In my years in the industry, I have had countless people tell me stories about suspected corruption in their condominium. Jobs that have gone more than double over budget, poor workmanship, lawsuits that occur after a board member hired a friend to do a job, the list goes on. And while not every case is caused by actual corruption (poor workmanship can happen when using honest vendors as well), I can say with certainty that it is a real problem in the industry.
A condominium is run the same way as a municipal government: A group of elected representatives, often without any financial or technical experience, are in charge of spending vast amounts of money on complicated large-scale projects. The problem with condominiums is that there is far less oversight, and far fewer people checking in to make sure the money is being spent well. In most cases, condominium directors and managers act with the utmost professionalism and selflessness, but as I’ve heard repeatedly over the years, there are always bad actors looking to take advantage of a system built on trust.
I am a firm believer that the best way to catch corruption is to be able to identify how it is being done. In condominiums, most of the shady activity that I have seen is incredibly basic, and is easy enough to avoid with the right procedures in place.
To those readers who may actually be looking to take advantage of your condominium, you should totally stop reading right now. The rest of the article is super boring. For the rest of you, here are some of the top corruption strategies I’ve seen over the years, and the best tactics for stopping it. Pay special attention to the tactics for stopping it portion.
Kickbacks – The most frequently used (or attempted) way of bilking one’s neighbours out of their hard-earned money is the simple kickback scheme. This involves a vendor paying a decision maker money in order to be awarded a job. Obviously, this raises the price of the job, meaning every resident ends up paying more. These schemes are incredibly difficult to catch, because from the outside it simply looks like the condominium chose a slightly more expensive vendor to do a job. This may raise eyebrows, but it could also be due to a number of other legitimate factors, including experience, scope of work, or references.
In my own experience I have seen several attempts at kickback schemes, often hilariously incompetent. In one case, two days after the board of directors had chosen a contractor to do a mid-sized job in a condominium building, a board member approached us and told us to cancel the work. Instead, we were to call her brother to do the job instead at an inflated price. Her brother had no experience doing this kind of work, had no references, and lived in another country. It did not take us long to determine that the rest of the board did not approve of the change.
Less humorous was a case that happened before we took over the management of a condominium just north of Toronto. The condominium president had authorized a major window replacement job on a high-rise building and paid almost double market rate. The work that was done was substandard and many homeowners ended up with windows that leaked or let in cold air in the winters. The condominium was left with no money to pay for urgently needed repairs to other parts of the building, and the president moved out and disappeared.
A few red-flags may pop up during a kickback scheme that should immediately cause non-crooked managers and directors to pause and reflect. Things like the vendor being a relative or a close friend of one of the directors, or the condominium single-sourcing jobs or always choosing the highest price on work, or the board refusing to give information to concerned owners who are asking for it. Basically, if it smells like corruption, there’s a good chance it’s corruption.
Rigged Bids – Similar to the kickback scheme, the rigged bid is where the person managing a project will rig the list of bidders to ensure their favorite vendor wins at the price they want. During a bid, different vendors are asked to put in their best offer, and the board of directors is supposed to choose the one that they believe is best for the building. Rigging the bid messes with this procedure and ends up costing homeowners a lot of extra money. In some cases, the same companies are put on every bid, and the winners alternate between jobs to keep all of the vendors happy and willing to continue with the scheme. In other cases, a manager or director may disqualify a vendor, or choose vendors that they know will overbid, in order to improve the chances of their preferred candidate. Rigging a bid can even be as simple as having your candidate bid late, and then spilling the other prices to them in advance.
Rigging a bid is especially concerning, since from the perspective of the rest of the condominium board, the preferred vendor appears to be chosen legitimately. Through these tactics, their bid usually comes in the lowest, even through their price is likely far higher than market rate.
In my own experience I was involved with one messy bid for a large job involving a specialized piece of equipment. The condominium was using an engineering company to oversee the job, and this included the bidding process. From the start the engineer was pushing hard for one vendor to win the job, but invited five other companies to submit bids. Four from their own list, and one from the board. Weeks later when the deadline for the bids came in, only two companies bid; the company that the engineer wanted to win, and the board’s candidate. Strangely enough, none of the other vendors that the engineer included bothered to bid, and the remaining candidate was disqualified based on a technicality. Not surprisingly the engineer’s candidate was the only one left. After some phone calls and some digging, we fired the engineering firm.
Some red-flags to watch out for: Managers or directors who disqualify bidders for odd or unusual reasons, managers insisting on certain vendors being asked to bid on projects, even though there have been issues with that vendor in the past, and directors asking to look at bid prices before their favorite candidate has submit their bid.
The Unnecessary Job – In some condominiums, things are running a little too smoothly. There are no major jobs that need to be done, and a lot of money in the bank account. For someone who wants to make some quick money, this is a big problem. Enter the unnecessary job. The unnecessary job usually takes the form of an exaggerated solution to an almost non-existent problem. Like using a sledgehammer to kill a bug that landed on your wall (Note: This is fun but bad for your walls). An example would be when a pinhole leak happens on a single plumbing pipe, and the only solution presented is a half-million dollar pipe replacement job. Exaggerating the work required to fix minor problems is easy enough to catch when common sense can prevail, but on specialized equipment it can be very difficult. Most people have no idea how the mechanics of an elevator work. When it breaks, who are you to question the solution that is being offered.
The reality is, a lot of money can be made by presenting condominiums with solutions to problems that are more expensive and more elaborate than necessary. Only by getting advice from multiple vendors, and asking a lot of questions is it possible to learn enough to see if there are better ways forward. A good condominium management company will catch these issues and can save you a lot of money.
The Management Contract – My company regularly bids on management contracts for condominiums. For us, the key people that need to be convinced are the elected board of directors since they are the ones who offer us the job and sign our contract. And, while a responsible board will reach out to a few companies, interview the top two, and offer the contract to the company best suited to manage their property, others take a more sinister approach.
Many years ago, we were asked to bid on a townhouse property that had fired their management firm for bid-rigging. It was a big contract and we interviewed well with the board. Only after the interview did we receive a private phone call from two of the board members. Would we be willing to raise our price by $5,000 and give this money back to the two board members? Another bidder had already agreed to $4,000, so we would need to offer more than that to get the job. Needless to say, we didn’t get offered the contract.
One of the biggest problems with this arrangement, aside from the obvious fact that the homeowners are paying thousands of dollars more than market value, is that management companies that engage in this kind of behavior may be at the mercy of these crooked board members. How can they ever disagree with someone who has proof that their company is corrupt? This can lead to a lot more problems down the road, and it’s almost always the homeowner that loses.
Although many of these schemes, and others like them, are difficult to catch, there are ways that they can be avoided. As a director, a great first step is to select bidders more carefully. Have the manager choose one bidder, the board choose another, and get a third randomly online. Do not allow one party to include the same vendor on every job, especially if their workmanship has been bad in the past. Make sure that incoming bids are sealed and are only opened in the presence of the entire board and management to prevent individuals from spilling prices to their preferred vendors. And make sure that no single board member or manager is responsible for an entire project without oversight or input from others.
As an owner, you can play a role as well. Ask your manager what procedures are in place to prevent kickbacks from happening. Get their answer in writing and hold them to it. Every year you have the chance to elect new members to the board of directors. Vote carefully and ask a lot of questions to candidates who are seeking to get elected. Keep in mind that your condominium board had a substantial impact on how much money you pay in maintenance fees, and vote for people who can be trusted with your money.
Eric Plant is a director at Brilliant Property Management Inc. www.brilliantproperty.ca. Brilliant Property Management is a condominium management company based in Toronto, Ontario.
Eric can be reached at firstname.lastname@example.org