Question 1

Section 20 - Estimates for Work

Accepted Answer

Regarding the S20 process. At the point (Stage 2) where lessees have been consulted on the estimates obtained, is it reasonable or legal for a lessee at this point (who happens to have a company that does painting , flooring etc) , having seen the estimates already obtained, to offer an estimate that underbids those other estimates having benefitted from sight of them? I realise that the company has ample opportunity to be nominated at Stage 1 (on the part of the s20 consultation regarding the specification for the work) but they do not nominate themselves at this stage. They wait until they have seen the other estimates and then provide a cheaper estimate. This situation has occurred twice now (once almost 10 years ago before enfranchisement). On that occasion, the then managing agent allowed the company to underbid and gain the contract. The painting work was so poor he had to withhold a substantial sum and the remedial work made the end result no better. On this more recent occasion I have said that they cannot bid at Stage 2 because they have seen the other estimates and, if such a practice continued, then potential contractors would soon learn not to bother to bid at all if an "in-house" company always gets the contract. The practice is clearly unfair to the legitimate companies who provide us with the estimates. I am aware that for much larger contracts (this particular one is only £4k) there are strict EC rules for handling bids. Is there any legislation that governs the handling of this type of smaller contract that would prevent us from allowing the "in-house" company to bid if they forgoe their opportunity to nominate themselves at the first stage of the s20 consultation? The FPRA responds: There seems to be a fundamental mis-understanding of the process for obtaining tenders. It is for the landlord to “obtain” estimates. The intention of the regulations seems to be that the landlord should be required to obtain quotations from at least one person nominted by the tenant and at least one nominated by a tenants’ association. If no tenants have proposed contractors at the first stage of the consultation process, the landlord is free to obtain tenders from anyone it choose subject to the below. In terms of the second stage, the landlord must obtain estimate from “nominated persons”. The Act does not lay down the terms within which the landlord approaches leaseholders' nominees when seeking to obtain estimates for works or services. Most landlords will require certain fundamental criteria from their contractors (for example, public liability insurance, valid tax exemption certificate, confirmation of VAT status, copies of health and safety policy and confirmation of company status). Landlords will have to justify their selection procedures to the Tribunal, if challenged. If they fail to convince the Tribunal in a particular case - for example, if the Tribunal considers the selection criteria to be too restrictive or anti-competitive - there is a risk that the consultation procedure could be adjudicated as invalid. It is suggested that landlords make their criteria part of their requests for tenders from nominated contractors, to make clear that meeting the criteria is a necessary condition of any contract which may be awarded. Alternatively, there may be some merit in including a brief statement on the selection criteria with the Notice of Intention to the leaseholders when inviting nominees; this can make clear to the tenants that any nominated contractor will need to satisfy the requirements in order to be seriously considered for the contract. The widening of the ability to nominate contractors is intended to provide a greater openness and encourage competition in order to deliver what can be seen as fair and reasonable charges to the leaseholders. Therefore a degree of caution may be appropriate in the initial packaging of contracts, say for a number of estates, which might preclude nomination of smaller contractors. In addition the landlord must prepare proposals such that: (1) there are at least two proposals; (2) one proposal must be that the agreement is made with someone wholly unconnected with the landlord (3) where any estimates have been received from a “nominated person” in response to the notice of intention during the relevant period there must be a proposed based on each such estimate Each of these conditions may be independent i.e. if two nominations were made of persons connected with the landlord, the landlord would still be required to produce a third proposal based on a person wholly unconnected with them. Connections between landlords and contractors Schedule 1 and part 2 of Schedule 4 of the Regulations require that at least one of the estimates provided must be from a contractor 'wholly unconnected' with the landlord. The 'connection' for these purposes is as follows:

where the landlord is a company, if the person/party is, or is to be, a director or manager of the company or is a close relative of any such director or manager;
where the landlord is a company, and the person/party is a partner in a partnership, if any partner in that partnership is, or is to be, a director or manager of the company or is a close relative of any such director or manager;
where both the landlord and the person/party are companies, if any director or manager of one company is, or is to be, a director or manager of the other company;
where the person/party is a company, if the landlord is a director or manager of the company or is a close relative of any such director or manager; or
where the person/party is a company and the landlord is a partner in a partnership, if any partner in that partnership is a director or manager of the company or is a close relative of any such director or manager. A 'close relative' for this purpose means a spouse or cohabitee, a parent, parent-in-law, son, son-in-law, daughter, daughter-in-law, brother, brother-in-law, sister, sister-in-law, step-parent, step-son or step-daughter of that person.

Question 2

Section 20 - Estimates for Work

Accepted Answer

Regarding the S20 process. At the point (Stage 2) where lessees have been consulted on the estimates obtained, is it reasonable or legal for a lessee at this point (who happens to have a company that does painting , flooring etc) , having seen the estimates already obtained, to offer an estimate that underbids those other estimates having benefitted from sight of them? I realise that the company has ample opportunity to be nominated at Stage 1 (on the part of the s20 consultation regarding the specification for the work) but they do not nominate themselves at this stage. They wait until they have seen the other estimates and then provide a cheaper estimate. This situation has occurred twice now (once almost 10 years ago before enfranchisement). On that occasion, the then managing agent allowed the company to underbid and gain the contract. The painting work was so poor he had to withhold a substantial sum and the remedial work made the end result no better. On this more recent occasion I have said that they cannot bid at Stage 2 because they have seen the other estimates and, if such a practice continued, then potential contractors would soon learn not to bother to bid at all if an "in-house" company always gets the contract. The practice is clearly unfair to the legitimate companies who provide us with the estimates. I am aware that for much larger contracts (this particular one is only £4k) there are strict EC rules for handling bids. Is there any legislation that governs the handling of this type of smaller contract that would prevent us from allowing the "in-house" company to bid if they forgoe their opportunity to nominate themselves at the first stage of the s20 consultation? The FPRA responds: There seems to be a fundamental mis-understanding of the process for obtaining tenders. It is for the landlord to “obtain” estimates. The intention of the regulations seems to be that the landlord should be required to obtain quotations from at least one person nominted by the tenant and at least one nominated by a tenants’ association. If no tenants have proposed contractors at the first stage of the consultation process, the landlord is free to obtain tenders from anyone it choose subject to the below. In terms of the second stage, the landlord must obtain estimate from “nominated persons”. The Act does not lay down the terms within which the landlord approaches leaseholders' nominees when seeking to obtain estimates for works or services. Most landlords will require certain fundamental criteria from their contractors (for example, public liability insurance, valid tax exemption certificate, confirmation of VAT status, copies of health and safety policy and confirmation of company status). Landlords will have to justify their selection procedures to the Tribunal, if challenged. If they fail to convince the Tribunal in a particular case - for example, if the Tribunal considers the selection criteria to be too restrictive or anti-competitive - there is a risk that the consultation procedure could be adjudicated as invalid. It is suggested that landlords make their criteria part of their requests for tenders from nominated contractors, to make clear that meeting the criteria is a necessary condition of any contract which may be awarded. Alternatively, there may be some merit in including a brief statement on the selection criteria with the Notice of Intention to the leaseholders when inviting nominees; this can make clear to the tenants that any nominated contractor will need to satisfy the requirements in order to be seriously considered for the contract. The widening of the ability to nominate contractors is intended to provide a greater openness and encourage competition in order to deliver what can be seen as fair and reasonable charges to the leaseholders. Therefore a degree of caution may be appropriate in the initial packaging of contracts, say for a number of estates, which might preclude nomination of smaller contractors. In addition the landlord must prepare proposals such that: (1) there are at least two proposals; (2) one proposal must be that the agreement is made with someone wholly unconnected with the landlord (3) where any estimates have been received from a “nominated person” in response to the notice of intention during the relevant period there must be a proposed based on each such estimate Each of these conditions may be independent i.e. if two nominations were made of persons connected with the landlord, the landlord would still be required to produce a third proposal based on a person wholly unconnected with them. Connections between landlords and contractors Schedule 1 and part 2 of Schedule 4 of the Regulations require that at least one of the estimates provided must be from a contractor 'wholly unconnected' with the landlord. The 'connection' for these purposes is as follows:

where the landlord is a company, if the person/party is, or is to be, a director or manager of the company or is a close relative of any such director or manager;
where the landlord is a company, and the person/party is a partner in a partnership, if any partner in that partnership is, or is to be, a director or manager of the company or is a close relative of any such director or manager;
where both the landlord and the person/party are companies, if any director or manager of one company is, or is to be, a director or manager of the other company;
where the person/party is a company, if the landlord is a director or manager of the company or is a close relative of any such director or manager; or
where the person/party is a company and the landlord is a partner in a partnership, if any partner in that partnership is a director or manager of the company or is a close relative of any such director or manager. A 'close relative' for this purpose means a spouse or cohabitee, a parent, parent-in-law, son, son-in-law, daughter, daughter-in-law, brother, brother-in-law, sister, sister-in-law, step-parent, step-son or step-daughter of that person.

Section 20 – Estimates for Work

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