Time to Re-Bid? Vendor Contracts Under the Microscope
The economic crisis has shaken the finances of a wide variety of businesses, and the pandemic has changed the service needs of many community associations. Combined, these factors might make this an opportune time for your clients to re-bid some of their vendor contracts. If they do it right, they could save money and help preserve their budget in a rocky time.
Is the This the Right Time?
Community association boards of directors shouldn’t feel like they need to strictly adhere to rigid re-bidding timetables of every three or five years. They don’t want to do it too often — and end up with a bad reputation among vendors — but extenuating circumstances can warrant exceptions to their usual review policy. And what is a recession spurred by a lingering pandemic if not extenuating?
Brad van Rooyen, president of HomeRiver Group-Florida, which manages about 120 associations in the state, says associations may not yet have seen significant upticks in delinquencies but shouldn’t assume they’re in the clear.
“I’m not sure if we’ve seen the full extent of what’s going to happen with the economy,” he says. “When we see the full ripple effect, I think that’s when associations might start seeing problems.” And that’s when they may need to try to trim expenses.
Potential Candidates for Re-Bidding
So which contracts should your boards thinking about putting out there? One factor to consider is whether a contract has a termination provision that will allow an association to ditch it without cause; otherwise, the association could end up on the hook for penalties if it takes its business elsewhere.
You may also want to advise boards against re-bidding if you know they’re already paying the market rate. “Often, especially with landscaping, we see people unhappy, and then they get the bids and they see it’s far cheaper than what they’d pay to replace it,” van Rooyen says.
Re-bidding may be ill advised, as well, if the current provider has done good work and/or has institutional knowledge of the association.
That said, it’s important to remember that your service providers probably find themselves in different circumstances these days, too. They’ve faced months of stay-at-home orders that shuttered non-essential businesses and the expense of re-opening under stringent safety requirements.
“Ask the existing providers if they project any cost increases for themselves,” van Rooyen says.
“Are their insurance or supplier costs going up, which is going to cause them to potentially increase their prices? Associations need to know because that would be one of the factors about whether they need to re-bid.”
Van Rooyen has clients that are re-bidding their janitorial services. “Some associations are finding that the existing provider doesn’t have access to commercial-quality disinfectant,” he says. “Or maybe the provider doesn’t have the bandwidth that’s going to be required to keep high-use amenities clean.”
Even low-use pools and fitness centers can incur higher costs in today’s environment. “They’re being used,” says Ken Bertolucci, president of NS Management in Skokie, Ill, which manages around 90 associations. “In a limited way, but they’re being used.
“And, in certain ways, the associations have more costs because they have to manage the use. For example, only one unit can use the pool at a time, which has generated additional cleaning costs.”
Bertolucci cautions, though, that renegotiation with existing cleaning companies can be challenging: “The demand for their services has been huge.”
On the other hand, he has had success with helping his clients re-bid insurance. “When we take over a new association, we often find it hasn’t been bid out in a long time,” he says. “It tends to just renew year after year. Sometimes there’s an opportunity to do better — even if you can’t get a better price, you can get better coverage.”
He recalls a smaller property his firm took on as a client a few years ago: “It hadn’t had its insurance re-bid in probably 20 years. We saved them about $5,000 per year.
“The key thing is to find an agent who understands condo coverage and the requirements from the state guidelines to make sure they’re meeting all of those.”
A Risk to Weigh
Bear in mind, van Rooyen says, that re-bidding can backfire on an association. “The minute you open that door, they can come back and say ‘our costs have gone up, and now that you asked …’ Be prepared that if they haven’t given you an increase, asking them could lead to a price increase.”