Community associations enter into numerous contacts each year with vendors such as contractors, consultants, landscapers, and reserve study consultants. Each vendor typically provides their own “standard form” contract. Too many times community associations assume that these contracts cannot be changed and sign them without reviewing or negotiating anything other than the price. That is unwise. As John F. Kennedy once said:

“Let us never negotiate out of fear. 

But, let us never fear to negotiate.” 

What should your association do before signing a contract? Obviously, we would recommend advice from legal counsel. But even when you use an attorney to review contracts, the board and the manager should still read and make sure they understand all of the terms and attempt to negotiate any objectionable terms. 

Read the Contract. There is no substitute for reading a contract before you sign it. The terms of the contract dictate what you and the vendor must do and what your rights are. You should never enter into any contract without understanding what those rights and obligations are. Most vendor contracts are just a few pages long and the time spent reading them can save your association a lot of heartache down the road.

Understand the Contract. If, after reading the contract, you do not understand any term you must get clarification. Ask what the meaning is and then, if necessary, ask that the contract language be changed so that the written contract has the same meaning as the verbal explanation given to you by the vendor. 

Negotiate the Contract. Price is not the only negotiation point. There are a variety of important terms that every association should we aware of and potentially negotiate before signing a contract. Vendors are willing to negotiate the terms in their contract far more often than you might think. Ask. The worst that can happen is they say no, but is far more likely that they will be willing to revise the contract to get the work. 

It is not possible to list all of the contract terms that warrant special attention and specific negotiation. However, a few of the more common provisions are identified briefly below.

• Indemnity Provisions. Many contracts require the association to indemnify the vendor. These provisions are often overly broad and should be revised. Also, the association may want the vendor to indemnify the association. 
• Limitation of Liability. It is common for consultants, architects, engineers, and some other vendors to try and limit their liability to the fee that they receive from the Association. Limitation of liability provisions are not favorable to the association and should be the subject of negotiation. Many times the vendor will agree to limit their liability to the greater of their fee or any coverage they may have under their insurance policy.
• Statute of Limitations. The standard statute of limitations for breach of a written contract (the deadline to bring a lawsuit) is six years. Many contracts try and shorten that period to just one year. Negotiate for the longest statute of limitation possible. 
• Insurance Provisions. Associations should make sure that all vendors are insured and obtain proof of that insurance before signing the contract. The association may also want to demand that the vendor add the association as an additional insured under the vendor’s policy. In some contracts the vendor will demand that the association add the vendor as an additional insured under the association’s policy. In that case, the association must check with its insurance agent to make sure it can comply. 

Price is only one portion of a contract. Read and understand the entire contract. Take advantage of the knowledge and experience that comes with good legal advice. If you do, the time and effort you invest in the contracting process will serve you and your association well.