U.S. Department of Housing and Urban Development District Office of the Inspector General Office of Audit Richard B. Russell Federal Building 75 Spring Street, SW, Room 330 Atlanta, GA 30303-3388 (404) 331-3369 January 11, 2002 2002-AT-1805 MEMORANDUM FOR: Hildamar Ortiz, Director, Public Housing Division, 4NPH FROM: Nancy H. Cooper District Inspector General for Audit-Southeast/Caribbean, 4AGA SUBJECT: Puerto Rico Public Housing Administration (PRPHA) Citizen Complaint on Martinal Property, Inc (Management Agent) San Juan, Puerto Rico We completed a review of the subject Management Agent’s procedures in awarding a contract under Bid 99-12. The procurement was for roof repairs at Luis Llorens Torres, Parque San Agustin, and Puerta de Tierra public housing projects. Martinal Property, Inc. is the manager of these projects under a contract with the PRPHA. Our review was prompted by a citizen’s complaint alleging irregularities in the procurement process. Our objective was to determine the validity of the complaint and if the procurement procedures used by the Management Agent for Bid 99-12 complied with HUD requirements. BACKGROUND On June 26, 2000, we received a complaint about the bidding of a contract for roof repairs at three public housing projects - Luis Llorens Torres, Parque San Agustin, and Puerta de Tierra. Bid 99-12 was advertised in October 1999. The complainant raised concerns about the small number of bidders, improper bidding by the winning joint venture, excessive rate paid for the work, the quality of the materials used, and safety concerns. Although three projects were included in the advertisement for bid, Martinal did not execute a contract for the work at Puerta de Tierra. Martinal executed contracts for the remaining two projects totaling $2,846,314 and funded with 1999 Comprehensive Grant Program (CGP) funds. Title 24, Code of Federal Regulations (CFR), Subpart 85.36 governs the PRPHA’s procurement and associated management controls. These are the basic principles that must be followed in obtaining and paying for goods and services. The regulations allow the PRPHA to use its own procurement procedures provided they conform to the Federal standards. The PRPHA’s procurement regulations dated August 13, 1993, incorporate the Federal standards but also impose additional requirements. Exit HUD Handbook 7460.8, Rev-1, Procurement Handbook for Public Housing Agencies and Indian Housing Authorities, dated January 1993 supplements the Federal regulations. These criteria apply to the PRPHA and to its management agents. SCOPE AND METHODOLOGY We interviewed Management Agent officials, HUD and PHA personnel, potential contractors, and others entities referenced in the complaint. We also reviewed the Management Agent’s procurement file for Bid 99-12 and HUD’s files pertaining to the 1999 CGP funds assignment. In addition, we made a site visit to Luis Llorens Torres Public Housing Project. Our review was limited in scope and not intended to meet all requirements of Government Auditing Standards. SUMMARY While we found the complainant’s specific allegations were not valid, we did confirm irregularities in the procurement process. The Management Agent did not properly advertise the bid, did not perform a cost and price analysis, and awarded contracts for a different scope of work and twice the price of the winning bid. Consequently, the bid process failed to give assurances of either adequate competition or of value received. We are making no recommendations regarding procurement procedures since HUD is now working closely with the PRPHA to correct a myriad of management deficiencies, especially in the area of procurement. However, we are recommending that HUD direct the PRPHA to assure that all work under the subject contract was satisfactorily completed. * * * * * Please furnish this office a reply within 60 days for each recommendation describing: (1) the corrective action taken, (2) the proposed corrective action and a planned implementation date, or (3) why action is not considered necessary. Also, please furnish us copies of any correspondence or directives issued because of the review. Note that Handbook 2000.06 REV-3 requires management decisions to be reached on all recommendations within 6 months of report issuance. It also provides guidance regarding interim actions and the format and content of your reply. We are providing a copy of this report to the PRPHA. If you have any questions, please contact me or Aurora Rodriguez, Senior Auditor, at 787-766-5540. Appendices: A – Finding and Recommendation B – Auditee Comments D – Distribution 2 Exit Appendix A FINDING AND RECOMMENDATION Finding – Management Agent Did Not Follow Procurement Requirements We determined that the specific allegations of the complaint were not valid. However, the Management Agent did not comply with HUD’s procurement requirements. It did not properly advertise the bid, did not perform a cost and price analysis, and awarded contracts for a different scope of work and twice the price of the winning bid. Consequently, the bid process failed to give assurances of either adequate competition or of value received. The Management Agent did not publish the invitation to bid as required by the written procurement regulations. The Agent published the announcement once in the El Vocero newspaper on October 23, 1999. The bid opening was held 12 days later on November 4, 1999. PRPHA Regulation for Procurement, Article 7.B.1.c.1 requires invitations to bid and bid notices to be published on 2 different days in two general circulation newspapers. HUD Handbook 7460.8, Rev.1 App1, requires a minimum of 15 days from the advertisement to the bid opening. The files contained no evidence that the Management Agent performed a cost and price analysis. Such an analysis is used to determine the reasonableness of the proposed contract price. Title 24 CFR part 85.36(f) requires grantees and sub-grantees to perform a cost and price analysis in connection with every procurement action including contract modifications. The winning contractor offered to seal 35 percent of the roof area for $2.40 per square foot and the rest for $2.90 per square foot. The procurement documents did not indicate the basis for the difference in price. A cost and price analysis should have included an evaluation of the propriety of the difference in price. After the bid opening, the Management Agent changed the scope of work and significantly increased the roof area to be repaired without going through additional competition. The roof area to be waterproofed as specified in the bid was 515,708 square feet for Luis Llorens Torres project, with repairs to correct levels specified as 156,640 square feet. The winning contractor quoted $1,483,243 in its bid. However, the contract executed on March 17, 2000, between Martinal Property and the winning contractor included waterproofing a roof area of 987,767 square feet plus repairs to level an estimated 313,280 square feet for a total contract amount of $2,837,208. The contract was double the amount of the bid. Such a significant increase (91 percent) could have affected the prices quoted. Upon inquiry, a Management Agent official stated that after receiving the bid proposals, the President of Martinal decided to perform the roof sealing on all the buildings, communal centers, and kiosks of the Luis Llorens Torres project. This official then requested a new price from the lowest bidder, Jorge Hernandez, and awarded the contract. This was contrary to 24 CFR 85.36(d)(2)(ii)(A) which requires full and open competition and procurement by sealed bids (formal advertising). Negotiation is not allowed when procurement is by sealed bids. The Management Agent awarded a contract without following the proper procurement process. 3 Exit It is uncertain whether the PRPHA paid a fair price for the roofing work done at these projects. It is imperative that the Management Agents of the PRPHA understand and follow the procurement requirements. Those that fail to do so, as Martinal did in this bid, should not be selected to do business with the authority or HUD in the future. Auditee’s Comments The Management Agent provided a reply to the PRPHA. The PRPHA did not agree with the answer given by the Management Agent, and initiated an audit of their reply. Also, the PRPHA instructed its Director of Operations to assign an engineer to inspect the work that was performed. Recommendation 1A. Obtain assurance from the PRPHA that all work under the subject contract was satisfactorily completed. 4 Exit Appendix B AUDITEE COMMENTS "Nydia L. Carrillo Castillo" To: "'email@example.com'" <firstname.lastname@example.org> <NCarrillo@avp.gobi cc: erno.pr> Subject: 11/16/01 02:52 PM I am sending you by fax the response that was prepared by the Manager Agent regarding your audit. We did not agree with this answer to the findings and we initiated an audit of their allegations. Also, we have instructed our Director of Operations to assign an Engineer to inspect the works that were performed. Once we complete the audit and inspections, we will provide you with the PRPHA final determinations and about your audit. If you have any questions, feel free to contact me at (787) 754-0321. Sincerely, Carlo G. Laboy Díaz 5 Exit 6 Exit 7 Exit 8 Exit Appendix C DISTRIBUTION President, Martinal Property Corp. Administrator, Puerto Rico Public Housing Administration, San Juan, Puerto Rico Secretary, S Deputy Secretary, SD (Room 10100) Chief of Staff, S (Room 10000) Assistant Secretary for Administration, S (Room 10110) Acting Assistant Secretary for Congressional and Intergovernmental Relations, J (Room 10120) Deputy Assistant Secretary, Office of Public Affairs, S, (Room 10132) Deputy Assistant Secretary for Administrative Services, Office of the Executive Secretariat, AX (Room 10139) Deputy Assistant Secretary for Intergovernmental Relations, Acting Deputy Chief of Staff, S (Room 10226) Deputy Chief of Staff for Policy, S (Room 10226) Deputy Chief of Staff for Programs, S (Room 10226) Special Counsel to the Secretary, S (Room 10234) Senior Advisor to the Secretary, S Special Assistant for Inter-Faith Community Outreach, S (Room 10222) Executive Officer for Administrative Operations and Management, S (Room 10220) General Counsel, C (Room 10214) Assistant Secretary for Housing/Federal Housing Commissioner, H (Room 9100) Assistant Secretary for Policy Development and Research, R (Room 8100) Assistant Secretary for Community Planning and Development, D (Room 7100) Assistant Deputy Secretary for Field Policy and Management, SDF (Room 7108) Office of Government National Mortgage Association, T (Room 6100) Assistant Secretary for Fair Housing and Equal Opportunity, E (Room 5100) Director, Office of Departmental Equal Employment Opportunity, U Chief Procurement Officer, N (Room 5184) Assistant Secretary for Public and Indian Housing, P (Room 4100) Director, Office of Departmental Operations and Coordination, I (Room 2124) Office of the Chief Financial Officer, F (Room 2202) Chief Information Officer, Q (Room 3152) Acting Director, HUD Enforcement Center, V, 1250 Maryland Avenue, SW, Suite 200 Acting Director, Real Estate Assessment Center, X, 1280 Maryland Avenue, SW, Suite 800 Director, Office of Multifamily Assistance Restructuring, Y, 1280 Maryland Avenue, SW, Suite 4000 Inspector General, G (Room 8256) 9 Exit Secretary's Representative, 4AS Area Coordinator, San Juan Area Office, 4NS Director, Public Housing Division, 4NPH Audit Liaison Officer, 3AFI Audit Liaison Officer, Office of Public and Indian Housing, PF (Room P8202) Departmental Audit Liaison Officer, FM (Room 2206) Acquisitions Librarian, Library, AS (Room 8141) Counsel to the IG, GC (Room 8260) HUD OIG Webmanager-Electronic Format Via Notes Mail (Cliff Jones@hud.gov) Public Affairs Officer, G (Room 8256) Stanley Czerwinski, Associate Director, Resources, Community, and Economic Development Division, U.S. GAO, 441 G Street N.W., Room 2T23, Washington DC 20548 The Honorable Fred Thompson, Chairman, Committee on Governmental Affairs, United States Senate, Washington DC 20510-6250 The Honorable Joseph Lieberman, Ranking Member, Committee on Governmental Affairs, United States Senate, Washington DC 20510-6250 The Honorable Dan Burton, Chairman, Committee on Government Reform, United States House of Representatives, Washington DC 20515-6143 The Honorable Henry A. Waxman, Ranking Member, Committee on Government Reform, United States House of Representatives, Washington, DC 20515-4305 Ms. Cindy Fogleman, Subcommittee on Oversight and Investigations, Room 212, O'Neil House Office Building, Washington, DC 20515-6143 Steve Redburn, Chief, Housing Branch, Office of Management and Budget, 725 17th Street, NW, Room 9226, New Executive Office Bldg., Washington, DC 20503 Sharon Pinkerton, Deputy Staff Director, Counsel, Subcommittee on Criminal Justice, Drug Policy and Human Resources, B373 Rayburn House Office Bldg., Washington, DC 20515 Armando Falcon, Director, Office of Federal Housing Enterprise Oversight, O, 1700 G Street, NW, Room 4011, Washington, DC 20552 10 Exit
Puerto Rico Public Housing Administration (PRPHA) Citizen Complaint on Martinal Property, Inc (Management Agent) San Juan, Puerto Rico
Published by the Department of Housing and Urban Development, Office of Inspector General on 2002-01-11.
Below is a raw (and likely hideous) rendition of the original report. (PDF)