Contracting tips for condominium associations

It’s only a matter of time before a condominium association will need to hire a contractor for a construction project on the property. In fact, hiring professionals to rebuild, renovate or repair association property is one of the most important duties of association board members. These hiring decisions cannot be taken lightly, as they can significantly affect the value of unit owners' homes.

Association board members, as fiduciaries, are bound to exercise prudence, to act in good faith, and to always place the interests of the association above their own in the execution of their duties. As such, they must spend the association's money wisely and carefully, particularly when contracting for services. Here are a few tips for condominium association board members when evaluating and entering contracts with contractors.

• Request multiple references from the contractor’s current and prior customers with similar projects, and check them. Phone calls are good, but site visits are better. If possible, visually inspect the contractor’s completed projects. To get a better idea of what to expect once the work commences, ask to tour one of the contractor’s active worksites.
• Make sure the contractor is properly licensed. Check the appropriate state and local licensing authorities to confirm the contractor is properly licensed. Review the contractor’s licensing history to find any gaps, violations or disciplinary actions. Contractors with red flags should be investigated further, or removed from consideration entirely.
• Make sure the contract has indemnification, defense and hold harmless provisions to protect the condominium association and unit owners from all loss or liability arising out of the work being performed that is caused in whole or part by the contractor or any subcontractors. There are standard insurance coverage endorsements that contractors should have in place to protect the association.
• Make sure the contractor has general liability insurance coverage with limits of no less than $1 million for each Occurrence and $2 million in the aggregate. For higher risk projects, ask for at least $1 million in excess liability insurance coverage. Contractors should not be allowed to commence any work without a signed contract or before satisfactory insurance coverage is confirmed.
• Require that the contractor (and any subcontractors) name the condominium association as an additional insured on the contractor’s general liability policy for ongoing work and completed operations. It is best to have the contractor send you a copy of the endorsement to confirm that the association is properly named.
• Require that the condominium association be promptly notified if the contractor’s insurance is cancelled or non-renewed for any reason.
• Make sure that the coverage afforded by the contractor’s insurance policy is primary and non-contributory. The policy should also include a waiver of the right of subrogation in favor of the condominium association.  
• If the contractor will be hiring subcontractors to perform part of the work, any such subcontractors must satisfy the same insurance requirements as the primary contractor.
• Confirm with the contractor that proper fall protection procedures are observed and necessary safety equipment is in place. Condominium associations should not provide safety equipment to contractors or their employees because if that equipment fails, the association may be held liable.
• Ensure that formal safety training is provided by the contractor to all employees. Confirm that a daily documented inspection process is in place for all safety equipment, ladders, scaffolding, hoists, platforms, etc.

It should come as no surprise that board members are held to a higher standard of conduct. This standard is clear when it comes to hiring contractors as board members must act in the best interests of the association. Those who fail in this respect may find that instead of serving their community, they have damaged it.

The Human Equation prepares all risk management and insurance content with the professional guidance of Setnor Byer Insurance & Risk.