Issue Date
November 9, 2010
Audit Report Number
2011-HA-0001
TO: Vicki Bott, Deputy Assistant Secretary for Single Family Housing, HU
Jemine A. Bryon, Chief Procurement Officer, Office of the
Chief Procurement Office, N
//s//
FROM: Saundra G. Elion, Director, Headquarters Audit Division, GAH
SUBJECT: HUD Did Not Adequately Plan the Procurement of the Management and
Marketing Contracts
HIGHLIGHTS
What We Audited and Why
We performed an audit of the selection of management and marketing
contractors for single-family properties owned by the U.S. Department of
Housing and Urban Development (HUD). This audit was initiated based
on a complaint to our hotline alleging possible mismanagement, political
influence, and violations of law in the procurement strategy used to select
firms for the third generation management and marketing (M&M III)
contracts. Our objective was to determine whether the allegations of
mismanagement, political influence, and possible violations of law were
valid.
What We Found
We found the allegation of mismanagement credible; however, we did not
find support to substantiate the allegations of political influence or
violations of law. The Office of Single Family Asset Management (single
family) and the Office of the Chief Procurement Officer (procurement
office) did not have adequate controls to ensure that the M&M III contracts
were awarded in a timely and efficient manner. Specifically, key
stakeholders were not included in the initial planning for these contracts,
and acquisition plans were not developed in a timely manner. As a result,
the M&M III contracts were delayed for nearly a year, and bridge contracts
with an estimated cost of more than $275 million had to be awarded to the
existing M&M II contractors to avoid a lapse in the management and
marketing services.
What We Recommend
We recommend that the Deputy Assistant Secretary for Single Family
Housing develop controls to award contracts in a timely manner, thus
avoiding unnecessary expenditures for extending contracts. We also
recommend that the Deputy Assistant Secretary (1) follow the procurement
office’s established acquisition planning requirements and procurement
acquisition lead time (PALT)1 guidance, (2) submit timely and complete
performance work statements on all future contracts, and (3) use in-house
resources when forming the integrated program team for all significant
acquisitions to avoid unnecessary expenditures such as those paid to a
contractor for writing performance work statements.
In addition, we recommend that HUD’s Chief Procurement Officer (1)
assign significant acquisitions to offices that have sufficient staff and
expertise to avoid unnecessary expenditures such as those paid to an
administrative support contractor, and (2) ensure that the PALT schedule is
followed and require written justification when significant delays are
encountered.
For each recommendation without a management decision, please respond
and provide status reports in accordance with HUD Handbook 2000.06,
REV-3. Please furnish us copies of any correspondence or directives
issued because of the audit.
Auditee’s Response
We provided the discussion draft to single family and the procurement
office for comment on July 13, 2010. We provided a revised draft to the
auditees on September 24, 2010, then the final revised draft on October 15,
2010. We received written comments from single family and the
procurement office on October 21, 2010, that generally agreed with our
findings and recommendations. The complete text of the auditees’
responses, along with our evaluation of those responses, can be found in
Appendix B of this report.
1
A schedule of the standard number of days it takes to process actions through the acquisition process.
2
TABLE OF CONTENTS
Background and Objective 4
Results of Audit
Finding 1: HUD Did Not Adequately Plan the Procurement of Management and 6
Marketing Services Under the M&M III Contracts
Scope and Methodology 15
Internal Controls 16
Appendix
A. Comparison of Management Fees Paid 17
B. Auditee Comments and OIG’s Evaluation 19
3
BACKGROUND AND OBJECTIVE
Since 1999, the U.S. Department of Housing and Urban Development (HUD) has
outsourced the disposition of its single-family properties conveyed to it as a result of
defaults on Federal Housing Administration-insured loans. The first generation of
management and marketing contracts (known as M&M I) consisted of 16 contracts with a
value of $1.2 billion. These contracts were awarded to seven private firms to provide
management and marketing services throughout the United States, Puerto Rico, the
Virgin Islands, Guam, and the Northern Marianna Islands. In 2004, 24 second generation
(M&M II) contracts, with a value of $1.9 billion, were awarded to 12 private firms.
Each M&M I and II contractor provided administrative and program support and property
management, marketing, and sales in their assigned geographic areas. Their
responsibilities included ensuring that
Lenders (Federal Housing Administration-approved mortgage loan holders or
mortgage loan servicers) complied with all legal requirements for conveying good
marketable titles to HUD;
Properties were secure, safe, and maintained to preserve property values during
the transition; and
Properties were accurately valued and proceeds were properly accounted for and
delivered to HUD in a timely manner.
By the end of the two contract periods, HUD had spent far in excess of the estimated
contract value to manage and market its single-family properties and was not satisfied
with the quality of the work of some contractors.
In an attempt to remedy the shortcomings of the M&M I and II contracts as well as to
increase HUD’s net return on single-family properties, increase management oversight
and control, address historical audit findings, and improve effectiveness and efficiency of
the disposition process, the Office of Single Family Asset Management (single family)
restructured its overall approach for obtaining management and marketing services.
Specifically, in 2007, single family awarded an 8(a) sole-source2 contract to Booth
Management Consulting, LLC (Booth), to assist with planning the third generation
management and marketing (M&M III) contracts. Booth recommended that the
management and marketing contracts be separated into four primary areas, and single
family agreed. The four areas are as follows:
Oversight monitor – One contract, valued at $17.2 million, to be awarded to
assist HUD in meeting its program objectives by monitoring and providing
oversight of the M&M III contractors. HUD planned to award this contract in
February 2009.
2
A sole-source contract is a contract that is entered into after soliciting and negotiating with only one
source.
4
Mortgagee compliance manager – One contract, valued at $50.3 million, to be
awarded to certify that the lender protected and preserved HUD’s property against
damages and completed the foreclosure action within the required timeframe.
HUD planned to award this contract in May 2009.
Field services manager – HUD planned to award 35 contracts to private firms at
an estimated value of $1 billion. The primary purpose of these contracts is to
provide property maintenance and preservation services in support of HUD’s
property disposition program nationwide. HUD planned to award these contracts
in late May 2009, 2 months before the majority of the M&M II contracts would
expire.
Asset manager – HUD planned to award 26 contracts to private firms at an
estimated value of $987.6 million. The primary purpose of these contracts is to
market and sell single-family properties within the contractor’s designated
geographic area. HUD planned to award these contracts in September 2009.
The value of the 63 M&M III contracts is estimated to be $2.1 billion.
HUD’s Office of the Chief Procurement Officer (procurement office) has overall
responsibility for obtaining all contracted goods and services for HUD and works closely
with each program office in developing its procurement requirements. To ensure that
HUD meets its strategic objectives, the procurement office has established policies and
procedures for HUD program offices to follow. Some of those procedures include the
development of short- and long-range acquisition plans, establishing timelines for
completing and submitting contract requests, and providing the procurement office
adequate time to acquire goods and services in the most cost-effective manner. Contracts
are awarded and managed by four principal offices within HUD at HUD headquarters
and three field contracting operations offices in Philadelphia, PA, Atlanta, GA, and
Denver, CO. Additionally, there are specialty areas within the field contracting
operations offices. In 2007, the procurement office designated the Atlanta office as the
M&M Contracting Center of Excellence.
Our objective was to determine whether the allegations of mismanagement, political
influence, and possible violations of law were valid.
5
RESULTS OF AUDIT
Finding 1: HUD Did Not Adequately Plan the Procurement of
Management and Marketing Services Under the M&M III
Contracts
The Office of Single Family Asset Management (single family) and the Office of the
Chief Procurement Officer (procurement office) did not adequately plan the procurement
of management and marketing services under the M&M III contracts. Inadequate
planning occurred because single family mismanaged the process by using a contractor to
plan the strategy and create the performance work statements for the M&M III contracts
and the headquarters procurement office experienced staff shortages and continuous staff
turnover. As a result, the M&M III contracts were delayed for nearly a year, and bridge
contracts with an estimated cost of more than $275 million had to be awarded to the
existing M&M II contractors to avoid a lapse in management and marketing services.
Key Stakeholders Were Not
Involved in the Initial Planning
Process
Single family began planning the process to award the M&M III contracts
in 2007, nearly 2 years before the expiration dates of the M&M II
contracts. However, in its attempt to reengineer this 10-year-old
management and marketing services contract process that had proven to be
risky and costly to HUD, single family neglected to follow the established
protocol for procuring significant acquisitions such as this one.
In accordance with the Procurement Office Handbook 2210.3, the
procurement office and single family established an integrated program
team (IPT)3 for M&M III. The goal of the IPT is to ensure that all
necessary expertise is made available and devoted to the successful
accomplishment of the procurement. To that end members were appointed
to the IPT; an acquisition strategy, including critical milestones and target
dates, was developed; and an acquisition project plan was also developed.
Noticeably absent from the IPT and the initial planning process (that
happened before July 2007), were the Office of Housing’s Procurement
Management Division and Office of Budget and Field Resources. These
3
An IPT is a group of key stakeholders, made up of management, program, technical, and contracting
experts, assembled to accomplish critical and complex procurement actions.
6
key stakeholders could have provided program and technical expertise
necessary to execute a timely and successful acquisition. Specifically
The Office of Housing’s Procurement Management Division
conducts the market research for new procurements for the Office
of Housing and reviews the requests for contract services and the
performance work statements for all single-family contracts.
The Office of Housing’s Office of Budget and Field Resources
generally determines the funding source and certifies that the
appropriate funds are available in the Office of Housing’s budget
for all new procurements.
In addition to the two single family offices described above, the M&M
Contracting Center of Excellence4 (the center) was not actively involved in
planning the M&M III acquisition. The former director of the center
believed his role as an “advisor” to the IPT was less than that of a member
and considered his contributions minor. However, the current director
shared specific “lessons learned” based on the center’s experiences in
administering the management and marketing contracts with the Director of
Single Family Asset Management in November 2007. One lesson he
shared was, “Acquisition Planning cannot be allowed to occur
independently in a vacuum!” He emphasized that other offices, including
single family, real estate-owned property divisions, the Office of General
Counsel, and homeownership centers (offices that insure single-family
mortgages and oversee the selling of HUD homes) must also participate in
the process [if the procurement is to be successful].
As best we could discern from the few planning records provided to us, the
focus of the IPT changed and the target dates abandoned shortly after the
current Director of Single Family Asset Management became part of the
organization. For example, the market research and performance work
statement tasks were no longer led by in-house (IPT) team members, and
none of the target dates were adhered to. Instead of using the strategy set
forth by the IPT, the Director of Single Family Asset Management elected
to outsource much of the planning function to Booth. In 2007, single
family awarded Booth a $1.6 million 8(a) sole-source contract to assist
with planning the M&M III contracts. Planning consisted of providing best
industry practices relating to the property management and disposition of
HUD-owned single-family properties and providing guidance in
restructuring the overall management and marketing contract structure.
Each of these functions could have been handled by one of the key
stakeholders described above or other members appointed to the IPT.
4
The procurement office designated the Southern (Atlanta) Field Contracting Center as the M&M
Contracting Center of Excellence in 2007 because the Atlanta office was responsible for managing and
overseeing the M&M II contracts and, therefore, was knowledgeable of the requirements and practices of
providing management and marketing services and overseeing the contracts.
7
Moreover, Booth was not familiar with HUD’s internal acquisition
requirements for keeping the management and marketing service contracts
on schedule. Booth’s lack of familiarity led to delays in the acquisition
process.
The Contractor Developed
Statements for M&M III
Contract Proposals
Under the 8(a) sole-source planning contract with Booth, single family also
tasked Booth to develop performance work statements and statements of
objectives (hereafter referred to as statements) for each of the four major
areas of the M&M III contracts. The statements Booth prepared were
poorly developed and written; therefore, single family deemed the
statements to be unacceptable and had to use its own staff to revise and
complete the statements.
According to the technical monitor for the Booth contract and documents
contained in the contract file, Booth merely copied verbatim language from
the previous M&M II contract into the requested statements for the M&M
III proposals without taking into consideration the restructured approach to
unbundle the services. The poorly written statements were even more
confusing given Booth’s acceptable work on the market study as well as the
firm recommending the asset disposition strategy and structure for M&M
III. The technical monitor also stated that:
. . . it was thought that the next step in the process of developing the
requirements would be a seamless process for BMC [Booth]. In
practice it was anything but. Even though this structure was largely
based on BMC’s recommendations to HUD, it became clear early in
this task that BMC did not have a fundamental understanding of the
requirements and a fundamental lack of understanding of the HUD’s
management and marketing (M&M) under its existing M&M
structure.
This statement clearly shows that HUD recognized that Booth “did not
have a fundamental understanding of the requirements.” HUD provided
Booth’s staff with written feedback as well as a walk-through of the
existing M&M II contract to explain where to make specific changes to the
language in the statements. However, the changes that were inherent in the
new M&M III contract disposition structure were not always incorporated
into the statements. As a result of the fundamental misunderstanding and
lack of clarity, Booth submitted multiple drafts (as many as 10 drafts for
the compliance contract proposal alone). Single family ultimately asked
Booth to discontinue work on this task and had its own staff spend
additional time and resources revising and completing the statements. By
8
that time, Booth had exceeded its hours allocated to this task and requested
an additional $299,399 for the work done. However, single family
negotiated a settlement of $146,246 for the additional hours spent on this
unsuccessful task. Ultimately, Booth was paid $352,508 for this task. We
believe that the $352,508 paid to Booth was an unnecessary expenditure
because single family spent additional time and resources revising and
completing the statements.
Acquisition Plans Were Not
Submitted in a Timely Manner
Single family’s acquisition plans for the procurement of the M&M III contract
were not developed and provided to the procurement office in a timely manner.
The PALT schedule as prescribed by the procurement office describes the
standard number of days typically needed by the procurement office to complete
the preaward portion of the acquisition process from beginning to end. Single
family submitted three of the four M&M III contract solicitations after the
established lead time specified in the PALT. The number of days late ranged
from 37 to 127 days.5
The contracting officer for the M&M III contracts stated, “…the requirement
[performance work statement] was not timely and not properly defined by the
program office.” The poorly written statements contributed to the delays in
meeting established timelines because single family and procurement office
personnel had to devote additional time and resources to revising and completing
the statements submitted by the contractor. Consequently, single family failed to
meet HUD’s established lead time requirements for submitting complete
statements to the procurement office.
Additional delays were attributed to single family’s need to reassess appropriate
funding sources for the oversight monitor (oversight) and mortgagee compliance
manager (compliance) contracts. This funding error was not found until January
2010, more than 9 months after the original M&M III solicitations were
announced and after the M&M II contracts had expired. As a result, the
procurement office could not award the oversight and compliance contracts until
single family had reviewed its available budget resources and determined whether
appropriate funds were available. Single family identified an appropriate funding
source, and the procurement office awarded both the oversight and compliance
contracts nearly a month later, in January and February 2010 respectively. As
shown in the chart below, the M&M III contracts were from 9 to 12 months late.
5
The established lead time for the oversight, compliance, and asset manager contracts was 120 days before
the planned award date and 210 days for the field services manager contracts.
9
Planned and actual award dates for the M&M III contracts
Source: The procurement office
Oversight monitor (OM) - 11 months late
Mortgagee compliance monitor (MCM) - 9 months late
Field service manager (FSM) - 12 months late
Asset manager (AM) - 9 months late
The procurement office attributed the delays in awarding the contracts to
many factors, including late requests for quotes, amendments to the
proposal, legal sufficiency reviews, responding to extensive questions asked
by perspective vendors, vendor protests, incorrect funding source, and late
responses from single family and the Office of General Counsel.
Had the IPT included key stakeholders such as personnel from Office of
Housing’s Budget Office and the Procurement Management Division, and
had the Director of Single Family Asset Management heeded the advice of
the current Director of the M&M Contracting Center of Excellence to
“timely collaborate during all phases of the process,” many of the problems,
including the poorly written statements and the funding source, may have
been avoided.
The Headquarters Procurement
Office Experienced Staff
Shortages and High Staff
Turnover
Staff shortages and high staff turnover in the headquarters procurement
office contributed to the mismanagement of the M&M III contracting
process. Although the procurement office had requested an additional 12
10
positions over the past 4 years, that office had a continuous staff shortage of
18 to 20 vacancies and a 50 to 60 percent staff turnover rate every 18
months. Further, 95 percent of the staff who worked on the presolicitation
phase of the M&M III contracts was no longer employed by the
procurement office by the time we completed our audit.
While the acquisition community throughout the Federal Government is
experiencing shortages, HUD’s shortages and turnovers have persisted for
years, thereby causing a lack of continuity in procurement actions. This
conclusion is supported by the resource management study6 HUD conducted
in 2004 that stated,
“The [procurement] Office faces a number of challenges that impact
efficiency, including a shortage of staff resources, high turnover…”
However, despite the continuous staff shortages and high staff turnover at
the headquarters procurement office, a former Deputy Chief Procurement
Officer decided to award the M&M III contracts from the headquarters
procurement office instead of the M&M Contracting Center of Excellence.
The center had a larger, more experienced, stable office staff that had in-
depth knowledge of the management and marketing services process, as
well as HUD’s procurement procedures. We believe the M&M Contracting
Center of Excellence had the capacity to process this procurement more
efficiently than the headquarters procurement office.
To mitigate the staff shortages and increased workload at the headquarters
procurement office caused by the M&M III solicitations, single family
funded a $325,300 8(a) sole-source contract to Design to Delivery, Inc.
This contractor was to provide administrative support to the procurement
office for processing the asset manager and field service manager
solicitations under the M&M III contracts. However, Design to Delivery
only worked on the contract for a portion of the base year because single
family deemed Design to Delivery’s performance to be “unacceptable” and
the delivered products to be “untimely and without an acceptable level of
quality.”
Conversely, Design to Delivery believed that the information its staff
received from single family to complete its deliverables was unclear and
incomplete and the difficulties it experienced working with the contracting
officer for the M&M III contracts were the factors affecting its performance.
We believe that the $325,300 paid to Design to Delivery was an unnecessary
expenditure of funds that possibly could have been avoided if the M&M III
contracts had been awarded by the M&M Contracting Center of Excellence.
6
US Department of Housing and Urban Development; Resource Estimation and Allocation Process
(REAP), Study # 14, March 18, 2004
11
As stated above, we believe that because the center had a stable staff that
had years of experience working with HUD’s management and marketing
contractors the center may have had the capacity to award the M&M III
contracts more timely. Furthermore, the center will administer the M&M III
contracts after they are awarded.
HUD Awarded Sole-
Source Contracts To
Avert a Lapse in Services
None of the M&M III contracts had been awarded by the end of the M&M
II contract period. To avert a lapse in the management and marketing
services, the procurement office first exercised the contract extension
option then awarded sole-source contracts. The M&M II contracts allowed
the procurement office to extend the services (under the M&M II contracts)
for an additional 6 months beyond the initial contract period. These
extensions were given with the expectation of having the M&M III
contracts in place by January 2010.
However, when it became obvious to the procurement office and single
family that none of the M&M III contracts would be awarded in time (i.e.,
before December 2009) to transition the properties from the M&M II
contractors, they elected to award bridge contracts to the 19 existing M&M
II contracts. Since, Federal procurement law precludes HUD from
awarding bridge contracts unless the agency invokes one of the statutory
exceptions to full and open competition, the Chief Procurement Officer,
with the approval of the Secretary of HUD, invoked the public interest
exception and notified Congress of HUD’s intent to award these sole-
source bridge contracts in December 2009. To that end, HUD negotiated
new (bridge) contracts with the existing contractors for the continuation of
management and marketing services provided under the M&M II contracts.
Unlike the extensions to the M&M II contracts, in which the costs
remained essentially the same as for option year 4, the procurement office
negotiated substantial increases in the prices of many of the 19 M&M II
bridge contracts. The procurement office explained, and we
acknowledged, that it was reasonable to increase the price of the bridge
contracts to include the cost of inflation as well as changing conditions in
the housing market. However, when we compared the individual line
items, some of the contract prices appeared to be unreasonable given that
the bridge (sole-source) contract was with the same private firm, for
essentially the same services, to cover the same geographic area that they
had under M&M II. For example, our review of the property management
fees paid to each contractor during option year 4 showed that the
procurement office negotiated fees that were as much as 77.8 percent
12
higher for the bridge contract than those same fees had been for M&M II.
See appendix A for a comparison of the management fees.
Based on the data obtained from single family and the procurement office,
the 19 bridge contracts will cost HUD in excess of $275 million. The
substantial increase in the cost of the management and marketing services
under the bridge contract could have been avoided had HUD awarded the
M&M III contracts in accordance with their initial timelines.
Conclusion
The poor decisions made by single family and the procurement office in
restructuring and planning the M&M III contracts resulted in significant
delays in awarding contracts valued at $2.1 billion, the largest and most
critical single procurement for HUD. To avoid a lapse in the management
and marketing services that could have caused significant financial harm,
HUD’s only option at that point was to award bridge contracts.
Unfortunately, the average cost of the 19 sole-source contracts will cost
substantially more than the average cost of the M&M II contracts. Also,
the $352,508 paid to Booth to develop the statements of work and the
$325,300 contract awarded to Design to Delivery to provide administrative
support for the M&M III contract solicitations were the results of poor
management decisions.
Recommendations
We recommend that the Deputy Assistant Secretary for Single Family
Housing
1A. Develop controls to award contracts in a timely manner, thus avoiding
unnecessary expenditures such as the additional costs incurred for
extending the M&M II bridge contracts.
1B. Follow the procurement office’s established acquisition planning
requirements and PALT guidance, and submit timely and complete
performance work statements on all future contracts.
1C. Use in-house resources for significant acquisitions to ensure that the
necessary knowledge and experience are leveraged to the greatest
extent possible during the acquisition process, thus avoiding
unnecessary expenditures such as those paid to a contractor for
writing the statements of objectives and performance work statements.
13
We recommend that HUD’s Chief Procurement Officer
1D. Assign significant acquisitions to the office that is sufficiently staffed
with the necessary experience and technical expertise to ensure the
timely award of contracts, thus avoiding unnecessary expenditures
such as those paid to the administrative support contractor.
1E. Ensure that requirements in the PALT are followed and require
written justification when there are significant delays in the
acquisition process.
14
SCOPE AND METHODOLOGY
We performed an audit of the selection of management and marketing contractors for
single-family properties owned by HUD in response to a hotline complaint alleging
possible mismanagement, political connections, and violations of law in the selection of
firms for M&M III contracts.
We performed audit work from October 2009 through July 2010 at HUD
headquarters in Washington, DC, and at the Southern Field Contracting
Operations Office in Atlanta, GA. Our audit generally covered the period August
2004 through May 2010 but was expanded when necessary to include other
periods.
To accomplish our objective, we
Reviewed the Federal Acquisition Regulation and applicable HUD acquisition
regulations and General Services Administration regulations.
Conducted interviews with single family, procurement office, Office of Housing’s
Procurement Management Division, Office of the General Counsel, and General
Services Administration employees in Washington, DC, to determine their roles
and responsibilities regarding the M&M III contracts.
Conducted interviews with Southern Field Contracting Operations Office and
General Services Administration employees in Atlanta, GA, and the Chicago
Operations Branch to determine their roles and responsibilities regarding the
M&M II, M&M II extension, and M&M III contracts.
Conducted interviews with former HUD contractors to determine their roles and
responsibilities regarding the M&M III acquisition process.
Examined the M&M III contract solicitations and the prime contractor and
subcontractor contracts.
Examined the M&M II contracts and the M&M II bridge contracts to determine
whether premium costs were paid.
We did not review computer processed data during the audit. We relied on the
information contained in the M&M II and M&M II bridge contracts, and the M&M III
solicitation files.
We conducted the audit in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our findings and
conclusions based on our audit objective. We believe that the evidence obtained provides
a reasonable basis for our findings and conclusions based on our audit objectives.
15
INTERNAL CONTROLS
Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s
mission, goals, and objectives with regard to
• Effectiveness and efficiency of operations,
• Reliability of financial reporting, and
• Compliance with applicable laws and regulations.
Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals and objectives. Internal controls include the processes and
procedures for planning, organizing, directing, and controlling program operations as
well as the systems for measuring, reporting, and monitoring program performance.
Relevant Internal Controls
We determined that the following internal controls were relevant to our audit
objectives:
Effectiveness and efficiency of operations – Policies and procedures
that management has implemented to reasonably ensure that a
program meets its objectives.
Compliance with applicable laws and regulations – Policies and
procedures that management has in place to ensure that resource use
is consistent with laws and regulations.
We assessed the relevant controls identified above.
A deficiency in internal control exists when the design or operation of a
control does not allow management or employees, in the normal course of
performing their assigned functions, the reasonable opportunity to prevent,
detect, or correct (1) impairments to effectiveness or efficiency of
operations, (2) misstatements in financial or performance information, or
(3) violations of laws and regulations on a timely basis.
Significant Deficiency
Based on our review, we believe that the following item is a significant
deficiency:
Single family and the procurement office did not have adequate
controls in place to ensure that the M&M III contracts were awarded in
a timely and efficient manner.
16
APPENDIXES
Appendix A
COMPARISON OF MANAGEMENT FEES PAID
Bridge contract
M&M II Mortgagee Increase
Geographic Percentage
Contractor option Year Management compliance over
area Fee total of increase
4 fee services M&M II
1
fee
Hooks Van Holm PA, DE $ 1,800 $ 2,500 $ 700 $ 3,200 $ 1,400 77.8%
ND, SD, NE,
Best Assets Inc. $ 2,059 $ 3,549 $ 99 $ 3,648 $ 1,589 77.2%
MN, IA, WI
Southwest Alliance of
South TX $ 1,678 $ 2,848 $ - $ 2,848 $ 1,170 69.7%
Asset Managers D6, LLC
Hooks Van Holm AL, MS $ 1,800 $ 2,500 $ 450 $ 2,950 $ 1,150 63.9%
Southwest Alliance of
NM, North TX $ 1,632 $ 2,644 $ - $ 2,644 $ 1,012 62.0%
Asset Managers D5, LLC
Michaelson, Connor and MT, WY, CO,
$ 3,134 $ 4,448 $ 339 $ 4,787 $ 1,654 52.8%
Boul Inc. UT
Pyramid Real Estate
KS, MO, OK $ 2,150 $ 3,084 $ 120 $ 3,204 $ 1,054 49.0%
Services, LLC
2
Home Source MD, DC $ 2,787 $ 4,074 $ 4,074 $ 1,287 46.2%
Michaelson, Connor and
AZ, NV $ 3,088 $ 4,080 $ 388 $ 4,468 $ 1,379 44.7%
Boul Inc. 3
Pyramid Real Estate
TN,KY $ 2,225 $ 3,071 $ 120 $ 3,191 $ 966 43.4%
Services, LLC
Harrington, Moran,
IL, IN $ 2,381 $ 3,200 $ - $ 3,200 $ 819 34.4%
Barksdale Inc.
Harrington, Moran,
VA, WV $ 2,179 $ 2,800 $ - $ 2,800 $ 621 28.5%
Barksdale Inc.
National Home
NY, NJ $ 2,985 $ 3,550 $ 180 $ 3,730 $ 745 25.0%
Management Solutions 4
National Home
OH $ 2,995 $ 3,550 $ 180 $ 3,730 $ 735 24.5%
Management Solutions 4
Atlantic Alliance PR $ 3,207 $ 3,884 $ - $ 3,884 $ 677 21.1%
Michaelson, Connor and
MI $ 3,154 $ 3,154 $ 495 $ 3,649 $ 495 15.7%
Boul Inc.3
Pemco, LTD5 GA $ 3,451 $ 3,796 $ 3,796 $ 345 10.0%
National Home
Management Solutions of FL $ 3,751 $ 4,000 $ 121 $ 4,121 $ 370 9.9%
New York, LLC
Harrington, Moran,
NC, SC $ 1,745 $ 1,430 $ 340 $ 1,770 $ 25 1.4%
Barksdale Inc.
5
Pemco, LTD CA $ 4,270 $ 4,208 $ 110 $ 4,318 $ 48 1.1%
Cityside Management
New England $ 2,700 $ 2,585 $ 115 $ 2,700 $ - 0.0%
Corp.
Cityside Management
LA, AR $ 2,200 $ 2,003 $ 197 $ 2,200 $ - 0.0%
Corp.
2
Home Source MD, D.C. $ 4,200 4074 $ 4,074 $ (126) -3.0%
1
HUD negotiated the mortgagee compliance services separately under the bridge contract. These fees had been
combined with the management fees under the M&M II contract; therefore, for comparison we combined the
management and mortgagee compliance fees for the bridge contract to accurately reflect the costs.
2
Same contract; however, the management fees were based on the number of properties under M&M II. The bridge
contract was based on a flat fee of $4,074.
3
Same contract with different management fees for the different geographic areas.
4
Same contract with different management fees for the different geographic areas.
5
Same contract with different management fees for the different geographic areas.
17
Appendix B
AUDITEE COMMENTS AND OIG’S EVALUATION
Ref to OIG Evaluation Auditee Comments
18
Comment 1
Comment 2
Comment 3
19
20
Comment 4
Comment 5
Comment 6
21
Comment 7
Comment 8
Comment 9
22
Comment 10
23
OIG Evaluation of Auditee Comments
Comment 1 We concur with single family’s planned actions and willingness to make
the necessary improvements in its existing policies and procedures.
Comment 2 We concur with single family’s planned action to ensure that future
timelines reflect the magnitude of the acquisition, deviation from and
adjustments to the timelines are documented.
Comment 3 We concur with single family that key stakeholders’ involvement in all
planning phases is very important and its proposed action to ensure that
in-house resources are used for future significant acquisitions. However,
since the documentation provided to us did not show that representatives
from the budget office or the procurement management division attended
the initial IPT meetings, we did not revise the report or our conclusions.
OIG acknowledges single family’s right to engage outside contractors
and leverage private sector expertise as necessary. However, we strongly
encourage single family to ensure that vendors have the requisite
knowledge and skills to perform the necessary tasks to expedite future
acquisitions.
Comment 4 We disagree with the procurement office’s assertion that statements
relative to our conclusion about the exclusion of select stakeholders are
speculative and have no basis in fact. The report clearly acknowledges
that a number of factors contributed to the delays in awarding the M&M
III contracts.
Specifically, our report referenced the fact that there was indeed an
absence of the key stakeholders after Booth was selected as the contractor
to assist with the planning function of this acquisition. In particular, the
absence of the Office of Housing’s Office of Budget and Field Resource
contributed to the delays with the funding issues that were encountered.
Further, due to the poor quality of work submitted by Booth, additional
time and resources were consumed by the need to revise the statements of
work. Had the program office divisions with the requisite knowledge and
expertise been involved, many of the delays of this significant acquisition
may indeed have been avoided.
Comment 5 We disagree with the procurement office’s assertion that staff shortages
and turnover should not lead to a conclusion of mismanagement and that
there is no basis for the reported “50 to 60 percent staff turnover rate
every 18 months…It is simply inaccurate.”
We reaffirm our position that staff shortages and high turnover in the
procurement office contributed to the mismanagement of the M& M III
24
contracting process. These factors directly impacted the acquisition from
pre-solicitation through final award of the M&M III contracts. Moreover,
the contracting officer for M &M III informed us that
The loss of 95 percent of the procurement office staff caused a lack
of clarity and a lack of continuity in the actions taken prior to the
staff leaving. These actions included the status of the procurement,
pre-solicitation documents, acquisition plans, technical evaluation
plans, performance work statements, solicitation documents; etc.
Ultimately, the original decision makers were no longer a resource
to the department to execute their decisions.
Regarding the turnover, the Acting Chief Procurement Officer during the
pre-solicitation phase of this contract advised us that the procurement
office had a 50 to 60 percent staff turnover rate every 18 months. We
accepted the “50 to 60 percent” range of turnover because, as the Acting
Chief Procurement Officer, he was responsible for managing the
workload and staffing resources in the procurement office at the time of
this acquisition. Since the procurement office did not provide
documentation to refute the turnover rate, we did not revise the report.
Comment 6 We disagree that the audit report makes inferences or statements “that the
then-Deputy Chief Procurement Officer intentionally made decisions that
sabotaged the procurement.” While the decisions may have been made in
good faith, the information we obtained during our review led us to
conclude that the Atlanta office had the capacity to process the
procurement more efficiently than the headquarters procurement office.
Given that the M&M III was the largest and most critical single
procurement for HUD and the headquarters procurement office was
experiencing high turnover and staff shortages, we believe the managers
of the procurement office should have assessed its available resources
and either moved this significant acquisition from the headquarters office
or detailed procurement staff from the field who were knowledgeable of
the management and marketing services contracting process.
Our conclusion about the viability of using the Atlanta office is supported
by the current Chief Procurement Officer in the procurement office’s
most recent Procurement Management Review dated September 17,
2009. She states in that review that “the recent creation of the
Management & Marketing (M&M) Center of Excellence in Atlanta, GA
allows OCPO [the procurement office] to strategically centralize the
administration and management of one of HUD’s largest acquisitions
with a dedicated team of experienced support staff.” Additionally, the
Atlanta office clearly had the experience as it was responsible for
managing and overseeing the M&M II contracts and, therefore, was
knowledgeable of the requirements and practices of providing
management and marketing services and overseeing the contracts.
25
Comment 7 We reaffirm our position that the decision to award this large and critical
procurement from the headquarters procurement office contributed to the
mismanagement of the acquisition and the contract with Design to
Delivery, Inc. was evidence of that mismanagement. Because the
headquarters procurement office was understaffed, single family funded
the administrative support contract with Design to Delivery. Again, we
believe that the managers of the procurement office could have avoided
the cost of this administrative support contract had the M&M III
acquisitions been assigned where resources were more readily available.
Additionally, we maintain that the Atlanta office may have been in a
better position to handle the increase in workload and the additional
resources that this significant procurement required.
Comment 8 We reaffirm our position that the substantial increase in the cost of the
management and marketing services under the bridge contract could have
been avoided had HUD awarded the M&M III contracts in accordance
with their initial timelines.
While we acknowledge that the part of the unit price increases were due
to normal market conditions, we cannot overlook the fact that $275
million was spent on the bridge contracts, and this was in addition to the
planned $2.1 billion cost of the M&M III contracts. We believe that had
the M&M III contracts been awarded on time, this $275 million would
not have been spent on bridge contracts, nor would it have been spent on
M&M III (thus increasing the planned cost of the M&M III contracts to
$2.4 billion). Single family would have been able to use the $275 million
on other projects.
Comment 9 We concur with the procurement office’s proposed action to assign future
procurements to an office that is best equipped to handle significant
acquisitions.
Comment 10 The procurement office’s proposed action (to remind contracting officers
to document “any significant delays, causes, and resolution…”) is only
partially responsive to Recommendation 1E. While we agree that the
contracting officers can and should document the delays, the cognizant
program offices should also be required to prepare a justification, as
specified in the Procurement Office Handbook 2210.3. Specifically,
section 4-1 requires the head of the cognizant program office to “submit a
written request for the extended lead-time to the Assistant Chief
Procurement Officer responsible for the acquisition.” In addition, the
current Chief Procurement Officer stated in the Procurement
Management Review referenced above that “it is imperative that HUD
26
improve internal controls over the acquisition function.” One of the
suggested ways for the procurement office to improve its internal controls
over the acquisition function was “to initiate stricter consequences for
program personnel who do not adhere to the procurement administrative
lead times”. The “stricter consequences” could be to require detailed
justification. Implementation of both the handbook and management
review recommendations could further improve the quality of HUD’s
acquisition process.
We are optimistic that reminding the contracting officers of the impact
delays have on the quality of the acquisition process and their
responsibility for full documentation should ensure an accurate record of
any significant delays, causes, and resolutions that occur on all
acquisitions.
27
HUD Did Not Adequately Plan the Procurement of the Management and Marketing Contracts
Published by the Department of Housing and Urban Development, Office of Inspector General on 2010-11-09.
Below is a raw (and likely hideous) rendition of the original report. (PDF)