Failing to vet service providers before hiring them could damage the community and bring legal troubles
Key takeaways:
- Community managers often hire vendors to work with an HOA
- These vendors must produce documents proving they have insurance and licensing
- Failing to vet for compliance could hurt the HOA and community management firm
- Vendor management platforms automate the vetting process
A homeowners association (HOA) performs many tasks throughout a community, including maintaining and repairing common areas. Many times, the community manager will pass this job on to a third-party vendor with experience in the field. For example, if the HOA has a shared swimming pool, the community manager might hire a pool maintenance company to assist with keeping it in working condition.
However, community managers can’t hire just anyone to work in these common areas. Third-party vendors must have insurance, licensing, and the necessary certification to work in their field. Failure to vet your service providers could land the HOA in hot water.
Here’s a look at why community managers must check vendor compliance documents before a vendor performs any work for the HOA.
What is vendor compliance?
In short, vendor compliance is when a third-party firm contracted to perform work for an HOA fulfills any predetermined policy and legal requirements set forth by the HOA.
HOAs aren’t a regulated industry, so the community and its board members will need to have a list of basic vendor compliance policies that service providers must address before the work begins. Contractors must also have insurance and licensing to work in the state.
The HOA can also add additional compliance requirements to the contract, such as ensuring the contractor has a specific level of insurance or certification in the field.
Essential vendor compliance documents
It’s wise to check all necessary vendor compliance documents before hiring a contractor to do work for the HOA. The records you require can vary, but two items must be present in every situation.
First, your vendor must be licensed to work as a contractor in your state. You can check with your state licensing board to ensure the vendor has an active license, and you should ask to see any licensing documents the vendor has before making a hire.
Your vendor must also prove it has insurance before you complete the hire. Typically, you’ll want to see a minimum of $1 million in comprehensive general liability coverage, but each HOA is free to set minimum limits its contractors must meet. You’ll also want to check the vendor’s certificate of insurance to confirm it has valid insurance and sufficient coverage.
In addition, workers’ compensation documents could be necessary in some locations because they ensure any employees the vendor uses have adequate protection in case of injury.
Finally, there could be additional documentation your HOA requires before hiring a vendor. This documentation could include industry certification or anything else the board deems essential. Failing to confirm this documentation could void the contract in the future, creating additional problems for the community manager.
The dangers of noncompliance
Ensuring compliance from your vendors is essential for multiple reasons.
First, if the vendor doesn’t have adequate insurance and damages property in the community, it could create significant financial problems for the HOA. There could be legal ramifications as well, particularly if the contractor damages someone’s private property and its policy won’t cover it.
The same goes for damage to common areas within the community. Suppose the vendor’s insurance won’t reimburse the HOA for repairs. In that case, it could leave individual homeowners on the hook for additional fees, potentially creating legal problems for the HOA or community management team.
Failing to check for the necessary documentation could also create regulatory issues. State governments could fine the HOA if they discover instances of noncompliance, creating financial problems for the community.
Beyond the financial penalties the community could encounter for noncompliance, it could impact the neighborhood and its residents in other ways. For example, the HOA board has a long-term vision for the community and might have to abandon these plans if any uninsured damage is too significant. There could also be reputational damage from violated laws or poor resident relations that hurt current residents’ property values. Bad publicity could make selling a home in the community more challenging, angering homeowners even further.
Noncompliance limits residents’ use of common spaces, as well. If an unlicensed or uninsured contractor damages a pool or some landscaping, the people who live there can’t use those areas until the necessary repairs are complete.
Countless things can go wrong when a community manager doesn’t vet a vendor for compliance, making this an essential part of the contracting process.
The simplest way to assure compliance
Checking vendor compliance documents can be a significant job, especially if the HOA uses dozens of contractors at any given time. Community managers might be tempted to hire even more outside help to assist with checking compliance documents, but alternative measures are available.
Increasingly, HOAs are using vendor management platforms to automate the vetting process. Community managers can invite their vendors to join the platform of their choosing. Vendors will then submit their insurance certificates, business licensing, workers’ compensation documents, and anything else the HOA rules and regulations require before signing a contract.
Using a risk and compliance management platform prevents the need for hiring full-time staff to assist with compliance, saving money while protecting the HOA from the worst-case scenario.
Your vendor compliance platforms
Finding and vetting reliable contractors is challenging but sourcing a platform that can automate much of the process will make your life easier. It also reduces overhead costs while ensuring the HOA has protection against noncompliance and the legal troubles that could follow.
VendorSmart is an industry-leading platform that brings vendors and community managers together. We also offer a vendor-vetting service where our team of professional analysts checks your vendor’s compliance documents, saving you time and hassle in the process. Contract VendorSmart today to learn more or request a demo.