negative impacts on the association for years to come. 

2. Legal risks

Legal and financial considerations go hand-in-hand with vendors. If they don’t have the proper insurance, there are legal ramifications for your HOA, on top of the financial burden. That’s why it’s crucial your vendors must hold insurance and have all applicable licenses necessary to operate. 

Because legal terms within vendor contracts can become confusing for association managers or the board, an attorney must review each contract that contains terms or language you’re not familiar with.

Details to pay special attention to include:

  • Services the vendor promises to deliver
  • Timeline and schedule of the services
  • Fees in exchange for the work
  • Payment terms (i.e., when an invoice should be paid)
  • Contract termination details
  • Warrantees about the work
  • Indemnification for damages 

Make sure that the parties reach an agreement that is satisfactory to everyone and that your best interests are represented to avoid legal risks.

3. Compliance risks

A major part of risk management for vendors is compliance. Ask every vendor for their certificate of insurance and proof that they are licensed. Any required certifications should be up to date. Don’t work with any vendor that does not have updated credentials. 

To avoid these risks, it’s important to put processes in place that ensure:

  • You’re notified when a credential is expired
  • All vendor documents have been received and reviewed
  • Credentials are saved in one place for easy access

Using a platform that takes care of these tasks is a great way to avoid compliance risks with vendors.

4. Community systems

Another risk of working with vendors is that community systems could be disrupted. Anything from electricity outages to water pipes bursting to street obstructions can cause problems for association members. Even when vendors are responsible for solving the issue and covering the costs, these disruptions can cause lots of frustration and headaches, especially when they are long-lasting.

Thus, make sure you review that vendor contract thoroughly. Vendors should outline the scope of service and steps they will take if something goes wrong. It’s also reasonable to ask vendors what kinds of problems they’ve faced in the past and how they dealt with them. Talk to previous clients to get a better sense of how the vendor has handled issues you may be worried about. 

5. Reputational risks

Finally, think through the repercussions for your association of working with a vendor who doesn’t have all the necessary credentials or may not perform high-quality or timely services. Ultimately, their shortcomings will reflect on the HOA in some manner, and you have a reputation to uphold in your wider community.

Before signing vendor contracts, establish minimum requirements and standards that you need every vendor to follow. Doing so will help you vet potential hires and move on when a vendor can’t meet those standards. 

If something happens and you have a lawsuit on your hands, remember that those legal disputes can also have a big impact on the HOA’s reputation. It’s always better to be safe and cover your bases.

Using a vendor vetting platform

Avoid these five big risks by putting the right vendor-vetting process in place. Using a platform like VendorSmart takes care of a lot of the work. You can find vendors that have already been vetted and manage all compliance documents in one web-based application. Certifications and insurance documents are securely stored in the system, and you’ll always be made aware if something is expired. 

Check out our vendor vetting guide to see everything you need to know to protect your community from vendor risks. 

Contact the VendorSmart team to learn more about our vendor marketplace and platform.