oversight

HUD's Recent Performance-Based Contract Administration Activity Was Inconsistent with Agreed-Upon Management Decisions between HUD and HUD OIG on Audit Report 2007-SE-0001, Dated June 7, 2007

Published by the Department of Housing and Urban Development, Office of Inspector General on 2008-12-08.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                                   U. S. Department of Housing and Urban Development
                                                                      Office of Inspector General
                                                                                               Region X
                                                                                 Federal Office Building
                                                                             909 First Avenue, Suite 126
                                                                       Seattle, Washington 98104-1000
                                                                                         (206) 220-5360
                                                                                    Fax (206) 220-5162

                                                          MEMORANDUM NO: 2009-SE-0801

December 08, 2008


MEMORANDUM FOR: Janet M. Golrick, Acting Deputy Assistant Secretary for Multifamily
                Housing, HT



FROM:          Joan S. Hobbs
               Regional Inspector General for Audit, 0AGA

SUBJECT:       HUD’s Recent Performance-Based Contract Administration Activity Was
               Inconsistent with Agreed-Upon Management Decisions between HUD and HUD
               OIG on Audit Report 2007-SE-0001, Dated June 7, 2007


                                       INTRODUCTION

We performed a review of the U.S. Department of Housing and Urban Development’s (HUD)
recent invitation to submit applications (invitation) for performance-based contract administrator
services for Southern California to be effective June 1, 2009, and its related annual contributions
contract (contract) due to a complaint and concerns that this activity may have been inconsistent
with agreed-upon management decisions on Audit Report 2007-SE-0001. The purpose of this
review was to determine whether the invitation and the related proposed contract were consistent
with the management decisions on our audit report and to advise you of any inconsistency.

                               METHODOLOGY AND SCOPE

To determine whether the invitation and its contract were consistent with the agreed-upon
management decisions between HUD and the HUD Office of Inspector General (OIG) on Audit
Report No. 2007-SE-0001, issued June 7, 2007, we focused on recommendations 1A and 1B and
conducted an analysis of the invitation and its contract. Our objective was to inform HUD
management of any inconsistencies between the invitation/contract and the management
decisions.

To accomplish our objectives, we compared the following documents:

        HUD’s invitation, issued October 1, 2008, and its contract.
       HUD’s prior invitation, issued in 2003, as well as the original request for proposals and
       other versions of the contract.
       HUD OIG Audit Report No. 2007-SE-0001 and the management decisions between
       HUD and HUD OIG for recommendations 1A and 1B of that report.

This was a limited scope review. Therefore, our work was not performed in accordance with
generally accepted government auditing standards. We performed our review in October and
November 2008 in the HUD OIG office in Seattle, Washington.

                                       BACKGROUND

We previously audited HUD’s payments to project-based Section 8 contract administrators
(contract administrators) for selected incentive-based performance standards (Audit Report
2007-SE-0001, issued on June 7, 2007). We determined that HUD had eliminated the work
required by the contract related to tenant income matching and funding for the housing assistance
payments contracts. We also determined that although the work had been eliminated for a task
relating to budgets and requisitions, HUD specifically informed the contract administrators that
they would continue to receive the administrative fee for this task until the contracts were
revised. However, HUD continued to include all of the tasks for which work was no longer
required when entering into or renewing contracts. Once new contracts were executed, HUD
continued to make payments because the tasks were still included in the contracts and there were
no provisions for reducing the administrative fee.

Finding 1 of the report noted that HUD paid project-based Section 8 contract administrators for
work that HUD no longer required and the contract administrators did not perform. As a result,
during fiscal year 2006, HUD paid a cumulative total of $27.2 million, 19 percent of the total
basic administrative fee, to the 53 program contract administrators nationwide for work that
HUD did not require the contractors to perform.

We recommended that the Deputy Assistant Secretary for Multifamily Housing

       1A. Revise the annual contributions contract when entering or renewing contracts so that
           it properly reflects the work required.

       1B. Include in the revised annual contributions contract a method for adjusting
           administrative fees when HUD modifications change or eliminate work for which
           contract administrators are specifically paid. This revision would result in about
           $27.2 million in annual savings from discontinuing payments for services that are no
           longer required.

The October 5, 2007, proposed management decisions from the Acting Deputy Assistant
Secretary for Multifamily Housing stated that for recommendation 1A,

       The Office of Housing has initiated actions to begin the process of revising the
       Performance Based Annual Contributions Contract (PB-ACC) reflecting current program
       practices and related contract administration activities. Based on the recommendations of

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         a private third party assessment of the contract, there will be significant conceptual and
         structural changes which will require clearance internally and externally, including
         posting proposed program changes in the Federal Register for comment. Upon contract
         finalization additional implementation activities include guidebook revisions and training
         for HUD, the industry representatives and Performance Based Contract Administration
         staff. Target Date for completion: December 31, 2008.

For recommendation 1B, the Acting Deputy Assistant Secretary for Multifamily Housing stated,

         PB-ACC revisions will consider commensurate administrative fees for required
         contractual performance. Due to the extent of contract changes, funds attributable to
         better use of funds in the audit will not bear a direct relationship to the revised contract
         due to the changes in tasks and commensurate functions. Target Date for completion:
         December 31, 2008.

On October 31, 2007, our office concurred with the proposed management decisions with final
action target dates of October 31, 2008. The target date is the date by which HUD should have
implemented OIG’s recommendations.

On September 19, 2008, we followed up with the Acting Deputy Assistant Secretary for
Multifamily Housing to find out whether HUD was still on target to meet the October 31, 2008,
final action target date for revision of the contract. The Acting Deputy stated that “based on
limited staff and travel resources, a working group has not yet been established to revise the
contract. We are anticipating forming a working group in the late first quarter of FY [fiscal year]
2009.” While the Office of Multifamily Housing delays the implementation of our
recommendations, HUD continues to waste $27.2 million annually nationwide on all of its
performance-based contract administration contracts for tasks that are no longer performed.

                                          RESULTS OF REVIEW

On October 1, 2008, HUD’s Office of Multifamily Housing issued an invitation to eligible
bidders to enter into a contract for contract administration services to make and administer
housing assistance payments for the Southern California geographic service area. We reviewed
this invitation and its related proposed contract and determined that HUD’s actions were
inconsistent with the management agreement reached on OIG Audit Report 2007-SE-0001. This
memorandum is to advise you of this inconsistency.

Our review found that HUD did not implement the two recommendations. As a result, the
deficiencies reported in our audit report were not corrected. Consequently, HUD could pay as
much as $1.9 million or 19 percent of the contract’s basic fee each year for work not required
and not performed on this contract1 and will not achieve its objective of obtaining the best value
for dollars spent for contract administrator services.



1
  These amounts are based on the basic fee earned by the current contract administrator for Southern California for
fiscal year 2006, the year reported on in HUD OIG Audit Report 2007-SE-0001.

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Recommendation 1A

Our review of the invitation and its proposed contract revealed that both continued to include
tasks for which the contract administrators were not required to perform any work. Specifically,
tasks 8, related to tenant income matching; 11, related to budgets, requisitions, and revisions; and
12, related to year-end settlement statements were still included in the invitation and the contract.

During our prior audit, HUD officials told us that the contract was not changed once work was
eliminated because the work eliminated was replaced by new work requirements and an
independent assessment of the contract was considered necessary before changes were made.
However, our prior audit work determined that these additional work requirements were already
covered elsewhere in the contract. During current work on a separate assignment, when we
asked for documentation to show what new work, not included in the contract, that the contract
administrators were required to perform, we were told that there was nothing formal that could
be easily provided, so nothing was provided.

Further, the invitation stated in its Technical Approach section that applicants would not be
required to address tenant income verification (task 8) or budget statements (task 11). However,
the incentive-based performance standards performance requirements summary tables in both the
invitation and the contract continued to include these tasks. In addition, these tasks accounted
for 3 percent and 8 percent of the contract basic fee, respectively.

During our current review of the contract under a separate assignment, HUD told us that it paid
about $300,000 for an independent party to assess the contract and provide recommendations.
The final deliverable was received by HUD on February 9, 2007. This independent assessment
recommended that HUD modify the contract to eliminate obsolete tasks and realign the fee
structure with resource requirements since the tasks and the core program requirements were no
longer in step with the work being conducted. The independent assessment estimated that the
time it would take to revise the tasks would be about five months including the involvement of
HUD’s Office of General Counsel. It further estimated that an additional one to two months
would be required to amend the contract and provide adequate training and explanation of the
changes to each of the contract administrators. Even though HUD had more than a year and a
half to incorporate these changes, it released the current invitation without the recommended
changes. This issue will be further analyzed in our separate review of the contract.

The following factors may have contributed to these recommendations remaining uncorrected:

       The Director of HUD’s Office of Housing Assistance Contract Administration Oversight
       explained that HUD rebid the performance-based contract administrator contract for the
       geographic area of Southern California before making the agreed-to changes because of
       the length of time needed to review proposals and the need for the Southern California
       area to be rebid. HUD entered into a short-term extension with the current contract
       administrator to provide sufficient time to rebid the contract, and it had not completed the
       revised contract. However, as noted above, HUD had known that it needed to make
       changes to the contract since February 2007 and agreed with OIG to revise the contract
       by October 31, 2008.

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        HUD’s position continued to be that although the contract included tasks that the contract
        administrators were no longer required to perform, they performed tasks that were not
        included in the framework of the original contract. However, as noted above, we found
        in our audit report 2007-SE-0001 that the tasks referred to were already included in other
        tasks found in the contract. In addition, when we asked for documentation of any
        additional tasks, HUD could not provide that documentation.

Recommendation 1B

Additional review of the invitation and contract showed that neither document included the
agreed-to provision for allowing for programmatic flexibility and did not include any provision
for making adjustments to the contract in the future, which would allow HUD to make
adjustments to the workload and related administrative fees as program needs change. Without
the ability to make these changes to the contract, HUD could pay as much as $1.9 million or 19
percent of the contract’s basic fee each year for work not required and not performed on this
contract.2 Consequently, HUD will not achieve its objective of obtaining the best value for
dollars spent for contract administrator services because it would be paying for services not
received.

                                         RECOMMENDATIONS

We recommend that HUD’s Assistant Secretary for Housing

1A. Immediately rescind the invitation until such time as it and its related contract are revised so
    they do not include tasks that are not required, include a mechanism to adjust workload and
    commensurate fees as program needs change, and include a provision for making
    adjustments to the contracts in the future if requirements change.

                                     MANAGEMENT’S RESPONSE

We discussed our results with your office during the review. We also provided your office a
draft report on November 26, 2008. You disagreed with the finding. Your response and our
evaluation of your response are included in the appendix to this report.

In accordance with HUD Handbook 2000.06, REV-3, for each recommendation in this
memorandum, please provide a status report within 60 days on (1) the corrective action taken,
(2) the proposed corrective action and the date to be completed, or (3) why action is considered
unnecessary. Additional status reports are required 90 days and 120 days after this memorandum
is issued for any recommendation without a management decision. Also, please furnish us
copies of any correspondence or directives issued because of this review.




2
 These amounts are based on the basic fee being earned by the current contract administrator for Southern
California.

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Appendix

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1

Comment 2



Comment 3



Comment 4




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                         OIG Evaluation of Auditee Comments

Comment 1   During our prior audit, we determined that these additional work requirements
            were already covered elsewhere in the contract.

Comment 2   When we asked for documentation of any other tasks that replaced the three tasks
            no longer required, HUD was unable to provide any such documentation. It is
            inappropriate for HUD to require contract administrators to perform services for
            which they are not under contract. Without written documentation of the services
            required, there is no way to measure the contract administrator’s performance
            under a performance-based contract or to determine if the contract administrator
            has provided the required services. Consequently, there is no way to hold them
            accountable for performance. Further, without this documentation, there is no
            basis for determining whether costs of any tasks added were similar and otherwise
            uncompensated.

Comment 3   On September 24, 2008, we requested a copy of the draft framework for the new
            contract. On November 19, 2008, we were only provided with a “PowerPoint”
            presentation showing a concept for the revision of the contract. This was nearly
            two years after HUD received the report of the independent assessment of the
            contract and almost one and one-half years after OIG issued audit report
            2007-SE-0001 recommending changes to the contract. While HUD delays
            revising the contract, we estimate that HUD spends $27.2 million a year for three
            tasks it no longer requires to be performed. This annual waste of funds has
            occurred since 2004 after HUD eliminated the need to perform the three tasks.

Comment 4   If HUD proceeds with its plan to award a contract for the Southern California
            geographic service area, it will continue to pay as much as $1.9 million annually
            for work not required on this contract. This represents 19 percent of the
            contract’s basic fee. Consequently, HUD will not achieve its objective of
            obtaining the best value for dollars spent for contract administrator services.




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