Vendor Relationships Can't We All Just Get Along?

Vendor Relationships

A well-run condominium or co-op requires that it is getting its supplies and services smoothly and at the best price, which is why a board of directors or management company needs to stay on top of its vendors and its contracts with them.

“Great vendor relationships can truly be strategic partnerships for us. We look to expand our capabilities with a team of vendors that complement our in-house offerings and expand the capabilities we offer to our end clients,” says Diane White, senior vice president of condominium management for The Habitat Company, based in Chicago. “We are a company that feels strongly about maintaining high service levels and we look for vendors that operate under that same mentality.”

Building good relationships with vendors is an important component of any board’s financial and physical maintenance and maintaining solid, long-lasting connections will benefit everyone involved.

“A good relationship is essentially based on current and past performance, price and ability to service and accommodate the client and fulfill their expectations,” says Dale Nusbaum, vice president of Hillcrest Property Management in Lombard, Illinois.

Decisions, Decisions

When it’s time to make decisions regarding vendor choices and service bids, it’s usually a combination of the manager and the board to have a say in the matter.

“In my experience, a board of directors will rely on their community manager to offer suggestions, referrals and recommendations, based on who the manager and the management firm have worked with in the past and found to be reliable, reasonable, and capable,” says Lisa Evans, a senior property manager with Vanguard Community Management in Schaumburg.

Many board members also may have experience with certain vendors or they receive referrals from other people they know based on their industry and area of expertise.

“It is the board that makes the final decision, however, the board often looks to management to make the initial recommendations of which vendors to use in the bidding process,” Nusbaum says. “Board members have also been known to contribute names of vendors to the bidders list from ads they might see or from contacts who live in other associations.”

When it’s time to look for new vendors, contacts are established through ads, the media, word-of-mouth, personal recommendations and manager research.

“Especially in the current economy, boards will rely on word-of-mouth and recommendations to make sure they are receiving the best possible service for their money,” Evans says.

While boards do have some preferences based upon previous experience with certain vendors, it is usually the management company they look to for recommendations and typically the research it takes to establish new contacts falls to the management company.

Researching and negotiating with vendors is nothing new for an established company with long-standing relationships to draw upon, but vendors and contracts are chosen solely based on who will do the best job at the best value.

“In most cases, we conduct a three-bid process to ensure projects are completed in a cost-efficient manner,” White says. “We reach out to other property management professionals to gather referrals on the vendor’s level of service and delivery, we research whether the company is licensed in the jurisdiction in which the business will take place and ensure that the company meets all insurance requirements and any property specific guidelines.”

Hillcrest currently manage 290 condominium, townhome and homeowner associations in the Chicagoland area comprised of over 18,000 units, so it has pre-existing relationships with many vendors in the area.

“The management company is normally the party responsible for checking on the references of new potential vendors,” Nusbaum says. “Management will ask vendors for references and then call on them and even visit recently completed job sites to determine the quality of work done.”

In addition to current references, a manager will normally check the Better Business Bureau website and solicit feedback from colleagues.

“Generally, a reference that a vendor provides is going to be an excellent one, and some board members may also check these references in case they have specific questions,” Evans says. “I value the input from my colleagues greatly. This way I can obtain very honest feedback from the manager’s point of view, as well their experience on a specific client or project.”

For larger projects, Evans encourages her boards to set up workshops and interview the top two or three vendors that they would consider, allowing the board a forum to ask questions, meet the person who will be overseeing the project and the property, and aid in establishing a good rapport with the company they ultimately hire.

New vendors are also brought in when management or the board notices vendors working at neighboring associations.

Size Matters

Vendor relationships can be affected by the size of a condo or co-op building. With a high- or mid-rise building, the relationship can be different than a more spread-out development, depending upon the components of the building.

“Generally, these types of buildings have elevators, boiler rooms, extensive fire protection systems, etc., which need to be serviced on a routine basis,” Evans says. “Establishing the relationship is important because these service contractors will be at the building frequently and may also become familiar with the residents.”

Usually these types of buildings have security as well, which is paramount to the residents. Therefore, having a solid, established relationship with the service contractors is important.

“In a more spread out development, the relationship is still important, but the service contractors are not typically entering a building or residence and there is not security allowing or denying access to the property,” Evans says. “Safety is always a concern, therefore you want to make sure that any service contract requires their workmen to be uniformed and provide a foreman for the job, who communicates well with the manager.”

A Better Deal?

Depending upon the contract, boards should reassess their vendors every year to ensure they are getting the best deal possible.

“It is advisable to review service contracts on an annual basis. However, if the relationship is a strong one, perhaps the vendor could be invited to attend a board meeting to discuss any issues that concern the board and work to rectify those issues rather than tossing the baby out with the bath water,” Nusbaum says. “Otherwise, the existing vendor could be invited to prepare a new proposal for the upcoming year along with other possible vendors which enables the board to fulfill their fiduciary responsibilities.”

If the board has a long-standing history with a contractor and there are not any price increases and service is meeting expectations, the board may want to periodically solicit proposals from a few competitors to serve as a benchmark.

For routine maintenance contracts such as landscaping and snow removal, many boards enter into multi-year contracts and those should be re-evaluated at the end of the contract term to determine if pricing and service still meet the association’s expectations.

One trend for better prices concerns multi-year contracts with little or no price increases over two to three years.

“This allows a board to ‘lock-in’ pricing and it guarantees the contractor a steady project,” Evans says. “I also find that when a contractor submits a proposal, the door is always open to discuss and negotiate price with the manager and the board. I have also seen contractors offer discounts when negotiating payment schedules, deferring summer projects to fall, negotiating snow removal contracts early in the season, and offering credits to apply to the following year if the contractor is re-hired for a successive season.”

Another way to help in pricing is to assure the vendor that they will be paid timely, which is a huge benefit for vendors in this poor economy.

“The hope for repeat business can go a long way when contractors price their business,” Nusbaum says. “They can also go back to the vendor and ask them to sharpen their pencil.”

Bulk Business

Habitat maintains a variety of bulk purchasing arrangements for both goods and services to leverage the scale of its portfolio in terms of both pricing and serviced level guarantees.

“These programs are not obligatory for our clients, but rather are made available to them under supplementary agreements at no additional cost,” White says. “An example of this would be the Habitat Gas Management Program. Through our purchasing volume of approximately 3,800,000 therms per year, we are able to purchase gas directly from a third party gas supplier, thereby historically saving our participating clients 15 percent, compared to People’s Gas rates. Habitat does not receive any compensation from this program and the benefit is truly to our clients.”

Although it seems like a logical business step, obtaining bulk purchases with other managed properties is never an easy thing to accomplish.

“While many associations remain with management companies on a long term basis, some do not for a variety of reasons, and that can certainly complicate matters,” Nusbaum says. “Therefore, it is difficult at best to bundle properties to take advantage of bulk pricing and expect the relationship to last over time.”

The fact is that associations prefer to operate autonomously and achieve the best pricing for services rendered rather than teaming up with other associations to accomplish that. Occasionally, an association will take advantage of bulk pricing to some degree by linking up with a vendor who services an immediate neighbor of theirs.

“If the manager can coordinate several projects with various associations, that can provide leverage for better pricing,” Evans says.

Final Thoughts

Whether it’s a company supplying heat, elevator service or refuse removal, a good vendor will work with a building to ensure that both parties are happy.

“We regularly develop master service agreements for the purpose of providing substantial discounts and quality service to our clients,” White says. “Again, this is an effort to leverage the scale of our overall portfolio for the benefit of each individual client.”

Keith Loria is a freelance writer and a frequent contributor to The Chicagoland Cooperator.

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