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When the Right Price Goes Wrong

It seems an obvious solution to an almost non-existent problem: a board has an elevator (or boiler, or fire alarm) maintenance company that does a good job, so when contract negotiations come around, the board doesn’t begrudge the operation a one- or two-percent bump in annual fees. Until the board does the math, that is, and realizes that after a decade with this company, it’s paying up to 20 percent more than it did at the outset.

Andrew Hoffman, a principal at Hoffman Management, says that this scenario happens more when boards are happy with a vendor. “You get these multi-year contracts, and [an increase] is baked into the contract,” Hoffman says. “And then all of a sudden you’re saying to yourself, ‘Wow, these guys are expensive!’”

The situation can present itself when a management company accepts a bid at a new building from a maintenance company they’ve worked with for years. The new bid is 20 percent lower than the 10-year-old contract at a similar building. “That contract [at the old building] should be lower because [the maintenance company] knows the building,” Hoffman says. “I don’t think boards are attuned to this at all. It’s something we bring to their attention.”

The endgame in such situations is not to change vendors in order to get a cheaper price. The goal, Hoffman says, is to get the best service at the best price for everyone involved. “Boards need to understand what they’re paying for,” he says. “Lowering costs – especially when a vendor is doing a good job – is kind of contrary to people’s thought processes. But at the end of the day, it’s about paying the right price for the right service.”

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