The Brother-in-Law's Snow Contract and the Deferred Reserve Fund
Priya manages a 180-unit condominium corporation. A board member, Mr. Okafor, discloses that his brother-in-law owns a snow-removal company that has bid $18,400 per year; two other bids came in at $13,900 and $14,600. The board chair says, "Just put it in the minutes as approved - we trust family." At the same meeting, the board votes to defer a $420,000 special assessment recommended by a five-year-old reserve fund study, because owners "can't afford it," and directs Priya to stop sending reserve fund updates. Priya's management agreement says the board sets policy and she implements it. She is also being asked to sign the snow contract on the corporation's behalf.
1. How should Priya handle the snow-removal award and the request that she sign the contract?
Read the worked answer
Her role is to make the process defensible, not to pick the winner - and not to sign something the corporation has not properly authorized.
On the award
- Make sure Mr. Okafor's declaration is recorded in the minutes in his own words, naming the relationship and the company.
- The interested director should not vote and should generally leave the room during discussion. Check the bylaws and the governing legislation on whether he counts toward quorum.
- Advise the board in writing that a related-party bid roughly $4,500 a year above the lowest bid is very hard to defend without a documented competitive process. A published tender with stated criteria and a scoring matrix is the safer route; three informal bids and a "we trust family" minute is not.
- Check the corporation's purchasing policy or bylaws for the threshold above which quotes or a tender are required.
On signing Priya should not sign as the corporation's agent unless the board has passed a proper resolution authorizing the contract and the signing authority. If the process was flawed, signing converts her from adviser into participant.
If the board proceeds anyway, she puts her advice in writing, keeps a copy, and does not let job security decide what she recommends.
2. What should Priya do about the board's decision to defer the special assessment and stop reserve fund reporting?
Read the worked answer
She advises clearly and in writing, she keeps doing the reporting she is required to do, and she does not participate in suppressing records.
The distinction that matters Whether to levy a special assessment is a board decision. Complying with reserve fund study and funding-plan obligations is not optional, and it is not something the manager can be instructed out of. "Stop sending updates" is a direction to withhold information the corporation is obliged to maintain and act on.
What she should do
- Give the board the current study, the size of the shortfall, and the realistic consequences of deferral: further deterioration, emergency repairs at higher cost, possible inability to obtain insurance or financing, and exposure for directors.
- Put that advice in writing, record the board's decision and reasons accurately in the minutes, and keep her own copy.
- Continue producing the reports and updates required of her. A verbal instruction does not override the corporation's obligations.
- If directed to falsify, backdate, or withhold records, refuse and consider her reporting obligations.
If the board persists in a direction that would put her in breach, she should seek advice from her broker and the corporation's lawyer, and be prepared to resign on proper notice rather than implement it. Signing the snow contract while the reserve fund is being concealed is how a manager becomes a co-author of both problems.