Articles

Penny Wise, Pound Foolish: When Asking Too Much Of Your Community Manager Becomes Risky Business – You Need Expert Advice

Date: September 28, 2018

By: Susan L. Truskey, Esq. 

(Originally published in the May 2018 volume of the Washington Metropolitan Chapter Community Association's Institute's Quorum.)

Community association managers fill many roles for the communities they manage, such as contract negotiators, on-site foremen, accounting and budgeting gurus, strategic planners, psychologists, mediators … the list goes on. Managers are incredibly adept at utilizing their vast array of professional experiences to assist directors with making many important decisions, but good managers also recognize their limitations. An integral–if often under–appreciated–aspect of association managers is recognizing when an expert opinion is warranted.

All too often, directors make well-intended decisions that save money in the short-term but wind up costing their associations more in the long-run. When professionals and experts are not consulted at the right time, it can be risky for boards and potentially costly for associations. Consulting with a subject matter expert at the outset of a project, although potentially expensive, can immunize boards and associations from potential liability, limit risks, and ensure appropriate long-term solutions. The following examples highlight the risks of shortsighted decisions to bypass industry experts:

  • Signing a contract (or worse, signing a proposal or estimate) without first having it reviewed by legal counsel. Anyone who has been around associations long enough has heard the following scenario: something goes wrong in the performance of a contract and when the board reaches out to counsel they are surprised to learn that the contract has an unreasonable termination provision and that litigation, if necessary, must occur in some far away state.
  • Repairing a sagging unit floor without first hiring a structural engineer to determine the cause of the problem and developing a proper scope of work to address the underlying cause (surprise, it's the foundation!).
  • Hiring a company to perform mold remediation without first hiring a mold inspector to determine the type and levels of mold present and developing an appropriate action plan.

Directors face tough spending decisions all the time. As fiduciaries for their associations, directors must act prudently and diligently when spending association resources. Directors have an obligation to discharge their duties in good faith and to act in the best interest of their associations. Namely, directors are duty-bound to exercise the skill, care, and diligence of a reasonable person when making decisions.

In discharging their duties, directors are not expected to become lawyers, engineers or accountants; rather, they are justified in relying on expert opinions given by legal counsel, professional engineers, public accountants, and other qualified individuals as long as they believe, in good faith, that the opinion given is within the person's professional or expert competence. Directors who exercise proper due diligence will generally not be liable for the decisions they make even if they don't always pan out the way the board had hoped.

When directors attempt to keep costs down by leaning on community association managers to provide expert advice (on matters outside their expertise), they place themselves and their associations at risk by inviting liability for unqualified determinations and failing to exercise good business judgement. Community association managers wear many hats (and can probably leap tall buildings in a single bound), but they are not professional engineers, attorneys, mold experts, public accountants, or radon mitigation experts, and directors should not ask or expect their managers to perform such professional services for the association.

Does this mean that directors need to consult with outside experts on every project? No, of course not. Boards and community managers will have to make this determination on a case-by-case basis. The factors that should be considered would include the size, scope, and complexity of a given issue or project and the potential risk to the association if the project were to go awry. For instance, should an association have legal counsel review a small landscape contract for new pansies in the spring? Most likely not. On the other hand, a multi-year landscaping contract may warrant the minimal expense associated with a legal review.

No one wants to spend more for something than is necessary–but it can be risky to place too much emphasis on cost.

The additional cost for an expert's opinion is often justified, just as the decision to select a higher bid can be. Directors should make an effort to understand both the risks involved as well as the benefit of the bargain before selecting a bid. Of course, the price is an important factor to consider, but there may be value in other aspects of a proposal such as stronger warranty terms, better construction methods, higher quality materials, or a contractor's proven reputation. Directors should not feel compelled to forego an expert opinion and select the lowest bidder strictly because of the price. Higher priced proposals are often justified for a multitude of reasons, as is the additional expenses of consulting an expert.

In short, know when to call on experts. Directors should always put forth the effort to gather information they feel is necessary to make an informed decision and discharge their duties as directors in good faith. I recommend evaluating the complexity, cost, and scope of an issue or project and, when in doubt, seek expert advice.