I am a board member at my association and I received a call from one of our vendors that we have had for nearly 10 years informing me that the management company started charging an annual fee to verify their insurance and license so that they may become a “preferred vendor.” They were told that once they paid the fee they will also be referred to other associations. They were also told that the fee is not optional, if the vendor does not pay the fee they cannot work with any of management’s communities, including ours. We as a board were never made aware of this and only found out about it through the vendor after they called me concerned about the fee. I reviewed our management contract and nothing is mentioned about this fee. They said all management companies charge this fee. Is that true?
In recent months I have heard of a few management companies that have implemented annual fees for vendors who wish to work with their firm’s communities.
Many refer to it as a “preferred vendor” program, whereby vendors who pay the fee receive preferred status when association’s select vendors to take part in the competitive bid process.
In my professional opinion this practice is completely inappropriate and creates a significant conflict of interest.
I can assure you that this practice is not typical in the association management industry.
While many management companies utilize their in-house management staff to verify vendor insurance and confirm relevant licenses, I can understand and respect a management company’s decision to outsource this process to a third party company.
That said, if management makes a business decision that vetting vendors is a function best outsourced, the management company should either assume the financial burden of outsourcing the service or request, in advance, that the association assume the additional expense.
Should the association agree to pay for the additional service, this would be considered a material change to the management contract, requiring revisions to the contractual language and fee schedule.
This updated management contract should be voted on and executed by the board in a general session meeting.
I absolutely disagree with any and all forms of “pay-to-play” preferred vendor programs. I feel this practice crosses the line of what is considered appropriate and ethical.
The only way vendors should be able to receive “preferred vendor” status with a management company is for them to earn it through hard work, professionalism and tenure.
Should a vendor meet management’s performance-based criteria to be considered a preferred vendor, they most likely will earn management’s recommendation to additional community clients.
This incentive alone drives vendors to work hard for associations, which ultimately benefits the vendor, the management company and the association.
My advice would be to add this topic to your next board meeting agenda for further board discussion. Should the association agree to accept the preferred vendor fee, either to be paid by the vendor or subsidized by the association, I would suggest that the management contract be updated to reflect this service.
If the association disagrees with this preferred vendor business practice, I believe your board is justified in requesting that management subsidize the entire expense, given that it was never disclosed to the association. If management pushes back regarding the association’s disclosure concerns or they deny subsidizing this additional expense, I would consider looking for a new management partner.