How vendor costs can get out of hand

Question: A little over three years ago, my homeowners association hired a management company at a contract base price of $1,500 a month that gradually increased to $1,800. In a cost-saving measure, we terminated the company and discovered that we were saving more than $4,700 a month. It appears that the firm inflated various billed items.

The board is baffled. We don’t understand how we were billed over the contract price and did not know it. Can you tell us how this happens?

Answer: Often, vendor contracts, including management-company service contracts, are offered on the basis of a seemingly affordable monthly “minimum” or “base fee” amount in the main contractual agreement. However, accompanying that contract is an addendum containing “extras” for which fees are added on and charged.

Many times, boards fail to understand that by signing the main contract they also have agreed to the add-ons. If the board failed to include a clause in the main agreement making all fees in addition to the base fee “contingent on the board’s written consent,” the association may be plagued with runaway costs.

Some management-company provisions allow the vendor to be granted check-signing authority. Other such contracts allow for the vendor to electronically transfer funds to its own account. That allows the vendor to bypass providing hard-copy invoices that would serve as a spot-check for boards to catch overbilling.

Associations should never allow a management company to sign on association bank accounts or allow the vendor to move the association’s existing accounts to a new bank.

Management-company employees should not be on bank signatory cards, as this seriously interferes with the board’s right to close the account at will and prevents bank representatives from discussing association accounts with those who are not signatories.

Never allow a management vendor to automatically withdraw funds from the association’s account to pay its own invoices. Supervisory authority must be exercised and each invoice and piece of correspondence scrutinized.

--

Send questions to P.O. Box 11843, Marina del Rey, CA 90295 or e-mail noexit@mindspring.com.