A La Carte, or All In? A Discussion of the Pros and Cons of All-Inclusive Management Contracts for Condos and HOAs

This week I wanted to talk a bit about an issue that will face every board member at one time or another–is your association better off choosing an all-inclusive management provider, one that can provide multiple services like landscaping, maintenance, security, valet or even construction management, or should you choose a management contract that covers only the pure management of the association, and farm out all other business to different vendors?

Various advocacy associations for shared ownership have at times recommended to their members that they should be wary of full-service contracts, but their justifications usually revolve around a nebulous idea of “not getting cheated.”  But the truth is that there CAN be significant benefits to “all in” contracts as well, both for your association and for board members, so I wanted to touch on some of these variables and present the argument for multi-service contracts, or at least explain when they can, depending on the service provider and their relationship with the community, be beneficial.

A paramount responsibility for any board member is to ensure that their association is well managed and maintained, and for a fair price.  But does that automatically mean that your best deal will be to have as many as a dozen different providers contract for each individual service provided to the association?  Common sense dictates that it does not.  The concern, generally, is that a single management company, providing multiple services, may prevent an association from getting a fair deal on their services, and that they may be unintentionally overpaying for services because of a lack of bidding for the contract.

But consider the flip side–a company that provides multiple services to a single association can often make less profit on each individual service because of economies of scale.  That is, they have a single point of administration and a single source of overhead.  They may actually be able to bid a far cheaper price for all services, as they can afford to make less on each element.  Plus, if a single company provides multiple services for an association, their customer response, and their risk of losing that contract, is multiplied dramatically.  Some lesser companies might slack on a management contract with low profitability, hoping to hold it as long as they can and move on to the next property–but if they are also providing landscaping, janitorial, front desk support and pool service?  Loss of that contract might be catastrophic.

Allowing a management company to provide multiple services to an association also doesn’t, in any way, preclude a bidding process for those services.  If you are concerned about self-dealing, simply insist that the bids be handled just like any other large project–a specification of work should be prepared and sent to each bidder, and those bidders, including the management company, may present their best bid on the project to the board.

But ultimately, the key element in any multi-service contract is trust.  Do you trust the management company you’re working with?  Have they provided you with excellent service?  Is their staff responsive, and is their principal available to you to discuss problems and concerns?  If your board likes the company, and has a good relationship with them, why wouldn’t you want those people handling MORE of your property’s needs, especially if they can provide them at less cost?  Is it really better to choose a different provider simply for the sake of saying that you shouldn’t “put all of your eggs in one basket?”

I actually have heard this “egg” argument quite a bit, so much so that it’s become kind of a rote statement from concerned owners.  But let’s examine the reality, at least in large communities.  There are dozens upon dozens of management companies willing to manage SOCs.  Almost any one of them can come in and take over a property in 30-days time.  The exact same can be said of landscaping providers, pool cleaners, security companies and valet providers.  It is simply not hard to not only find new providers, but to mobilize them quickly enough to ensure that there will never be an interruption of service at your property.

And consider, for a moment, the practicalities of having multiple service providers.  Assume that you are having problems with your landscaping–the New Guineas are failing.  It’s a small property.  Your property manager calls the independent landscaping company.  She reaches a person who promises to put the property on the schedule for a service.  The company shows up an decides not to touch the flowers.  So the manager calls again, this time asking for someone higher up in the company to complain.  That person apologizes and promises to fix the problem.  Three days later they come out, commiserate with the manager and promise to send out a crew to replace the flowers.  The next week the crew comes out and replaces the exact flowers that were a problem, but by then there are other flowers that are also losing their blooms.  The board, unhappy, asks the manager to put the contract out to bid.  The manager prepares a specification and solicits proposals from landscaping vendors, which are considered at the next board meeting.  Now the landscaping company gets word that their contract is in trouble, and they step in and promise to make things better–so the bid process is put on hold.  And the whole process starts over again.

Instead, what if your management company IS the landscaping provider, as well?  The manager is unhappy with some flowers–she can usually get an immediate response, because she knows exactly who to call, and who she needs to pressure up the chain.  And if that doesn’t work, either she or the board can call an executive of the company and threaten to remove ALL business if the landscaping problem is not immediately fixed.  But frankly, the problem is unlikely to ever get to that level, because the hammer wielded over the management provider is HUGE!  Any reputable multi-service provider knows that a very large, profitable multi-piece contract is at risk, and they will bend over backwards to make things right.  This is simply the nature of business.

Now, there’s no question that there are single service providers who provide fantastic customer service in all areas, and who are a pleasure to work with.  But consider that when you spread your contracts among a dozen providers, you are multiplying the chance that any single provider will be unsatisfactory or difficult to work with, and making your manager’s job that much harder.  If you can find a single provider that does a great job, and is trustworthy and responsive, the benefits of NOT allowing them to bid on multiple services are greatly reduced.  And frankly, if you don’t trust or like your management company, then why are you with them in the first place?

Here’s something else to think about–with some very large management companies, you may actually be contracting with a single provider, even if you think that business has gone to other providers.  The concept of “sister companies” has become more common, as if a sibling relationship is more palatable to board members than direct ownership.  But is it really different to hire two companies, both owned by a giant conglomerate, rather than a single company that admits to providing all services?  Should it make you feel better that the management company has spun off their landscaping division into a different corporation?  Clearly it does assuage some board members, or companies wouldn’t bother.  Personally, I don’t see how it changes the basic calculation–if the company is great, I’d want them to do everything, and if it’s not, I don’t want them to do anything.  And yes, some companies may be good at one thing, and not at another, and that’s a good reason to use different vendors.  But if there IS a provider that does excellent work in multiple facets of business, why wouldn’t you want them servicing all of your needs?

I have spoken with board members who feel that this issue is a no-brainer in both directions.  Some automatically reject the notion of multi-service contracts, because they don’t want to be tied into a single provider.  Others would rather trust a single provider with all of their services, because they want their manager to have more skin in the game.  The truth is, there’s no single answer on this question, and for some communities having a multi-service provider may not make sense.  However, you shouldn’t reject the idea of a multi-service contract on nebulous ideas or catchphrases.  Consider all of the variables–is your property well managed?  Do you like your day-t0-day manager?  Do you like the principals of the company?  Are they responsive to your needs?  Do they do professional work?

If the answers to those questions is “yes,” then isn’t that what you would look for in any service provider?  Food for thought.

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