Contracts For Materials, Equipment and Services
Existing Condominium Laws &
New Law For HOA’s Effective October 1, 2004
This is the third of several articles that will specifically address laws adopted by the Florida Legislature which were summarized in our July 1, 2004 e-Lawyer.
The following is an analysis of the existing Section 718.3026 for condominiums and the new HOA law (Section 720.3055) that will become effective on October 1, 2004 relating to contracts for materials, equipment and services.
A. WHEN YOU MUST HAVE WRITTEN CONTRACTS:
Some, but not all, contracts must be in writing. The following section addresses this issue.
1. CONTRACTS THAT MUST BE IN WRITING:
Except for those contracts addressed in Section A.2. below, the following types of contracts must be in writing. This is already true for condominiums and will be true for HOA’s on October 1, 2004
a. Service Contracts:
All contracts for the provision of services.
b. 'Long Term' Materials and Equipment Contracts:
Any contract that will not be fully performed within 1 year after the making thereof for the purchase, lease, or renting of materials or equipment to be used by the association in accomplishing its purposes under the applicable chapter or their governing documents.
2. CONTRACTS THAT ARE NOT REQUIRED TO BE IN WRITING:
For both condominiums and HOA’s after 10/1/04, the following contracts are not required to be in writing; however, it is often advisable to do so:
a. Contracts With Employees and Professionals:
Contracts with the following are not required to be in writing:
Community association managers
Timeshare management firms (For condominiums only)
b. Emergency Contracts:
Both 718.3026 and 720.3055 exempt associations from having to prepare written contracts when it would 'limit the ability of an association to obtain needed products and services in an emergency.' As with other such provisions found in Chapters 718 and 720, the term 'emergency' is not defined.
c. Sole Source Contracts:
Both 718.3026 and 720.3055 exempt associations from having to prepare written contracts when 'the business entity with which the association desires to enter into a contract is the only source of supply within the county serving the association.'
B. WHEN YOU MUST OBTAIN COMPETITIVE BIDDING AND OTHER BIDDING ISSUES:
1. CONTRACTS THAT REQUIRE COMPETITIVE BIDDING:
Except for those contracts listed in Section B.2. below, condominiums and HOA’s (as of 10/1/04) are required to go through the competitive bidding process before entering into any of the following contracts.
Section 718.3026 requires that condominium associations obtain competitive bids for any material, equipment and service contract that:
...requires payment by the association on behalf of any condominium operated by the association in the aggregate that exceeds 5 percent of the total annual budget of the association, including reserves... (Emphasis added.)
As of October 1, 2004, new Section 720.3055 will require that HOA’s obtain competitive bids for any material, equipment and service contract that:
..requires payment by the association that exceeds 10 percent of the total annual budget of the association, including reserves... (Emphasis added.)
2. CONTRACTS THAT DO NOT REQUIRE COMPETITIVE BIDDING:
Neither condominiums nor HOA’s as of 10/1/04, will be required to go through the competitive bidding process for the following contracts:
a. Designated Professional Contracts:
Bidding is not required for those employee and professional services contracts listed in Section A.2.a. above.
b. Emergency Contracts:
Bidding is not required if it would 'limit the ability of an association to obtain needed products and services in an emergency'.
c. Sole Source Contracts:
Bidding is not required when 'the business entity with which the association desires to enter into a contract is the only source of supply within the county serving the association'.
d. Contracts Entered Into Prior to Certain Dates:
Any of the contracts for which bidding would otherwise be required that were entered into prior to January 1, 1992, and any renewals thereof, are not required to go through the bidding process. As you may expect, very few of such contracts still exist.
Any of the contracts for which bidding would otherwise be required that were entered into prior to October 1, 2004, and any renewals thereof, are not required to go through the bidding process.
e. Renewals of Contracts Awarded Under Competitive Bidding Process:
If a contract is awarded under the competitive bidding process required by either Chapter 718 or 720, then it may be renewed without further bidding so long as the contract contains a provision that allows the board to cancel the contract on 30 days notice.
f. Government Franchised Materials, Equipment or Services:
Materials, equipment and services provided to an association under a local government franchise agreement by a franchise holder are not subject to the competitive bid requirements.
3. NO STANDARD BIDDING PROCESS REQUIRED:
Neither 718.3026 nor 720.3055 contain any specific procedural requirements relating to the bidding process. For instance, neither of those laws dictate the number of bids that must be obtained or the standards that must be used when requesting bids. Instead, both of these laws rely on the fiduciary duty requirements contained elsewhere in the respective Chapters to insure that the boards act properly.
4. NO REQUIREMENT TO ACCEPT LOWEST BID:
Importantly, both 718.3026 and 720.3055 contain the following critical statement:
Nothing contained in this section shall be construed to require the association to accept the lowest bid.
5. STRICTER STANDARDS MAY BE IMPOSED BY GOVERNING DOCUMENTS:
Both Section 718.3026 and 720.3055 permit the individual governing documents to contain stricter requirements.
C. OPT OUT BY CONDOMINIUMS:
Section 718.3026 permits condominiums with less than 100 units to opt out of the provisions addressed above, but only if at least two-thirds of the unit owners vote to do so.
New Section 720.3055 does not have an opt out provision.
D. ARE THERE SPECIAL RULES FOR COMMUNITY ASSOCIATION MANAGERS:
Both Section 718.3026 and 720.3055 exempt contracts with community association managers from both the bidding requirement and the obligation to reduce such contracts to writing. However, both sections also contain the following sentence:
A contract with a manager, if made by a competitive bid, may be made for up to 3 years.
It is our belief that this inconsistency arose as a result of sloppy legislative changes that were made to Section 718.3026 through the years, which language was then carried forward into the new HOA law.
It is also our belief that the above sentence is now meaningless and that contracts with managers can be of any length, whether or not they are entered into as a result of a bidding process.
E. OTHER CONTRACT REQUIREMENTS:
While beyond the scope of this article, both Chapter 718 (Sections 718.115(1)(d), 718.302 & 718.3025) and Chapter 720 (Section 720.309) contain additional substantive requirements that must be addressed when entering into certain contracts. These must also be reviewed and accommodated when associations enter into any such contracts.
F. NEED FOR CAREFUL CONTRACT REVIEW PRIOR TO EXECUTION:
The above addresses only a small part of the contracting process. It has always been and remains our advice to community associations that they be very careful when reviewing and executing contracts. In fact, in most cases, contracts should be reviewed by your legal counsel prior to their execution to better insure that they meet the association’s needs and expectations.
The firm of Taylor & Carls, P.A., with offices located in Maitland, Melbourne and Daytona Beach, Florida, was founded in 1981 and has practiced in the area of community association law since that date. This edition prepared by Robert L. Taylor, Esq. of Taylor & Carls, P.A. The information contained in The Association e-Lawyer should not be acted upon without professional legal advice.
©2004 Taylor & Carls, P.A. All Rights Reserved.
The firm can be reached at 407-660-1040.
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