The Dangers of Not Vetting Your Vendors

By Tim Blackwell | Jun 14, 2016

Wacky incidents involving contractors damaging apartments during construction or renovations may seem hard to imagine. But serious damage and liability can result from those sometimes seemingly comical bumps, oopsies, and drops.

Just listen to these doozies, all true stories shared by Compliance Depot:

A cement truck enters an apartment community drive for a concrete pour and rolls past the job site as the driver feverishly pumps the brakes – right into the side of two units. Fortunately, only one of the units was occupied, as the truck crushed an exterior wall. Nobody was hurt, but property management had to move the family to a different place while the units were being rebuilt.

While brushing a new color on the second-story balcony, a painter forgets that a five-gallon can of semi-gloss is resting on the railing just a few inches away. With a gentle stroke, he bumps the can and it tumbles down into the front seat of a resident’s Mercedes convertible in the parking lot below. The car’s leather interior is ruined and the resident is hopping mad.

Landscape maintenance day took an interesting turn when the lawn mower driver wasn’t paying close attention while cutting the grass between the parking lot and building. The lawn mower clipped a sprinkler head, which shot from the mower deck and shattered the window of a resident’s car.

In each of these instances, somebody was liable and had to pay. One might assume that bonded and insured contracting companies responsible for these bumbling feats would pick up the bill and the apartment community would dodge costly repair expenses.

Not always true.  In each example, the vendors did not have the proper insurance to cover the damage they caused.

Properties that have verified that their vendors are covered usually have only the inconvenience to manage. Those that are stuck with the repairs because the contractor wasn’t covered are left holding the bag – or empty paint bucket.

Averting the pandemonium is hard, but managing the repercussions can be easier, says Tracy Castleman, RealPage’s Director of Operations & Risk Management for vendor credentialing. Castleman will present, “Don’t Gamble When It Comes To Vendor Credentialing” at RealWorld July 17-19 in Las Vegas.

A licensed risk manager, insurance agent and claims adjuster with over 15 years of experience specializing in the multi-family industry, Castleman has seen plenty of crazy instances where the unimaginable has happened, some of which have cost apartments. She has helped establish vendor credentialing programs for over 150 property management companies.

In her presentation, Castleman will discuss avoiding the top 10 most common mistakes that apartment communities make with their vendors.

“Properties need to make sure that vendors working on site are financially accountable for mishaps or damage to the asset,” she said. “Certainly, claims will be created, and if the vendor is not covered it will fall on the shoulders of the property management company.”

Here are four of the 10 things Castleman will discuss that can get properties in the most trouble by not credentialing vendors:

No Background Screening

Vendor owners who have criminal histories, or companies that are not insured, can put a property at risk. A background review that includes verification of corporate status, potential fraudulent activity, possible criminal actions against a vendor’s owners and insurance verification can help identify vendors who are bad news for properties.

No Vendor Agreements and Contracts

Vendor agreements and contracts set the expectation of performance between the vendor and client. Without them, the property management company may have to settle for unsatisfactory work or be responsible for damages as a result of repairs or issues related to sub-standard performance.

Inadequate Insurance Knowledge

Properties sometimes don’t fully understand what to look for on a certificate of insurance, says Castleman. Policy endorsements − amendment forms attached to an insurance policy that will either add, remove or alter the scope of coverage under the policy – must be considered.

Missing Signs of Fraud

Property management staff should be educated to identify signs of fraud when assessing vendors. Castleman said it’s not uncommon for documents to be modified and falsely state coverage.

Castleman advises properties to fully vet their vendors and work with an established credentialing firm. If not, a property that doesn’t put the brakes on hiring non-reputable vendors can put an apartment community at risk for significant financial losses.