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)