By Attorney Steven J. Adamczyk
Q: We are trying to interview engineers to provide some specifications for lake banks and oversee the restoration work. We have received a number of referrals for a particular engineer, but he is the most expensive. Are we precluded from choosing this vendor if he is otherwise our first choice?
A: No, you are not prohibited from selecting your preferred engineer even if he or she is the most expensive option. This is for two reasons. First, the statute requiring condominium and homeowners’ associations (HOAs) to obtain competitive bids specifically states that the association is not required to accept the lowest bid. Sometimes you get what you pay for and price is only one factor that the board should consider in addition to reputation, capitalization, scope of services, insurance, liability limitations and other terms in the vendors’ contracts. Second, although Florida law requires condominium associations to obtain competitive bids for service contracts exceeding 5 percent of its budget (and 10 percent for an HOA), the statute excludes certain industries from the competitive bidding process altogether. Engineers are one of those specifically exempted services. Section 718.3026 of the Florida Condominium Act provides that contracts for engineering services are not subject to the [bidding requirements] of Section 718.3026.
Thus, although best practices may dictate that you obtain competitive bids for engineering services and most associations would, even though the service is exempt, the statute does not require the association to obtain competitive bids for engineering services.
Q: We are a larger HOA and about to turnover from developer control and conduct an election where the owners elect a majority of the board members. The developer is working with its CPA to provide us with financials, but we disagree with previous years’ audits and want to engage someone independent. Can we force the developer to do this?
A: There are a few different issues to unpack here. Initially, note that Chapters 718 and 720 governing condominium and HOAs in Florida require a developer to provide an audited financial statement from the inception of the community through the turnover date. Developers of some older HOAs are not technically required to provide this, but I will assume your HOA is relatively new. The conclusion of this audit, after reviewing the budgets and developer payments, is to determine whether the developer paid too much or too little while it was in control of the association.
Second, any accounting firm retained for this purpose by the developer should be independent irrespective of whether the bill is being paid by the association or the developer. That being said, the law interpreting developer obligations in an HOA is subject to a number of interpretations. Further, developers can get creative when drafting covenants and may have included very aggressive language that could be challenged after turnover. It is not necessarily the accountant’s role to interpret whether the covenants are legally enforceable. As a result, in some situations, it is entirely possible that two different accounting firms could come up with very different conclusions, particularly when you get different attorneys providing different opinions about the enforceability of developer covenants.
The result is that the association will generally have the audit reviewed by another accounting firm after receipt from the developer. This procedure is generally not cost prohibitive and the members can have assurances that the board pursued a second opinion completely independent of the developer. Some clients ask whether this process can be done before turnover while the developer is in control so that the board has this review immediately at turnover. Unfortunately, this is not possible because the developer obviously cannot provide audited financial statements through turnover if turnover has not yet occurred and the final audit is generally not provided for weeks or months after turnover.
Q: Our board meets a lot, and I am proud of the fact that we consider and vote on almost everything. The problem is that we spend a lot of time voting on small expenditures such as office supplies. Is there a legal way to make this easier?
J.J., Marco Island
A: We routinely make the statement that you can delegate authority, but you cannot delegate responsibility. This means that the board can delegate authority to the manager, or the president, or any other person to spend money without further board approval. Many clients will authorize the manager to spend up to $500, for example, without needing to get board approval. This makes the process more efficient because you do not need board approval to purchase a box of paper clips. In some communities, $500 would be way too high, and others have a comfort level of delegating much more. You will also find that many management contracts authorize the manager to spend up to a certain dollar amount without board approval.
There are two points. First, how do you do this? If you are going to delegate authority to spend money, first make sure that your documents do not prohibit this practice, and then make sure the board delegates this authority at an open meeting with 48 hours’ posted notice. You want the minutes to reflect the dollar amount in the motion itself and owners should be able to comment on the entrustment before the board votes on the motion.
Second, the board needs to realize that the board is ultimately responsible for the use and potential abuse of this authority. If the board does not have any internal controls, does not periodically review the financial statements, and ignores abuse of this delegated authority, the board could be negligent even though it properly delegated the authority at the onset. In other words, if you delegate authority, it is important to keep internal controls to ensure the authority is not being abused.