Increase Efficiency and Reduce Cost
By: Roy Helsing
Each year, the California Legislature makes it more and more difficult for homeowner association Boards of Directors to operate the association in an efficient and cost-effective manner. Beginning in 2012, a new law prohibited Boards from communicating by e-mail and required them to give at least 2 days’ notice even of executive session meetings (including an agenda). These constraints placed draconian obstacles to efficient and cost-effective operations.
Now, having watched associations struggle with these requirements and duties of HOA board members for a year – the advice I suggested a year ago has been affirmed. Boards that are willing to delegate decision-making (either to management or to less than a majority of the Board) and certain duties of HOA board members end up with lower costs and significantly faster reaction time in dealing with operational matters. Those Boards that don’t trust either management or their own Board Members get bogged down in endless meetings, slow decision-making, upset members, and higher management costs.
As an example, let’s discuss a scenario that is common – bark replacement. Let’s assume that the estimated cost for replacement is $2,500. Here are four scenarios.
Scenario 1. Management has obligation authority of $3,000. Management asks landscaper for bid, bid is reasonable, manager authorizes work.
Scenario 2. Management does not have that much obligation authority, but two Board Members have been authorized the authority to approve all landscape expenditures below $5,000 as long as the landscape budget is not being exceeded. Management gets bid, emails the two Board Members for authority, and the contract is approved. (Email is OK here, and no meeting notification is necessary because it only involves two of five Board Members.)
Scenario 3. Management has very limited obligation authority, and the Board has not delegated decision making on this sort of matter to less than a majority. In this case management gets the bid, puts together the information, prepares an agenda, and makes a formal meeting notice to the membership. The Board then waits the required two days to make a straightforward decision that could have already been made – in fact the bark could be in the ground by now, or the gate fixed, or whatever the issue might have been.
Scenario 4. Even though the Board and management know what the going rate for bark replacement is, this Board thinks they save money by competitive bidding everything and they also don’t trust each other. In this scenario management gets competitive bids (hard to do because there is already a landscaper on a maintenance contract). This typically takes about 10 days. Then management bundles the proposals, does an analysis, prepares an agenda, notices the membership, and everyone waits two days for the meeting. With a Board like this we can in some cases add a couple more weeks and more management fees because the Board doesn’t like the spread on the bids, or wants to take some other action to “lower the cost,” which invariably costs more in the long run.
In each of these scenarios as we go from #1 to #4, the time required to fulfill the duties of HOA board members increases. The cost of management also increases (either immediately, or in the future – because Boards who feel they need to discuss every routine management decision take more management time, and therefore management ends up charging more).
Delegating is good. The duties of HOA board members include making broad policy decisions. The further they get from that – the more they start deciding it is their duty to approve each minor decision as a group – the more dysfunctional and costly the association’s operations become.
Delegation does not need to be absolute. It can have a dollar limit or other constraints. However, delegating actions to less than a majority of the Board (and/or to management) is a good management technique that does not breach your duty to the membership, saves costs, and allows things to happen more quickly.
Articles are for advertising and general information by The Helsing Group, Inc. They are not intended to provide legal advice, but rather reflect our opinions as Community Association managers and Consultants. Readers should not act on issues raised in our newsletters or websites without consulting legal counsel.
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