My experience has been that board members approve bids based on price only. Making decisions in this manner shows how little respect they have for the other owners. Value has yet to be considered in the discussion process when determining how board members vote. Questions usually asked to determine value like; the company's reputation, designations earned, experience, warranty, maintenance requirements, or even cost of maintenance are never asked! It's really very shocking to say the least.
It's just basically reading the bids aloud then a vote. Do they manage their own money this way or just the association funds? Determining if something is a good value can be different for everyone and situation. Some may think that versatility to ease of changing with the trends cheaply is more valuable than something elaborate that costs less. Versatility equals lower maintenance costs, and thus costs less in the long run. Where as something elaborate may cost less upon install will cost more over the long run, but both items should be build to last regardless of which is chosen. For the HOA value has to include; versatility, total costs over the life of the item, warranty, company's reputation, quality, etc. All of these characteristics at the very least must be considered to determine value, but more often than not are not considered.
For those who want to change the way decisions are made in your community or just want to get the most for their money. I've compiled an example of questions with possible answers to determine which of the two bids is the better value. Since virtually everything we purchase these days does not last,cannot be repaired if it breaks (disposable not very green) value is very important. If we cannot or do not care about getting the most bang for our buck then the research needed to determine value isn't being done either. I don't think they would know where to look if they did do it.
First let me start off by introducing two companies who both provided a bid on the same job. Company A came from the management company and B came from a homeowner. Company A provided a one line bid for $50,000.00. Company B provided a detailed bid for $54,000.00.
Many board members would stop here and put these bids to a vote. More often than not the approval would go to Company A. Why? Two reasons, one is because Company A is $4,000.00 less than B. The second reason because the bid came from the management company.
There is a false belief that using a vendor recommended by your management company is why one bid is $4,000.00 more than the other. They believe the difference in price is caused from the management company negotiating a discount for the HOA. Wrong. The management company negotiated one thing, how much money they get paid for each customer they refer. This referral fee isn't even passed on to the HOA in the form of lowered monthly management fees or lowered "additional costs" or anything. Why is the board trying to make more money for the management company and getting nothing in return? Don't they make enough?
Don't let price fool you into thinking it is the best value. The only way factor in determining which is the better value. Other things to consider are below.
1. How long have the two companies been in business? Company A for 5 years and B for 20 years.
2. How large are these two companies? Company A only has 5-10 contractors and B has 25 - 50 employees.
3. Is the equipment rented or company owned? Company A has to rent the equipment and leave it on site from day one until completion. Company B owns their equipment, is fully insured and will only have the equipment on site on the days it will be needed.
4. Will the company have the same person on site supervision the entire job, looking for errors and willing to talk to owners and answer any questions they may have? Company A will have someone but it may not be the same one and may not speak English. Company B will have the same person who speaks both English and Spanish on site to answer questions from anyone asking, testing for quality, and provide a detailed daily report.
5. What is the warranty of the work? Company A said they would include a 10 year limited warranty that doesn't include the service call or labor that normally costs $5,000.00 for free. Company A has a 1 year warranty on the components used. Company A includes a lifetime warranty in the price that covers everything. The products used are warranted for 15 years against defects. Both warranties are only valid if the scheduled regular maintenance is completed times.
6. What kind of reputation does each company have within the industry? Company A doesn't really have a reputation in the industry but, one client did say the item only lasted for 15 years. Only one of the clients could provide any feedback on long term use of the item. All others were from people who have had recent jobs completed and the management company. Company B is easily verified, they are a member of the National Association of Blah Blah. The owner and founder of the company is one of the founding fathers of the association and instrumental in creating standards by which every member must follow. The company and it's employees are experts in the field. Clients who have done business with Company B continue to be pleased with the customer service and the quality of the work and workmanship 20 years later.
Along with the differences between the two companies and the cost we determine which is the better value. We already know is that if you have a good quality product or even an ok quality product installed perfectly costs less to maintain. The reason is because it is in better condition than a poorly installed item.
If the item has to be maintained every 5 years and Company A's reference said that in the first 5 years problems began to develop causing the maintenance to cost $5,000.-- more than expected. Instead of maintenance costing $12,000.00 it cost $17,000.00. At 10 years the cost was $18,000.00 and at 15 years had to replaced. The total cost for Company A over 10 years comes to $85,000.00.
Company B's clients said the item was in such good condition that the maintenance cost less than expected. They paid only $10,000.00. Then at 10 years they paid $14,000.00 and 15 paid $15,500. Over 10 years the total cost for Company B comes to $78,000.00 and over 15 years $93,500.00 and over 20 years comes to $112,500.00.
After 10 years Company B is $7,000.00 less than A making Company B's bid the best value for the money. Company B also provides additional benefits that A does not. Being that B is designated as an expert in the field and an industry member the customer has leverage over them if something goes wrong. Anyone who has worked to have this kind of designation within the industry does not want anything negative against their name. Being a member of the association who regulates the standards it gives someone other than the Attorney Generals or State Licensing Board to file complaints too.
Lastly, if company B were to get into financial trouble it is more likely to be purchased either in part or in whole by another company. The reason is that the company isn't what is really being purchased rather it is the reputation and client base. Sometimes only the warranties are purchased from the failing company and honored by the new company. Being a member of the industry association makes this probability much higher than not being a member.
It's very easy for a company to obtain a bad reputation among association members. Which is why many company's aren't members and think it a big waste of money to be one. But, not being a member is only hurting the customer. Non-members tend to not be as up-to-date on new techniques and technology, have as many contacts, sources for supplies,or information available to them to provide the client as many options as possible.
Membership has its privileges it's just a slogan, it's true. In this case membership made a huge impact on value.
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