How can Residential Communities (RWAs) better manage vendor services to their members?

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Many Residential Welfare Associations (RWAs) restrict the entry or operating of vendors which supply products and services like milk or vegetables or  newspapers or car cleaning or even property brokerage.  The ostensible reason is that they may not be trustworthy or compliant with quality and safety norms. RWAs therefore conduct a screening  and “register”  approved vendors, in a manner very similar to government agencies and corporate firms.

Sometimes, RWAs especially those which are financially weak, consider charging monthly service opportunity fees to registered vendors thus drawing a needed income. But this imposes a cost on the vendor, which, being a business entity,  he passes on to customers in the community. Many a time, residents complain of poor service by these vendors or that they are highly priced. This puts a burden on the RWA to ensure quality and good pricing, a task that may require full time inspectors and frequent monitoring of  market rates.  Some residents may complain that other vendors should be allowed access to improve competition but this may pose a problem if there is limited space or infrastructure to let out to vendors.

So what should RWAs do?

We had brought out in our earlier article, the importance of aligning with extant laws and regulations. The situation described above is an interesting issue that touches on competition law, consumer rights, and market fairness. In India, the Competition Act, 2002 governs such matters and is enforced by the Competition Commission of India (CCI). The Act prohibits anti-competitive agreements, abuse of dominant positions, and practices that adversely affect competition in the market.

How Competition Law Applies Here

1. Vendor Restrictions & Market Access – If a Residential Welfare Association (RWA) imposes restrictions that prevent vendors from entering the market freely, it could be seen as limiting competition. While RWAs may justify this as a quality-control measure, excessive restrictions or monopolistic behavior could be challenged under competition law.

   
   

2. Price Controls & Vendor Fees – If RWAs impose fees on vendors, leading to higher prices for residents, this could be considered an exploitative practice if it results in unfair pricing or restricts consumer choice. However, RWAs are not businesses in the traditional sense, so their role in price regulation is a gray area.

   
   

3. Abuse of Dominance – If an RWA holds significant power over vendors and forces them into unfavorable agreements (such as excessive fees or restrictive conditions), it could be seen as an abuse of dominance, which is prohibited under the Act.

   
   

Applying the above aspects of the law however can be a bit difficult since opinions may vary on what is considered excessive or exploitative or abuse.  Following a few best practices may then become a useful way forward. We share these below:

• Transparent Vendor Selection – RWAs must ensure that vendor selection is based on clear, fair, and non-discriminatory criteria.  Fresh opportunities for rejected and new vendors to apply must be provided periodically. This will also introduce fair competition for better services.  

  
  

• Reasonable Fees – Any fees imposed on vendors should be justified and not create an undue burden that inflates prices for residents. What is justified can be gauged from fees charged in neighbouring areas or government portals, if applicable.

  
  

• Encouraging Competition – RWAs should ideally allow multiple vendors to operate, preventing monopolies and ensuring residents have choices. However, if this is not possible due to limited space or infrastructure, vendors may be rotated every year.

  
  

• Consumer Feedback Mechanisms – Residents should have a say in vendor selection and pricing concerns, ensuring that RWAs act in their best interests. Once selected, consumers should have easy feedback mechanisms which could be routed through the RWA who are in a position to influence the vendor.

  
  

• Legal Compliance – RWAs should ensure their policies align with competition law and do not unfairly restrict trade.

Let’s apply these to a few examples:

Supply of milk or newspapers:  If these do not need any captive space such as a shop or store, is there a need to charge the vendors any fees? A screening to ascertain the credibility of the distributing vendors and a security deposit ( in case of community violations such as littering) etc may be considered sufficient.

Supply of vegetables or fruit:  These will require floor space which could be uncovered or covered. Charging rentals for this space can be  justified based on prevailing rates in the neighbourhood. Going for the highest bidder for rentals may seem logical, but may result in inflated prices. Keeping a cap on maximum rental and an open lottery system to pick a vendor from multiple competitors offering this maximum, may be the best option.

Car cleaning services:   Some RWAs hire contract workers to clean residents cars at a fixed rate and charge the cleaners a commission.   This can work fine unless car owners have different needs ( and standards)  for cleaning. Then, ensuring acceptable services can become harrowing for the RWAs who will need to adopt a regular and detailed feedback and implementation process. While charging a security deposit may be useful to safeguard against  errant workers, charging a monthly commission may only result in inflated rates being passed on to car owners.  RWAs could consider an open competitive model, where car owners are given a choice to choose from different car cleaning services and directly negotiate with them as is prevalent with apartment cleaning services.

Property brokerage :   Internet based property brokering now provides detailed information with photos and features, and sellers and buyers are able to match and meet their needs extremely efficiently. The need for physical brokering has thus reduced tremendously and may be necessary only for very specific requirements.  The registration of and restriction of property brokers by RWAs may therefore go against the principles of free market competition and harm the interests of its members.

What about vendor and worker development?

In the highly competitive environment, which Indian metros are experiencing, it seems attractive to obtain the best bang for the buck. But, this may lead to the exploitation of workers by contractors. This happens in multiple ways -   paying workers less than the govt stipulated minimum wages,  or not providing employee provident fund and insurance and other such mandated benefits.  Vendors (contractors) too need some amount of encouragement, feedback and avenues for developing and improving their services. Being empathetic to their needs can help build better relationships and contribute to overall better well-being within the larger community.

We hope you find this article helpful. Do send in your queries at Contact@cocreed.in so we can help you find solutions to your specific situations.