Cypress Village HOA

[Standridges]

I would like to clarify the procedures used for deciding which provider to use after collecting bids for services on behalf of the HOA. Are the bids voted on by the board of directors? Is this decision made unilaterally by the President of HOA?

This point was brought to my attention by another homeowner, and I thought it was valid and I decided to take it upon myself to gather more information and try to head off potential problems in the future.

First let me say that I am VERY happy to hear that we are going out for bids before awarding contracts for services for the subdivision. When I inquired about the availability of these bids to the home owners, I was informed that, up to this point, they have never been made available except to the directors. In my mind this opens up the potential for both legal issues and conflicts between home owners due to potential conflicts of interest when awarding contracts.

I am not saying, or inmplying in any way that this is or has been an issue. Let me be perfectly clear on that before I make enemies. This is simply an attempt to head off problems before they happen.

Since the board of directors is acting as a representative body of the home owners, and as thus acting on the home owners behalf I believe it is responsible to make reasonable efforts for transparency by making the home owners aware when bids are being taken for services and making those bids available to the homeowners to avoid accusations of a conflict of interest.

I am not an attorney, and by no means a legal expert. Perhaps our newest board member could shed some better light on this issue. That being said, if a board member awarded a contract inappropriately (to a friend/business associate, etc) on behalf of the home owners, it would seem that that individual (board member with the conflict) could be held civilly liable to the home owners. I believe that there is an implicit fiduciary responsibility of the board to act in the best financial interests of the home owners.

Under Texas law, an individual of a governing body, that has a conflict of interest, must simply abstain from the vote regarding that issue. For example....If Rob's best friend bid on the contract to mow the subdivision, as long as Rob didn't vote to award that contract, then no conflict exists. If however Rob voted to award that contact, or acted unilaterally as president, then a potential conflict may exist and could potentially open him up to civil action from the home owners, if the homeowners felt that he had not acted in their best interest or not fulfilled his fiduciary responsibility. (I am not implying Rob has or would do this..this was simply for illustrative purposes)

I think this can all be headed off by simply making the bids collected available to any and all homeowners as a matter of transparency regarding who is getting the contracts, and that they are being awarded in the home owners best interest.
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James and Torre Standridge
3706 Mahogany Trail

[Robinson]

Thank you for submitting your question.

The procedures for deciding which contractors to use after collecting bids for services are done through a vote by the board members.

Your suggestion of transparency is a great idea. I have been a homeowner in the community for four years and have never completely known the process myself. While I was aware that the board voted and we solicited bids, I never knew which companies were considered or the reasons why they were selected. My goal is to make this process clearer for all homeowners going forward. This website and forum is a great tool that we can utilize, along with the newsletter to keep homeowners current on things going on. I believe Chad is the person we have to thank in hosting and putting together the website that allows us to have this dialog without the typical costs that accompany hosting a webpage.

In continuing with your other questions and comments; while it may seem ideal to have voting members recuse themselves on issues where there appears to be a conflict, those are mere aspirational goals as opposed to rules of law. Think of where the vast majority of government contracts go. The companies of their friends and relatives. If a member of the board has a potential conflict, the member should consider if s/he can make a decision on a bid or issue objectively without being influenced by the potential conflict. If the member believes s/he can, then they should be allowed to vote. If the member believes there will be some influence, they should abstain from voting. Remember, the potential for a conflict doesn't necessarily mean that a conflict actually exists. Also, the person would need 2 additional votes to get a majority, thereby minimizing the risk of the conflict.

The bid process is to be managed by the management company. This means that when there is a need for a service, the management company will be notified to begin the process of soliciting bids. Now as a community, you will be notified via the webpage of open bids. This will give community members an opportunity to bid themselves if they have a company, or recommend reputable companies for consideration. The companies being strongly considered will be posted for your information. However, we will not disclose financial details while negotiations are ongoing because this would lead to too many problems. Once a company is chosen, the details of the terms and the rationale for choosing the company will be readily available. Also note, if a board member owns a company and puts in a bid for a service contract, this is an area where there is a direct conflict (more than a potential conflict) and the member should recuse himself/herself from voting in these particular matters. The best interest of the community, not an individual homeowner, will guide decisions.

I hope I have fully answered your questions and concerns and given you the insight I have learned over this week. Please continue to stay involved and express your suggestions to help the community!

Anthony

[Standridges]

Anthony, Thank you for your response. The information you have provided does clear up a great deal.

While I was waiting for a response, I did a bit of research into what Texas law has to say about these topics. I had initially drafted a lengthy response detailing these standards, but apparetnly was timed out from teh site, and lost it when I tried to post and was required to log back in. So to your benefit, and those of all who choose to read this post I will abreviate my previous message.

First regarding what Texas law defines as a conflict of interest, This is an excellent guide:
http://www.oag.state.tx.us/AG_Publications/pdfs/conflict_easy.pdf

A conflict exists if any of the following exist.
-Business Entity Conflict
-Stock Interest - Ownership of 10% or more of common voting stock

-Other Ownership Interest - Ownership of 10% or more or $15,000.

-Income Interest - Receive 10% or more of annual income from this
company

-Close family with above interests - This is defined as close relatives
of an official would include persons who are related to the official
within the first degree by consanguinity (blood) or affinity (marriage).
Such relatives would include an official’s father, father-in-law, mother,
mother-in-law, daughter, daughter-in-law, son, son-in-law and the
spouse of the official.

-Substantial Intrest in Real Property
-Official or Close family relation (as defined above) have a financial
interest in real property of $2500 or more.

AND
-the action that the local unit is considering would have a special
economic effect on the value of the property that is distinguishable
from its general effect on the public

If an actual conflict exists, the voting member must declare that a conflict exitsts and the nature of the conflict, and MUST recuse themselves from the vote, regardless of whether or not they feel they would be able to vote without bias.

On the matter of how to handle public bids, it sounds like what you have said is in accordance with state laws, but just to be perfectly clear I will paraphrase below. Again, if anyone is interested, here is a good source for clarification regarding these laws put out by the state Attorney General:
http://www.oag.state.tx.us/AG_Publications/pdfs/procurement_easy_2008.pdf

To take bids or proposals on a purchase, the entity must first publish notice of the time and place at which the bids or proposals will be publicly opened and read aloud. The entity should also prepare specifications detailing the requirements that must be met by the goods or services which the city intends to purchase. The published notice should include either a copy of these specifications or information on how a bidder may obtain a copy of the specifications.

If a entity wishes to consider factors other than price in its selection, or other factors such as a bidder’s previous performance or safety record in its selection, the city’s bid specifications should clearly state that such factors will be considered. Also, the governing body of a entity that is considering using a method other than competitive sealed bidding (e.g., competitive sealed proposals) must determine before notice is given the method of purchase that provides the best value for the city. If no such additional criteria are spelled out in the bid specifications, state law only allows the entity to award the contract to the lowest responsible bidder if using competitive bidding.

Regarding what parts of the bid should be made public...Generally, section 552.104(a) does not except bids from public disclosure after bidding is completed and the contract has been executed.49 However,
bids may continue to be withheld from public disclosure during the period in which the governmental body seeks to clarify bids and bidders remain at liberty to furnish additional information.50 Section 552.104(a) does not apply when a single individual or entity is seeking a contract as there are no “competitors” for that contract.51 Note that even when section 552.104(a) does not protect bids from required public disclosure, section 552.110 will require the governmental body to withhold any portions of those bids that contain trade secrets or other commercial or financial information that is made confidential by law.

I understand that since our HOA board is not a governing body, it is not mandatory that they follow these laws. However, it think that these Texas statutes could be used to establish reasonable precedent, if any of these matters became a legal issue. I think it is both prudent and advisable for our board to adopt these as the standards that will guide their actions. Following these standards, will protect the individual board members from civil action from the home owners, as well as to protect the home owners from litigation with respect to the degree to which the board acts as an agent of the home owner.

I think that our current board is truly trying to act in our best interest, this does not however give us any assurance that there will not be issues in the future. If we can adopt policies now that will protect the home owners, and the board before a problem exists, that seems a prudent course of action. So long as our board continues to act in the best interest of the home owner, this additional transparency will only serve as a barrier to future disputes developing.
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James and Torre Standridge
3706 Mahogany Trail

[ChadHammons]

I took the time to scan through all that, and while I'm not a legal expert by any means, here's my thoughts:

As you pointed out at the end of your post, these laws do not apply to the HOA. They are for public officials. That being said, the board DOES still generally adhere to these rules. For example, even when we voted on whether or not we were going to move the website to a different server, I did not vote because I host the current website. No financial gain problem, but we do try to keep things fair. I hope that helps.

Should we always go with the bottom dollar bid as you suggested? I hope not. Look at the time after Ike. There were a TON of people running around giving out bids for work. Several of the people that I got bids from turned out to be very disreputable, from what I found on the internet. Sure, their bid was the lowest, but so was the quality of their work, as well as their history of customer service and sticking by their warranty. Is that what we want for our HOA? Well... it's definitely not what I would want for my HOA. (and it's also not required by any laws or articles that apply to our HOA.)

As for disclosing bids, I have to say that we could disclose the type of work, etc, but we will not be disclosing amounts. For just about every type of work we contract out, there is someone in our subdivision who owns a company who does that work. landscaping, construction, you name it... To disclose the exact numbers of the bids to the homeowners would give those businesses an unfair advantage. Regardless of the legal questions, there are some definite ethical issues. You'd be giving the companies here an unfair advantage over every other business who did not have those numbers.

Maybe I'm misunderstanding what you want us to do with bids? It seems to me that it would be more likely to face some civil action from an outside company if we showed his "sealed bid" to a competing business, than it would be to face civil action from a homeowners if we chose to not reveal the bid information?

From what I gathered reading over the laws regarding financial accounting for non-profit orgs in TX, we're not required to make transparent our bid process. There are records we have to share with our members and keep on record for the state, and we do that at every annual meeting.

just fyi... I went back and read our bylaws (approved by the county and state), and we're not even required to collect bids on anything unless it is damage repair related (aka hurricanes) and is over $20,000. Of course, we are collecting bids... it's a smart thing to do. but a lot of the things being talked about are overkill as far as what is legally required.

I guess my overall point is, we are trying to do the right thing. We are not a governmental body, so most of the laws referenced just do not apply. The laws for non-profit orgs in TX DO apply, and we ARE following all of those. Legally, we're covered.

Does that help ease some of your concerns? Like someone said at the meeting... there are five directors. There's just no way that one person can cause there to be an unfair advantage for a certain company. AND, we usually abstain from voting if there is even an apparent conflict of interest.

Based on the above, do you not think we're doing our due dilligence to be fair and ethical with our business practices? If not, definitely let us know... but also let us know why...

[Standridges]

Like I have said in both of my previous posts....I am not making any acusations of inappropriate action present, future, or past by any member of the board. This is simply for the purpose of heading off potential issues in the future.

As far as to whether or not due diligence is being paid in regard to business practices, I cannot speak to that issue...simply because I, as a homeowner don't have enough information regarding the actions the board takes on my behalf. That is the purpose of this inquiry.

Further, I acknowledged that this is not required for the HOA, but I do believe it is a good set of standards to strive toward. If those standards are followed, I cannot concieve of any instance, that the HOA could be held responsible for any actions, or accusations.

I honestly don't see the issue with making sealed bids public after the bid period is over, and the contract awarded (the bids then are unsealed bids). Bids are only sealed for the bid period unless they contain proprietary trade secrets or financial information proteced by law.

To my knowledge, and please correct me if I am wrong, the home owners NEVER receive detailed information of how OUR money is being spent by the board. The board, has quarterly "executive session" meetings (not open to the home owners), accepts bids and awards contracts on our behalf , the details of which are never disclosed, nor the details of competitive bids. The financials provided anually are a very general overview of the financial situation (and an inacurate one in the case of this year, which i have yet to see corrected). I just don't see where the accountability is. How would we know if our money is being used responsibly unless we know how it is being used.

I was taught early on to trust but verify. Perhaps this is much ado about nothing...but I am not the only one who has these concerns (my neighbors brought this to me)...I was just the one willing to research and express our concerns in this public forum...rather than just grumble about it.

I am simply trying to open a dialog. I hope this is not being perceived as advesarial. I would like to help the board make this a better place to live, and hope that this is not being taken as an attack or accusation.

ON AN UNRELATED NOTE....
I have expressed to Rob my concern over the liability we as homeowners and the board acting as our agents is taking on by providing the inflatables at the upcoming BBQ. Should a child be hurt while jumping on an inflatable, we could all be held liable. I am not comfortable with my homeowners dues being used in this manner nor the risk it exposes us all to. We live in letigious times and I am not sure this is a good idea. It would only take one hurt child to diminish the reserves the HOA has built up.
_________________
James and Torre Standridge
3706 Mahogany Trail

[ChadHammons]

Consider our recurring landscaping maintenance contract. If we released the details of those sealed bids, then one of the landscaping companies in the subdivision (there are several, btw), could use that information to under-bid the competition next time. It would be unfair.

My friends who work in government contracting tell me that sealed bids are never made public if they don't win. makes sense to me, but I think I've already explained why I believe that.

As far as accountability, I'm not sure what you want, there. We're not spending millions a year... We have a small budget, and what we spend it on is pretty much laid out in the financial statements we provide. The reason it all seems so general is because we don't do a lot. There really are only a few line items in our budget - landscaping, insurance, management company, reserves. If the grass in the common areas isn't dead, and we provide statements for the others, then I'm not sure how would be misappropriating the money.

To get into much more detail than what we already provide would be providing a level of detail like who has paid their dues and who has not. As a home owner, I don't want anyone to know when I pay my bills. I think that's actually illegal for us to disclose or even discuss openly. That's why we have those executive sessions behind closed doors - to discuss the things which we are obligated to keep private.

If anyone else has a concern, then we invite them to bring it forward. This didn't come up at the board meeting a few days ago, but they're welcome to discuss it here, or email the board.

I understand the idea of opening a dialog, but in this instance, I'm not real sure of where you want to go with it. I understand your concerns, and we've tried to address them with legal facts, our own opinions, as well as the obligations outlined in our bylaws, which we all had to agree to in order to buy a house here. At the end of the day, there are certain things that you have to trust the board for. That's why we're elected by the homeowners - we're not like CEOs of major banks, or anything. I'm not saying trust us explicitly... We provide financial information to a degree that if anything "funny" were going on, it would show up there.

If I could ask a question: What level of detail do you want to see before you feel you have your accountability?

Also let me ask directly, when it comes to bids, does it really make our subdivision a better place to live if we push ethical boundaries and provide priviledged information to only a select few companies out of all the ones eligible to compete for our business?

ON YOUR UNRELATED NOTE:
That has already been discussed and taken care of. We're covered. Since you emailed Rob first, I'll let him fill you in. Just FYI, and so it's stated publicly, we do have liability insurance for the HOA, so one hurt kid will in no way deplete our reserves. Thinking positively, though, I'm sure no one will get hurt, and everyone will have at least as much fun as they have the past couple of years we've done this...

[Robinson]

Hi James,

Thanks for being active. Please note that in the document you attached, the Attorney General's office does a good job of saying what the general rule is, but does not state the exceptions, which tend to swallow the rule and make it worthless in many respects. If you look at the Vernon code cite footnotes at the bottom of the page, they point you to the official document that list the exceptions. On point here, abstaining from voting. The general rule says you must abstain. What they don't tell you in the document is the section that says this doesn't apply if you have a filed a conflict of interest affidavit. (Remember, we are talking local public officials). These are required yearly from those officials who this is applicable to, and makes the section more bark than bite. So the requirement goes from "must", to "should".

Because Texas law encompasses so much, it would not be feasible for us to follow their guidelines due to their voluminous nature and the fact that they change so frequently we would have to hire a firm to continuously interpret them (and thereby increase costs likely beyond our yearly assessment total). The conflicts section isn't the only section that speaks to the topic, there is the UCC, Insurance Code, Business Commerce Code, etc. We need to follow the rules of non-profits as applicable to us.

Your main concern is being able to see how the money is spent. Accurate financial data will help with that. That is the first goal, to ensure what we are given by the management company is an accurate portrayal of what is going on. As a homeowner, I believe you do have a right to know where the money is going because it may affect your home value and dues.

I ask you for some patience on the matter as I have not seen the full financial record and do not want to make any quick voting decisions before seeing the whole picture. What I believe we all know is that we have had some issues with the management company. We are addressing the service level we have been provided.

With an assessment income of around $70,000; there are a limited number of things financially the board can do after fixed costs Chad referenced are considered.

While it is a very important issue, I don't want the forum to get too narrowly focused on one area because there are a few matters that need to be taken care of simultaneously. Of equal importance are deed enforcement (which also affects your home value) and neighbors timely paying their assessment fees (this greatly assists in operating a sound budget).

[Standridges]

In response to Chad's post:
I understand your position and the reasoning for your feeling as you do. I also have sought the knowlege of individuals with more experince in the handling of this matter than myself prior to posting. I have spoken with two former mayors (one of which also worked with government contracts for ExxonMobil) and a current alderman from the city I am from regarding how these matters are handled. According to all three, once the bidding period is over, the bids are made public record (also stated in the AG guide to municipal procurement). The purpose of the law as stated in the source I cited and previously attached is to protect the municipality, not the bidder. The only exception is when trade secrets are involved. This used to be a very strict law..and bids were kept sealed unless the product/service was considered to be the exact same for all bidders. This has since been more broadly interpreted and in the majority of cases those bids are infact unsealed and made public record.

If your friend (like you) deals with bids at NASA, I can see how the details of that bid could be proprietary in nature. The specs are given...but there are different ways that suppliers could go about providing or meeting those specs for a project...this would be considered proprietary information and thus those bids would be kept sealed.

I don't see how a mowing contact could be considered proprietary information. I also don't understand why you believe that homeowners would have and unfair advantage...if the bids are public, then they would be public to anyone who requested them. If competition can get the homeowners a better contract than the one they are currently in, I can't imagine why that would be a bad thing. I really don't see the ethical boundary being pushed here.

Never in any of my posts have I asked to see a detailed accounting of collections of revenue by the homeowners and I feel that is a gross misrepresentation of what I have stated previously. I do think it is reasonable that if the HOA is going to be awarding sizable contracts on our behalf, that we be entitled to know how our money is being used and why. I don't think we should always use the lowest bidder...but if we don't, I think it is reasonable to cite why we didn't and to do so in a public manner.

You are correct...the board isn't spending millions of dollars here. But how much or our money is enough that its worth knowing how its being spent on our behalf? How many times should we allow the HOA to raise our dues before its worth asking how our funds are being used? I don't think this is a problem....I am simply trying to keep it from becoming one in the future. Whether its one dollar or a million dollars being spent on my behalf....I would like to know how it is being spent. Its not the amount as much as the prinicple....and the knowledge that it is being used in a responsible manner. And I have a feeling that you feel the same way Chad, which the impression I had, was why you got on the board, and have taken the actions you have. I am glad that someone like you is there looking out for us, but what about when your aren't there anymore? Please understand that this is not a personal attack on your or anyone elses character.
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James and Torre Standridge
3706 Mahogany Trail

[Standridges]

In response to Anthony:

Thank you for taking the time to address my concerns. I have paid my homeowners dues on time for 2 years now (we moved in March of 08, and have paid through the end of this year), and have yet to see an accurate set of financials. I think I have been very patient, and hope the management company will correct this problem promptly.

From my observation up to this point, I question the decision to continue with the management company beyond our current contract. I can't see much that justifies their fee at this point. But I am not in a position to have all the deatails. I hope that those of you representing us on the board will continue to hold them accountable..

I have my own ideas about the scope and purpose that the HOA and management company should hold..but this isn't the topic of this forum..nor probably the most constructive medium to expess those ideas. I would welcome future dialog regarding that topic however.

We all agreed and accepted the deed restrictions when we purchased our homes, that is a fact. But as stated in the annual meeting, those were a general set of guidelines laid out by the developer and the managment company. They can be and apparently have been modifed by the homeowners. If we as a group are unhappy with what is contained there-in we can change it. I believe it only takes a vote of the homeowners, and filing the amended deed restrictions at the county courthouse. Let's not feel that we are roped into action/or inaction by the deed restrictions if we are unhappy with what is being done.
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James and Torre Standridge
3706 Mahogany Trail

[Robinson]

James,

You and I are on the same page as far as the management company. I have been in the community for 4 years and have found it hard to justify the management company's fee. This is why I want to get all the financial data (detailed to the billable hour for certain services) to see what they have done (or not done). When I noticed the descripency at the meeting, there was another issue I noticed but did not mention because there was no way to prove it. I want to get the data before I can determine if my instincts are right about some of the management company's activities.

This is your community, if you want a another forum topic to address the scope and purpose of the HOA and management company, I will gladly listen and take that suggestions into consideration.

[Standridges]

I just re-read the deed restrictions and came across a provision that I had missed before that I think applies to this discussion....in section 12.07

"...The officers and directors shall not be liable for any mistake of judgment, negligence, or otherwise taken on behalf of the Association, except for their own individual willful conduct or nonfeasance."

Apparently the liability issue I brought up is a non-issue so long as the action isn't intentionally inappropriate, or there is a lack of performance of duty.

Wish you guy's would have caught this before I did...would have saved me alot of time and research, trying to protect our board.

I do hope that in the spirit of transparency, the board will make an attempt to inform the home owners of how their money is being spent, and that it is being done so with their best interest at heart.
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James and Torre Standridge
3706 Mahogany Trail

[Robinson]

We were addressing your concern on conflicts and transparency with finances. I don't think any of us were ever concerned with being sued.

So does this mean you are okay with the BBQ in the park?

[Standridges]

Regarding the BBQ, Chad states that my concers regarding our liability have been addressed and that our (HOA's) insurance policy is sufficient to cover any liability. If that is indeed the case, then my financial concerns are satisfied sufficiently.

I would however state that I don't believe this is how our funds should be being used..nor the purpose of our HOA. I am much more concerned with the HOA protecting the value of my property, and less on providing entertainment. I don't believe their purpose should be community building. If they have sufficient reserves to fund "play" activities, then maybe we are paying too much in annual dues. In my opinion, if neighbors want to get together, they can do so without the financial support of the HOA. This is not a battle I have chosen not to fight up to this point but since you asked....
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James and Torre Standridge
3706 Mahogany Trail

[Rob]

Please be advised this is a function that we have been doing annually for five years. All home owner's associations do this. Many are much bigger. By promoting community, we get more patricipation in the HOA. We are sorry you feel this way.
_________________
Rob Nunez

[ChadHammons]

I think Anthony addressed most of the earlier points... the one question I would ask is in regards to your last post...

What is the value of a close-knit community in our subdivision?

I think that these BBQs and Easter Egg hunts and Christmas decoration contests that we do have some intrinsic value, which does actually equate into some dollar figure. Given the exact same floor plan in the exact same sized lot, would you rather live in a neighborhood where you never spoke to your neighbors, or one where you knew everyone around you?

Oh, actually I did want to address another thing... this statement: "How many times should we allow the HOA to raise our dues before its worth asking how our funds are being used?"

I think the HOA has only raised the dues a grand total of one time. It was by $20/year, and the reason was explicity stated that it was desired to increase the reserves of our HOA accounts so that we would have more flexibility in our budget, especially in case foreclosures and deed enforcement costs ramped up. Other than that, we've never withheld how your money is being spent. Like I said, we just don't do that much. What you see on the financials is pretty much it. Past that, you get into the details such as the cost of a piece of paper that's mailed to someone to notify them of deed restrictions. All that just gets bundled into professional costs...