If the caretaking and letting contracts for your complex are nearing the end of their term, it is a good time to consider your options before automatically extending the existing arrangements.
Our company has arranged for the calling of tenders for a number of schemes of varying size and complexity in recent months. This has allowed the bodies corporate in each scheme to gain maximum benefit from arms length market competition.
In three schemes (two in Brisbane and one in Sydney) the caretaking contracts were tendered. Two had existing caretaking contracts in place, and the offers received from competing tenderers were substantially less than the price paid under the previous contracts. We are currently involved in a third scheme on the Gold Coast where the contract has lapsed. The evidence (based on temporary fill-in contractors) is that the savings will be in line with the aforementioned schemes – that is around 35% – 40% less than is currently paid.
In each case, when asked for their preferred contract term, the committee members opted for three years. This effectively means that the contracts are non-saleable contracts for service. Bodies corporate are often surprised to learn that there are contractors interested in these types of contracts. Our experience is that there is no shortage of reputable caretaking contractors wanting to tender.
If your scheme has parallel letting and caretaking contracts in place and you wish to continue with this arrangement, it may be possible to receive tenders that provide even greater savings for the body corporate. This can occur due to the cost saving for the manager of not having to finance the purchase of the letting and caretaking contracts, as is the case in a standard commercial transfer. In a competitive arms length tender, these savings will be represented as lower costs to the unit owners in both the letting and caretaking contract charges.
When is it appropriate for your body corporate to take advantage of their option to tender the caretaking contract? You will need to check your agreement, and if necessary, seek independent legal advice. Most of all, flag the contract renewal date. Automatically extending the existing contract is seldom a good idea. Reputable caretakers will always be happy to submit a tender for the ongoing provision of caretaking services. The difference is that in a free market competition, the body corporate stands to benefit by testing the true value of the services being provided.
It is our experience that many small schemes that were set up by developers to have a resident unit manager, do not need one. These include schemes where the majority of owners do not want the inconvenience of short-term tenants and/or schemes that have such a small number of duties where outside contractors can service their needs adequately. Once again, calling tenders for the provision of these individual services will have the effect of ensuring value for money is received by the body corporate.