As purchasers of goods and services, many community associations have felt the impact of recent inflation and rising prices. While prices have continued to rise, community associations still must discharge the maintenance and caretaking responsibilities they are required to perform under their governing documents. Community members often resist annual assessment increases and special assessments forcing community associations to manufacture creative solutions to issues surrounding rising prices. Community associations looking for creative solutions to these issues have a couple key avenues they can consider pursuing.
When two nearby associations hire and contract with a vendor, even if both associations use the same vendor, the vendor will approach the two associations as two separate jobs and will negotiate each contract separately. Each individual association then has limited leverage in negotiating with the vendor. By finding ways to combine your association’s negotiating leverage with that of another association, you may be able to negotiate and contract for more favorable terms.
1. Merging or Consolidating with a Nearby Association
Community associations can consider pursuing a merger or consolidation with another nearby association. Many associations border, or are in very close proximity to, other associations. By merging or consolidating with another association, the brand-new, combined association can permanently take advantage of greater leverage due to the increased scale and scope of the services the new association is seeking. Any merger or consolidation needs to be carefully structured to ensure smooth operation and governance of the new association following consummation of the transaction.
2. Cost-Sharing Arrangements
Community associations can pursue cost-sharing arrangements with another association concerning specific services. This is most common in the case of landscaping services. This allows the two associations to take advantage of increased bargaining power to negotiate a better price for the service that is the subject of the cost-sharing arrangement. Cost-sharing arrangements should be carefully structured to ensure that each party to the arrangement is paying their fair share of the cost of the services contracted for based on respective usage. Costs need to be carefully tracked and documented to ensure they can be properly allocated between the parties.
Conclusion
Both strategies look to take advantage of the principles of economies of scale. By merging or consolidating associations or entering into a cost-sharing arrangement, community associations can look to negotiate more efficient pricing using the increased bargaining power provided by increasing the overall size and scale of the goods and/or services the communication association or associations are contracting for.
Before pursuing either of the above strategies, the Board of Directors of the association needs to commission a review of the association’s governing documents to determine if the association is empowered by its governing documents to pursue the intended strategy. Legal counsel experienced in community association governance matters should be consulted to provide the Board of Directors the necessary analysis of its governing documents and negotiate and draft the documents for any intended merger, consolidation, or cost-sharing arrangement. By consulting with such legal counsel, the association can ensure that it maintains compliance with its governing documents while negotiating advantageous terms to fully realize the benefits of the approach pursued.
