Does your HOA have a vendor risk assessment plan? Here’s how to use a risk-rating system to guide your calculations when hiring service providers.
Whether it’s providing cable and internet access to the community, landscaping services, or a construction crew to remodel the clubhouse, it is the HOA’s obligation to hire and vet all vendors. An effective risk assessment plan will help you sort through vendors and hire the right company. Here are five tips for creating risk-assessment protocols that should be applied whenever your association is hiring vendors.
1. Determine the critical nature of the vendor’s services
When choosing a vendor, keep in mind the nature of the service. What is the probability that the product or service could cause serious problems if there’s a mistake or disruption? How would it impact the community and homeowners?
More critical services require more due diligence. We’ll discuss that more in step three, but it’s important to recognize from the beginning that you’ll probably need to allocate more time to due diligence and oversight of critical service providers.
2. Determine the types of risk
In assessing how critical a service might be, you need to consider the types of risks it could present. There are several categories to consider:
- Major system outage: This would include anything that can’t be easily or quickly fixed (i.e. Burst water pipe from a construction accident, or a cable or phone line cut by a landscaping company.)
- Financial risks: Would the vendor’s actions put the HOA or members at financial risk? Could a lawsuit be instituted, or would enforcement be needed to make sure the vendor performs as expected?
- Reputational risk: Could the vendor’s actions (or failure to provide contracted services) make the HOA guilty by association?
- Legal and compliance risks: If a vendor fails to comply with state or federal regulations regarding insurance, licenses, employment law, or industry-related practices, your HOA could also face consequences.
That’s just the beginning of the list. Here are more areas of risk to be aware of when hiring vendors.
You must look at all of these areas and determine how vital the service or product is to your community and homeowners.
3. Determine what happens when problems arise
This third question will help you determine the consequences if a vendor fails to provide a service or carry out a task.
- Would a disruption of service cause significant problems for the association?
- How would the loss of service impact homeowners?
- How much time can you be without the service?
Once you’ve answered these questions, you should be able to “score” vendors from high risk to low. This should guide the level of oversight of the company. If a service or product carries higher risk, include extra due diligence requirements in the contract.
4. Assess each service as well as the company
It’s not enough to just vet the risks of working with the vendor company as a whole. You also need to understand the risks associated with each product or service they will be providing. The risks associated with a vendor hired to cut back overgrown trees will be different than a vendor hired to plant them. Regular pool cleaning is different than repairing a pool pump or upgrading equipment.
When checking vendor references and reviews, try to get input from customers who used them for services like the one you need.
5. Develop consistent risk management protocols
The key to effective risk management is developing a uniform approach and repeating it every time you assess a vendor. Consistency will ensure that you don’t miss a critical step and fail to properly vet all candidates.
Let VendorSmart provide vetting and risk management
Vetting of vendors and ongoing risk management is not something every HOA is equipped to handle. If your organization needs help hiring or managing service providers, VendorSmart can assist. Contact us to get started.