oversight

The Housing Authority of the City of Los Angeles Generally Had Capacity; However, It Needs To Improve Controls Over Its Administration of Its Capital Fund Grant Awarded Under The Recovery Act Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2010-11-04.

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

                                                                    Issue Date
                                                                           November 4, 2010
                                                                    Audit Report Number
                                                                             2011-LA-1002




TO:         K.J. Brockington, Director, Los Angeles Office of Public Housing , 9DPH


FROM:       Tanya E. Schulze, Regional Inspector General for Audit, Region IX, 9DGA

SUBJECT: The Housing Authority of the City of Los Angeles Generally Had Capacity;
         However, It Needs To Improve Controls Over Its Administration of Its Capital
         Fund Grant Awarded Under The Recovery Act Program

                                     HIGHLIGHTS

 What We Audited and Why

      We completed a capacity review of the Housing Authority of the City of Los Angeles’
      (Authority) capital fund grant awarded under the American Recovery and Reinvestment
      Act of 2009 (Recovery Act) program. We performed the audit because Recovery Act
      reviews are part of the Office of Inspector General’s (OIG) annual plan and the Authority
      was awarded a significant amount of program funds.

      The primary objective of our review was to evaluate the Authority’s capacity in the areas
      of internal controls, eligibility, financial controls, procurement, and output/outcomes in
      administering its Recovery Act funds.


 What We Found

      The Authority generally had adequate capacity to manage and administer its Recovery
      Act funding. It had (1) sufficient staffing levels, (2) sufficient records to track financial
      expenditures, and (3) adequate policies and procedures for its financial activities and (4)
     had obligated and was on track to spend its Recovery Act formula grant funds for eligible
     projects within the program’s timeframe requirements. However, we identified various
     weaknesses that could impact the Authority’s ability to effectively manage and
     administer its Recovery Act funding in the most economical and efficient manner.
     Specifically it (1) did not properly procure two of its contracts or evaluate compliance
     with requirements for a third contract, (2) failed to include all provisions required by 24
     CFR (Code of Federal Regulations) 85.36(i) for five of its contracts, (3) did not record its
     employees’ time accurately and consistently in its manual and Oracle time cards, (4) did
     not develop sufficient written policies and procedures to monitor for Davis-Bacon
     compliance, and (5) did not maintain documentation to show that Davis-Bacon certified
     payrolls were received and reviewed for compliance.


What We Recommend

     We recommend that the Director of the Los Angeles Office of Public Housing (1) require
     the Authority to provide support showing the eligibility and reasonableness of $369,259
     disbursed for the repair of 12 fire-damaged units at Nickerson Gardens or reimburse this
     amount to its Recovery Act program, as appropriate, from non-Federal funds, (2) closely
     monitor the intergovernmental purchasing agreement transactions of the Authority for the
     quarters ending December 31, 2010, March 31, 2011, and June 30, 2011 to ensure that it
     follows the U.S. Department of Housing & Urban Development’s (HUD) and its own
     procurement requirements, (3) implement procedures to ensure that it includes all
     mandatory contract provisions as required by 24 CFR 85.36(i), (4) rescind the
     Authority’s HA-2006-047 Home Depot contract and require it to re-bid it out in
     compliance with 24 CFR 85.36(c) and its own internal procurement policy, and (5)
     monitor the Authority to ensure that it implements the procedures it has in place to
     establish project numbers before beginning work at each development. We also
     recommend that the Director of the Los Angeles Office of Public Housing require the
     Authority to (1) reallocate the payroll of force account employees in the Oracle system to
     the correct project numbers between September 12, 2009, and February 12, 2010, and (2)
     develop and implement formal written policies and procedures to assist staff in
     monitoring for Davis-Bacon compliance.

     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 Authority a discussion draft report on October 7, 2010, and held an exit
     conference with the Authority’s officials on October 22, 2010. The Authority provided
     written comments on October 22, 2010 and supplemental comments based on issues
     raised in our exit conference on October 27, 2010. It generally disagreed with our




                                              2
findings. The complete text of the auditee’s response, along with our evaluations of that
response, can be found in appendix B of this report. Attachments to the auditee’s
response will be made available upon request.




                                        3
                            TABLE OF CONTENTS

Background and Objective                                                          5

Results of Audit
      Finding 1: The Authority Did Not Follow Required Procurement Procedures     7
      Finding 2: The Authority’s Controls Were Not Sufficient To Ensure That It
                                                                                  13
      Would Effectively Administer Its Recovery Act Funds


Scope and Methodology                                                             16

Internal Controls                                                                 18

Appendixes

A. Schedule of Questioned Costs                                                   20
B. Auditee Comments and OIG’s Evaluation                                          21
C. Criteria                                                                       43




                                            4
                      BACKGROUND AND OBJECTIVE

On February 17, 2009, the President signed the American Recovery and Reinvestment Act of
2009 (Recovery Act). This legislation includes a $4 billion appropriation of capital funds for
public housing agencies to carry out capital and management activities as authorized under
Section 9 of the United States Housing Act of 1937. The Recovery Act requires that $3 billion
of these funds be distributed as formula funds and the remaining $1 billion be distributed through
a competitive process. Under both programs, housing agencies were required to obligate 100
percent of the grant within 1 year, expend at least 60 percent of the grant within 2 years, and
expend 100 percent of the grant within 3 years from the date that funds are made available.
Failure to comply with the 1-, 2-, or 3-year obligation and expenditure requirements will result in
the recapture of unobligated and unexpended funds. The formula and competitive Recovery Act
funds were made available to the Housing Authority of the City of Los Angeles (Authority) on
March 18 and September 24, 2009, respectively. Accordingly, funds must be obligated and
expended for both formula and competitive grants by the dates listed below:


     Obligation deadline               Formula grant deadline       Competitive grant deadline
  100 percent obligation due
                                           March 17, 2010                 September 23, 2010
            date
60 percent expended due date               March 17, 2011                 September 23, 2011

100 percent expended due date              March 17, 2012                 September 23, 2012


The Authority was awarded stimulus funds of more than $25 million under the formula grant and
more than $8 million under the competitive grants. As of the end of our fieldwork, no funds had
been expended from the competitive grants; therefore, our review focused on the Authority’s
formula grant, which was allocated as follows:


                         Cost category                        Amount
                        Administration                      $2,507,383
                         Fees and costs                     $1,377,376
                           Contracts                        $17,602,870
                  Force account construction                $3,141,000
                        Purchase orders                      $445,205
                               Total                        $25,073,834




                                                 5
Twenty contracts were awarded to 12 different contractors for the installation of wireless
cameras and floor tile, reroofing, environmental asbestos abatement, and restoration and repair of
fire-damaged units. The Authority also set aside funds to employ permanent and per diem or
temporary employees under its force account for the installation of low-flush toilets, sprinklers,
and temperature pressure relief valves and for the restoration and repair of fire-damaged units.
Because it did not have the in-house supervisory capacity to manage all of its per diem
employees at multiple projects and the considerable amount of work to be completed under the
force account, it furloughed 32 of its per diem employees in February 2010 and replaced them
with subcontractors. It entered into 11 subcontracts, totaling more than $1.3 million, for work
previously budgeted under the force account. The work included installation of low-flush toilets
and sprinklers and fire-repair jobs.

The Authority manages more than 60 public housing locations throughout Los Angeles. The
public housing program provides affordable housing to more than 6,500 families in Los Angeles
with very low incomes.

Our objective was to determine whether the Authority had sufficient capacity to manage and
administer its capital fund grant awarded under the Recovery Act program. The primary
objective of our review was to evaluate the Authority’s capacity in the areas of internal controls,
eligibility, financial controls, procurement, and output/outcomes in administering its Recovery
Act funds.




                                                 6
                                     RESULTS OF AUDIT

Finding 1: The Authority Did Not Follow Required Procurement
           Procedures

The Authority did not properly procure two of its Home Depot contracts or evaluate a third made
through an intergovernmental cooperative purchasing agreement with Maricopa County. It also
significantly expanded the scope and amended the maximum value and term of the contracts
outside of requirements. This condition occurred because the Authority misunderstood and
misapplied U.S. Department of Housing and Urban Development (HUD) requirements and its
own policies for procurement. It also failed to include all contracting provisions for five of its
contracts because it did not have adequate controls in place to ensure that it complied with 24
CFR (Code of Federal Regulations) 85.36(i) and its own policies. As a result, it awarded
contracts totaling $699,225 that were not processed in a manner that provided full and open
competition in accordance with Federal requirements. It also failed to ensure the Maricopa
contract was procured in accordance with 24 CFR 85.36 before utilizing it for a $15.9 million
contract. It expended $369,259 in Recovery Act funds that may not have been obtained at a fair
and equitable price, and it could not ensure that its vendors complied with all mandatory Federal
requirements because they were not included in the contracts.




    Intergovernmental Cooperative
    Purchasing Agreement


         The Authority entered into three contracts with Home Depot, totaling more than $16
         million, by “piggybacking”1 off of the Maricopa County (County) and Home Depot
         contract for the purchase of maintenance, repair, and operating supplies; construction
         services; and the repair of 12 fire-damaged units at Nickerson Gardens. This
         arrangement was authorized by an executed master intergovernmental cooperative
         purchasing agreement through U.S. Communities, a nonprofit government purchasing
         cooperative that provides public agencies access to competitively solicited contracts. The
         County entered into its Home Depot contract by preparing and issuing competitive
         solicitations on behalf of U.S. Communities. The contract was then made available to
         agencies such as the Authority, which became a participating public agency by
         registering with U.S. Communities. The agreement allowed the Authority to purchase
         products and services under the same terms, conditions, and pricing as the County. The
         Authority’s three Home Depot contracts are specified in the chart below.


1
 “Piggybacking” is the postaward use of a contractual document/process that allows someone who was not
contemplated in the original procurement to purchase the same supplies/equipment through the original
document/process.


                                                      7
                                                      Work to be
  Contract                  Amount                                     Recovery Act related?
                                                      completed
                                                                         Yes, partial contract
                          $15.9 million                               ($1.1 million of the $11.9
                 ($11.9 million for maintenance      Supplies and      million for maintenance
HA-2006-047
                   supplies and $4 million for         services       supplies and $711,305 of
                     construction services)                               the $4 million for
                                                                        construction services)
                                                    Repair of nine
                                                     fire-damaged
HA-2010-044                 $451,305                     units at        Yes, entire contract
                                                       Nickerson
                                                        Gardens
                                                    Repair of three
                                                     fire-damaged
HA-2010-064                 $247,920                     units at        Yes, entire contract
                                                       Nickerson
                                                        Gardens
                          $16,599,225


Failure To Meet Four of the
Five Conditions Required of
Intergovernmental or
Interagency Agreements


      Contrary to section 14.2 of HUD Handbook 7460.8, REV-2, the Authority did not meet
      four of the five conditions under which a public housing agency may enter into
      intergovernmental or interagency purchasing agreements without competitive
      procurement. This condition occurred because the Authority misunderstood and
      misapplied HUD requirements and its own policy for procurement.

      Condition One Was Not Met

      Condition one stated that “the agreement provides for greater economy and efficiency
      and results in cost savings to the public housing agency.”

      The Authority did not show that this intergovernmental agreement with the County would
      result in cost savings to the Authority. It did not provide its complete cost comparison or
      price analysis to show the reasonableness of price and cost savings for its fire jobs.
      Therefore, it was unable to demonstrate that the goods and services were obtained at the
      most advantageous terms and whether the prices were reasonable. As of September 24,
      2010, the Authority had spent $369,259 for contract HA-2010-044 (see chart below).




                                               8
                                               Expended as of
          Contract       Contract amount       September 24,       Balance
                                                   2010

        HA-2010-044          $451,305            $369,259           $82,046

        HA-2010-064          $247,920               $0             $247,920

            Total            $699,225            $369,259          $329,966


Condition Two Was Not Met

Condition two stated that “the agreement is used for common supplies and services that
are of a routine nature only.”

The Authority entered into two Home Depot contracts for the repair and restoration of
fire-damaged units without providing documentation to substantiate that this type of non
routine maintenance was included in the County’s original contract and that the contract
amounts were evaluated to show the cost savings to the Authority. It stated that this type
of service is not rare and generally considered routine to the housing authority. However,
even at the Authority’s stated average of 10 fire damage restoration units per year, this
equates to far less than 1 percent of its housing stock. In addition, although the Authority
has devoted substantial amounts of its capital funds for the repair of these damaged units,
fire damages do not occur on a day to day basis and the extensive and varied scope of the
work is not common or routine; therefore, it is not proper to classify it as a routine service
to a housing authority.

Condition Three Was Not Met

Condition three stated that “public housing agencies must take steps to ensure that any
supplies or services obtained using another agency’s contract are purchased in
compliance with 24 CFR 85.36.”

For the Authority to meet condition three, it must be able to show that the other agency’s
contract was procured in compliance with 24 CFR 85.36. Although the Authority
obtained additional documentation from Maricopa after the exit conference to support
that the County’s original contract was procured properly (and thereby supported the cost
reasonableness of supplies purchased with ARRA funds), the Authority did not obtain or
evaluate all the County’s bidding documentation to ensure it met 24 CFR 85.36 before
executing its $15.9 million Home Depot contract. The Authority stated that it was not
responsible for the County’s compliance with 24 CFR 85.36 and that it was responsible
for only its own procurement. However, in addition to condition 3 of section 14.2 of the
handbook, section 14.1 specifically states that “for PHAs to access various interagency
purchasing agreements, the underlying contract must have been procured in accordance
with 24 CFR 85.36.”




                                           9
    In addition, the County amended its original contract in 2008 to include the assembly
    and/or installation services for products purchased through Home Depot and rental of any
    tools or equipment necessary (amendment three). This amendment was included to
    expand on the general intent of section 1.1 in exhibit B of the original County contract,
    which was signed in 2005. However, as confirmed by the County, the general intent
    mentioned only providing supplies, building and construction equipment and materials,
    tools, and other related maintenance repair and operating supplies, but not services. The
    County significantly expanded the scope of its Home Depot contract through this
    unsigned amendment 3 years after it was originally executed. The County did not
    perform additional procurement to support the costs reasonableness of the services;
    therefore, amendment three of the County’s contract was not procured in accordance with
    24 CFR 85.36.

    The County’s solicitation package was also missing a complete comparison of cost for
    materials and of wage rates for labor as it relates to amendment 3. Therefore, the
    Authority was unable to demonstrate the reasonableness of Home Depot’s prices for its
    materials and services or compliance with 24 CFR 85.36. Further, the County confirmed
    that this contract was procured based on County-established requirements and not
    necessarily Federal requirements; therefore, it may not have complied with 24 CFR
    85.36. Thus, the Authority could not be completely assured that materials and services
    were procured according to Federal requirements.

    Condition Four Was Not Met

    Condition four stated that “a public housing agency’s file should contain a copy of the
    intergovernmental agreement and documentation showing that cost and availability were
    evaluated before the agreement was executed, and these factors are reviewed and
    compared at least annually with those contained in the agreement.”

    The Authority did not provide evidence that it determined whether cost and availability
    were evaluated as part of the original solicitation, nor did it provide evidence that it had
    evaluated these factors and compared them at least annually with those contained in the
    agreement since 2007.


Contract Scope Significantly
Expanded and Maximum Value
and Term Amended Outside of
Requirements


    According to HUD Handbook 7460.8, section 1.9, a new procurement should be used
    when there are major changes to an existing contract that are beyond the general scope or
    a change to a substantive element of the contract. Contrary to section 1.9 of the
    handbook, the Authority significantly expanded the scope of contract HA-2006-047 from




                                             10
     supplies to supplies and services without obtaining a new procurement. Below is a
     timeline of events illustrating the changes to contract HA-2006-047:

        On February 26, 2007, the Authority entered into HA-2006-047 with Home Depot for
        2 years for $3 million without a defined option to extend.
        On June 6, 2008, it amended the contract and increased the contract amount by $5
        million to $8 million.
        On February 25, 2009, it amended the contract and increased the contract term to 4
        years with a 1-year option to renew.
        On May 24, 2010, it amended the contract for the third time and added construction
        service for $4 million and maintenance supply for $3.9 million. This change
        increased the total contract by $7.9 million to a total of $15.9 million. It also
        extended the term of the contract by 5 years through February 25, 2012.

     As shown above, the Authority amended the contract on several occasions to increase the
     contract’s scope, maximum value, and term. It increased the maximum value of the
     contract from $3 million to $15.9 million and extended the term of the contract from 2
     years to 5 years. The Authority’s contract with Home Depot (HA-2006-047) included an
     option to extend the contract’s term; however, the option did not specify an option term.
      The Authority also did not include an option to increase the maximum value of its
     contract with Home Depot. HUD requires a finite period or term for a contract, including
     all options, and a specific limit on the maximum value of options to be purchased under
     an option. An undefined option is considered a new procurement and may not be used.

Insufficient Contract Provisions

     The Authority did not include specific contract provisions that are required by 24 CFR
     85.36 and its own procurement procedures. These provisions were put into place to
     protect the Authority’s interests. They include equal employment opportunity
     requirements; compliance with the Anti-Kickback Act; labor requirements; work hours
     and safety standards; reporting and records retention; patent rights; copyright
     requirements; and compliance with the Clean Air Act and the Energy Policy and
     Conservation Act.

     The contract with Motorola, Inc., did not include the provision from 24 CFR 85.36(i)(7),
     while the contract with High Tech Builders did not include three required provisions
     from 24 CFR 85.36(i)(7), (8), and (9). The Authority stated that it would include these
     provisions in an addendum or amendment to the contracts. The Authority also did not
     include specific contract provisions in three of its contracts with Home Depot or ensure
     that the “piggybacked” County contracts included the required provisions. It did not
     include nine required provisions from 24 CFR 85.36(i)(3), (4), (5), (6), (7), (8), (11),
     (12), and (13). The Authority did not include these provisions due to inadequate controls
     over procurement.




                                            11
Conclusion

    The Authority violated Federal procurement requirements and its own policies by
    entering into two contracts without undergoing proper procurement procedures because it
    signed onto an intergovernmental cooperative purchasing agreement without meeting all
    of the requirements necessary to enter into this type of agreement. It also failed to
    determine whether contract requirements were met before it executed a third contract
    with Home Depot. Further, it significantly expanded the scope and amended the
    maximum value and term of the contract outside of requirements. This condition
    occurred because the Authority misunderstood HUD rules and regulations and its own
    policies and procedures. It also did not include all applicable provisions in 24 CFR
    85.36(i) for five of its contracts because it did not have adequate controls over
    procurement. Consequently, the Authority limited competition and may have paid
    excessive and/or ineligible costs for procurement actions totaling up to $699,225, and it
    did not ensure it evaluated Maricopa’s Home Depot procurement was properly procured
    in accordance with 24 CFR 85.36 before entering into a contract totaling $15.9 million.
    It expended $369,259 in Recovery Act funds that may not have been obtained at a fair
    and equitable price, and it could not ensure that its contractors complied with all
    mandatory Federal requirements because the requirements were not included in the
    contracts.

Recommendations

    We recommend that the Director of HUD’s Los Angeles Office of Public Housing

     1A.     Require the Authority to provide support showing the eligibility and
             reasonableness of $369,259 disbursed for the repair of 12 fire-damaged units at
             Nickerson Gardens or reimburse this amount to its Recovery Act program, as
             appropriate, from non-Federal funds.

    1B.      Closely monitor the intergovernmental purchasing agreement transactions of the
             Authority for the quarters ending December 31, 2010, March 31, 2011, and June
             30, 2011 to ensure that it follows HUD’s and its own procurement requirements
             by soliciting bids, obtaining and retaining written cost estimates, and documenting
             the reasons for selection for all projects before awarding contracts to vendors and
             ensure that it includes contract provisions as required by 24 CFR 85.36(i).

    1C.      Rescind the Authority’s HA-2006-047 Home Depot contract and require it to re-
             bid it out in compliance with 24 CFR 85.36(c) and its own internal procurement
             policy.

    1D.      Implement procedures and controls to ensure that all of its procurement contracts
             with Federal funds include the mandatory contract provisions at 24 CFR 85.36(i).




                                             12
Finding 2: The Authority’s Controls Were Not Sufficient To Ensure
           That It Would Effectively Administer Its Recovery Act
           Funds

The Authority generally had adequate financial capacity to manage its Recovery Act funds;
however, it needs to strengthen its controls to effectively administer HUD funds and comply
with applicable requirements. Specifically, the Authority did not (1) record its employees’ time
accurately and consistently on its manual and Oracle time cards, (2) develop sufficient written
policies and procedures to monitor for Davis-Bacon compliance, and (3) maintain documentation
to show that Davis-Bacon certified payrolls were received and reviewed for compliance. These
weaknesses occurred because the Authority disregarded HUD rules and regulations. Although
we did not identify significant effects to the Recovery Act program, the Authority is at risk of not
administering the program according to HUD rules by inaccurately reporting employee payroll
and paying less than the Davis-Bacon wage rates.



 Project Numbers Not
 Established Before Allocating
 Payroll Costs


       The Authority failed to establish project numbers in its Oracle system because it
       overlooked HUD requirements and its own policies and procedures. As a result, it
       misallocated payroll costs of its per diem employees to incorrect project developments on
       its manual and Oracle time cards and provided HUD with inaccurate support before
       obtaining reimbursement for its Recovery Act expenditures between September of 2009
       and February of 2010. We did not identify significant negative effects to the Recovery
       Act program as the miscoding was contained within project numbers associated with the
       program.

       The Authority discovered the payroll misallocations in May of 2010 but did not fully
       correct the problem. It explained that it had sufficient funds to expand its scope to
       include more HUD-approved project sites and in its rush to accomplish the work, it failed
       to establish the new project numbers for the sites. Although it had created one set of
       project numbers a few days after we began our audit fieldwork and another set in June of
       2010, it did not reallocate the employees’ payroll to the correct project sites until after we
       had notified it of the deficiency. The Authority completed its redistribution in August of
       2010; however, the reallocations did not fully remedy the issues identified. We notified
       the Authority of the mistakes and they redistributed the employee payroll two more
       times, once in September of 2010 and a second time in October of 2010. The October of
       2010 reallocation still reflected incorrect information in relation to our sample. A few of
       the reallocated hours were not accurate based on the percentage of time shown on the
       manual time card, or correct project numbers were not shown on the reallocation. The



                                                13
     pay for these payroll periods should be reallocated and corrected to ensure accurate
     reporting of employees’ time.

Lack of Written Policies and
Procedures and Log Not
Implemented To Monitor for
Davis-Bacon Compliance

     We reviewed the certified payroll for three construction contracts in our sample and
     determined that the Authority generally complied with requirements by paying at least
     the Davis-Bacon wage rates. It also obtained weekly payroll reports from its contractors
     based on the payrolls reviewed. However, it did not have written policies and procedures
     to assist staff in accomplishing its monitoring responsibilities, nor did it maintain a
     separate report or log to show that certified payrolls were received and reviewed. The
     only documentation it maintained was in regard to the payrolls and onsite interviews of
     contractor employees. When we inquired about a log or documentation to illustrate that
     the Authority had received and reviewed its contractor’s certified payroll, the Authority
     stated that it did not maintain one although it performed the required reviews. It provided
     a copy of a control log template it planned to implement based on our inquiries that
     appeared to be sufficient to monitor its review of certified payroll. However, the
     template was provided less than 2 weeks before the end of our fieldwork; therefore, we
     were unable to verify that the log was implemented.

Conclusion

     The Authority generally had sufficient financial capacity to manage its Recovery Act
     funds. However, it needs to strengthen its controls to fulfill the requirements under the
     Recovery Act program. It can do so by (1) establishing a project number before
     beginning work at each development, (2) reallocating its payroll in its system to the
     correct projects, (3) developing written policies and procedures for Davis-Bacon
     compliance, and (4) ensuring that it documents its review of Davis-Bacon compliance by
     implementing a control log to track the review and receipt of certified payrolls. Although
     the outcome of our review in this area did not result in a material effect to HUD, failure
     to perform these steps could increase the risk of fraud, waste, and abuse.

Recommendation


     We recommend that the Director of HUD’s Los Angeles Office of Public Housing

     2A.     Monitor the Authority to ensure that it implements the procedures it has in place
             to establish project numbers before beginning work at each development to ensure
             accurate distribution of employee payroll.




                                             14
2B.   Require the Authority to correctly reallocate the payroll of force account
      employees on its manual time card between September 12, 2009, and February
      12, 2010.

2C.   Require the Authority to develop and implement formal written policies and
      procedures to assist staff in monitoring for Davis-Bacon compliance.

2D.   Require the Authority to implement a log or reporting system to document review
      and receipt of Davis-Bacon certified payrolls.




                                     15
                        SCOPE AND METHODOLOGY

We performed our onsite work at the Authority’s administrative office at 2600 Wilshire
Boulevard, Los Angeles, CA, between May and September 2010. Our review generally covered
the period March 18, 2009, to the present. We expanded our scope as necessary.

To accomplish our objective, we

       Reviewed and obtained an understanding of the Recovery Act, the Authority’s grant
       agreements with HUD, and planned activities found on its annual plan.

       Reviewed applicable financial management and procurement criteria.

       Reviewed relevant Authority policies and procedures.

       Reviewed the Davis-Bacon Act.

       Reviewed the Authority’s financial records and procurement files.

       Interviewed HUD and Authority employees regarding the Authority’s operations.

       Interviewed Maricopa County regarding its contracts with Home Depot.

       Reviewed job descriptions and the organizational chart.

       Reviewed the Authority’s most current annual plan and board resolutions.

       Conducted site visits at Nickerson Gardens, Imperial Courts, Jordan Downs, Mar Vista
       Gardens, Estrada Courts, and the Torrance facility to observe the progress of work and
       the safeguarding of assets.

We reviewed a sample of seven contracts, totaling more than $24 million, that were awarded
between February 26, 2007, and May 17, 2010. Four of the contracts (Motorola, Inc., High-Tech
Builders, Del Mar Floor Covering, and Millennium Design) were selected based on the type of
procurement the Authority used (small purchase, competitive, sealed bid, and small purchase to
supplement the force account). We also reviewed three Home Depot contracts, as these were
related to the force account subcontracts. We chose this approach since testing 100 percent of
the population was not feasible. Therefore, the sampling results apply only to the items tested
and cannot be projected to the universe or population.

We selected a payroll sample for one permanent and three per diem employees who were
working on force account-related activities based on the work at four developments with the
highest labor budgets and expenditures as of June 23, 2010. We tested their pay stubs, manual
and Oracle time cards, and job logs generally between August 29, 2009, and June 18, 2010. We


                                              16
selected this approach because it allowed us to review payroll with higher risk and materiality.
The results apply only to the items tested and cannot be projected to the universe or population.

We reviewed a sample of 181 force account purchase orders and 20 small work purchase orders,
totaling $757,772, that were invoiced between April 29, 2009, and April 15, 2010. The 201
purchase orders were selected based on the largest expenditure amounts in each category. We
selected this approach because it allowed us to review purchase orders with higher risk and
materiality. The results apply only to the items tested and cannot be projected to the universe or
population.

To achieve our objective, we relied in part on Oracle-generated data and internally maintained
spreadsheets. We performed a moderate level of testing to assess the integrity of the data with
respect to payroll and material expenditures and found the data to be generally accurate for our
purposes. The inaccuracies identified occurred because the Authority did not establish project
numbers in its system in a timely manner (see finding 2).

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 objective.




                                                17
                              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, 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:

               Policies and procedures to ensure that internal controls, financial management,
               and procurement activities are adequate.
               Policies and procedures to ensure that grant expenditures are eligible and
               adequately supported.

       We assessed the relevant controls identified above.

       A deficiency in internal controls 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 operation, (2) misstatements in financial or performance
       information, or (3) violations of laws and regulations on a timely basis.

 Significant Deficiencies

       Based on our review, we believe that the following items are significant deficiencies:

               The Authority did not implement sufficient procedures and controls to ensure that it
               complied with applicable procurement requirements (see finding 1).

               The Authority did not implement procedures to ensure accurate distribution of
               payroll to each project (see finding 2).


                                                18
The Authority lacked written policies and procedures to ensure the monitoring of
Davis-Bacon compliance (see finding 2).




                                 19
                                   APPENDIXES

Appendix A

                 SCHEDULE OF QUESTIONED COSTS

                           Recommendation         Unsupported 1/
                               number
           Tota1
                           1A                      $369,259

1/   Unsupported costs are those costs charged to a HUD-financed or HUD-insured program
     or activity when we cannot determine eligibility at the time of the audit. Unsupported
     costs require a decision by HUD program officials. This decision, in addition to
     obtaining supporting documentation, might involve a legal interpretation or clarification
     of departmental policies and procedures.




                                             20
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1




                         21
Comment 2




Comment 3




Comment 4




            22
Comment 5




Comment 6




Comment 7




Comment 8




            23
Comment 9




Comment 10




Comment 11


Comment 12




Comment 13


Comment 14




             24
Comment 14




Comment 15




             25
Comment 16



Comment 17




Comment 18




Comment 19




             26
Comment 19




Comment 20




Comment 21



Comment 22




             27
28
29
Comment 23




Comment 24




             Names have been redacted for privacy reasons




                                    30
Names have been redacted for privacy reasons




                       31
Names have been redacted for privacy reasons




                       32
33
Comment 25




Comment 26




Comment 27




             Names have been redacted for privacy reasons




                                    34
Comment 28




Comment 29



Comment 19




             Names have been redacted for privacy reasons




                                    35
36
                         OIG Evaluation of Auditee Comments

Comment 1   Based on additional documentation provided after our exit conference, we
            determined that the Authority did not procure two of its Home Depot contracts or
            evaluate a third contract made through an intergovernmental agreement because it
            misunderstood and misapplied HUD requirements and its own policies. The
            Authority failed to meet four of the five conditions listed under section 14.2 of
            HUD Handbook 7640.8, REV-2. See finding 1 for discussion.

Comment 2   We agree that our overall objective is related to funds provided under the
            Recovery Act. Two of the Home Depot contracts, totaling $699,225, were funded
            through the Recovery Act. The third Home Depot contract, totaling $15.9
            million, was partially Recovery Act related, as the Authority obligated $1.1
            million in maintenance supplies and $711,305 of construction services under this
            contract to Recovery Act funds. Because we found issue with the method by
            which the Authority executed the three contracts, we reported on our expanded
            scope, which we mention in the scope and methodology section of our report.

Comment 3   We agree that public housing authorities (PHAs) are encouraged to enter into
            State and local intergovernmental agreements for procurement or use of common
            goods and services. However, PHAs must meet certain conditions in order to
            enter into a valid intergovernmental agreement. Based on our audit, we
            determined that the Authority did not meet four of those five conditions;
            therefore, it was inappropriate for the Authority to piggyback its Home Depot
            contracts to the County’s contract without undergoing a procurement process.

Comment 4   We disagree. The Authority did not complete the required due diligence when it
            failed to procure the Home Depot contracts by disregarding HUD and its own
            policies. It also did not enter into a valid intergovernmental agreement with the
            County because it failed to meet four of the five conditions listed in HUD
            Handbook 7460.8, REV-2.

Comment 5   We revised our report and omitted the reference to the “County’s cost
            comparison.” Given the additional documentation we received after our exit
            conference, including additional documentation from Maricopa County, we
            amended our report and removed the questioned costs related to the toilet
            purchases.

            However, although the Authority provided the cost estimates for the repair of 12
            fire damaged units, it did not provide any documentation demonstrating that it
            compared the cost in the open market through another unit of government to
            determine if it is the most economical and efficient method before entering into its
            contracts with Home Depot.

Comment 6   We agree that the County performed cost comparisons between Home Depot and
            MSC prior to contract award to demonstrate price reasonableness; however, it



                                             37
              failed to perform a cost comparison for category 17 (services) of the Home Depot
              and MSC price analysis to demonstrate the price reasonableness of the services
              required under fire jobs.

Comment 7     We disagree. The repair and restoration of fire damaged units is not a routine
              service to the Authority. According to section 14.2 of HUD Handbook 7460.8,
              REV-2, “in deciding whether it is appropriate for the PHA to obtain supplies or
              services through an intergovernmental agreement rather than through a
              competitive procurement, the nature of the required supplies or services will be a
              determining factor. Intergovernmental agreements may be used only for the
              procurement and use of common supplies and services.” While we agree that fire
              restoration may include component activities the Authority had mentioned (such
              as painting, plumbing, installation of cabinets, etc.), the degree of restoration and
              service provided will vary and is a function of the damage to the unit. The repair
              of more seriously damaged units may include more complex and non-routine
              activities such as: demolishing damaged wall, ceiling, and flooring and other
              architectural components, fumigating units for insects, termites, and rodents,
              abating hazardous materials, cleaning and disposing of waste material, etc. When
              we performed our site visit at Nickerson Gardens, the building with the fire
              damaged unit was tented off because the property had significant termite, water,
              and “pigeoning” damage. Clearly, the services that are required are beyond
              painting, plumbing, and installation of cabinets; therefore, the services needed
              cannot be considered as “routine” to the housing authority.

Comment 8     We disagree. The Authority’s interpretation of “related services” as the County
              contract’s inclusion of routine services is incorrect. After our exit conference, we
              contacted the County with the Authority and the County repeatedly insisted that
              the original intent of the contract was to purchase products only. The County
              added services through amendment 3 approximately 4 years later without any
              additional procurement based solely on Home Depot’s low price guarantee.

Comment 9     Section 14.1 of HUD Handbook 7460.8, REV-2 specifically stated that “for PHAs
              to access various interagency purchasing agreements, the underlying contract
              must have been procured in accordance with 24 CFR 85.36.” The Authority did
              not evaluate the entire solicitation and submittals from the County’s contract in
              order to determine that the County met 24 CFR 85.36. During our exit
              conference, the president and CEO of the Authority stated that it reviewed the
              County’s contract on a “reasonable” basis and questioned why it would be
              concerned with how the County procured its Home Depot contract. Further, the
              Authority did not have the County’s complete bidding documentation, which we
              had to request from the County after our exit conference. Clearly, the Authority
              did not have all the documentation necessary to conclude whether they County
              met 24 CFR 85.36 when it entered into its Home Depot Contract.

Comment 10 According to our discussion with the County (see comment 8), the contract was
           amended approximately 4 years after the original contract was signed to add on



                                               38
              the assembly and installation of services. Amendment 3 was not included to
              clarify or expand on the general intent of the contract. The intent of the original
              contract was to provide only supplies.

Comment 11 Page 11 of the Authority’s procurement policy, dated January 26, 2010 stated, “if
           it is determined that any commodity/services will exceed $100,000 per year a
           formal procurement shall be conducted.” However, based on the additional
           documentation we received after our exit conference, which demonstrated that
           Maricopa County properly obtained and evaluated bids for supplies, we omitted
           sections of the report questioning the toilet purchases.

Comment 12 Based on the additional documentation we received after our exit conference, we
           omitted sections of the report questioning the toilet purchases. We still maintain
           that a cost comparison or price analysis of the fire damaged units was not
           performed. Further, the County did not perform a price analysis of services in its
           contract when it expanded it scope in November 2008.

Comment 13 We did not state in the report that an intergovernmental agreement was not
           available. There was a U.S. Communities “master intergovernmental cooperative
           purchasing agreement” where Maricopa County signed as one of the “lead public
           agencies”. However, we do note that there was no signed intergovernmental
           agreement specifically between the Authority and the County.

              The cost and availability were not evaluated as it relates to the fire job before the
              respective agreements were executed by both the Authority and County. The
              Authority only provided an estimate in cost for its fire jobs. It did not provide us
              with an evaluation to demonstrate whether “the terms of the agreement continued
              to pass the tests of economy and efficiency.”

Comment 14 Section 14.2.E of HUD Handbook 7460.8, REV-2, states that “after entering into
           an agreement, PHAs should compare cost and availability annually to determine if
           the terms of the agreement continue to pass the tests of economy and efficiency.”
           The Authority did not provide evidence that it performed this evaluation. We
           agree that HUD language distinguishes between mandatory versus advisory
           instructions. Based on additional information and documentation provided, we
           removed our questioned costs related to the purchase of toilets.

Comment 15 According to section 1.1 and 1.2 of the County’s Home Depot contract, the term
           is for a period of 3 years, beginning on the 1st day of December, 2005 and ending
           the 30th day of November, 2008. The County may, at its option and with
           agreement of the contractor, extend the period of the contract for additional one
           year terms up to a maximum of 3 additional terms. Essentially, the County’s
           contract duration will run for the period December 2005 through November 2011,
           a total of six years, if the options are exercised. During the exit conference, the
           Authority confirmed that its contract with Home Depot should not extend beyond
           the term of the County’s. However, because the County apparently followed



                                               39
              Maricopa County or the State’s procurement code, it is in direct conflict with
              Federal procurement code, which does not allow a contract’s term to exceed a
              period of five years, including options for renewal or extension. Since the
              Authority is piggybacking off of the County’s contract, which must abide by 24
              CFR 85.36 as well as applicable HUD Handbooks, the five year cap must also be
              applied to the County contract; therefore, shortening the allowable term to
              December 2005 through November 2010. By December 1, 2010, the County
              would have to obtain a new procurement for its contract before the Authority may
              “piggyback” off of it through an intergovernmental agreement without violating
              24 CFR 85.36. The Authority cannot extend its contract through February 25,
              2012 because the County contract would no longer be valid.

Comment 16 According to HUD Handbook 7460.8, REV-2, section 10.8.C.1, “the option to
           extend the term of the contract or to order additional quantities may only be
           exercised if the contract contained an options clause and if a price for the
           additional supplies or services was included.” In addition, section 10.8.C.2 states,
           “there must be a finite period for a contract, including all options, and a specific
           limit on the total quantity or maximum value of items to be purchased under an
           option.” The handbook specifically states that there must be a finite period
           (including options) for a contract; therefore, it cannot be implied that an option
           term would be set up in an amendment to the contract.

Comment 17 Since the Authority is using Recovery Act funds under the contract, the Authority
           cannot adopt the term and purchased materials as permitted by the County
           contract if the County’s contract is not abiding by federal procurement
           requirements.

              According to section 10.1 of HUD Handbook 7460.8, REV-2, “an indefinite
              quantity contract provides for delivery of an indefinite quantity, within stated
              limits (a minimum and maximum quantity), of supplies or services during a fixed
              period.” Even if the Authority is utilizing an indefinite quantities contract, it must
              state a minimum and maximum quantity. The Authority’s contract did not
              include a minimum quantity, and it repeatedly increased the total dollar amount
              and period past the respective maximums.

Comment 18 We agree. However, the Authority still needs to implement written procedures
           and controls to ensure this is done on future contracts.

Comment 19 The Authority provided cost estimates for the purchase of toilets and repair of 12
           fire damaged units. It also provided the price analysis and scoring sheet from the
           County’s contract for supplies. Based on the additional documentation we
           received, we omitted our questioned costs relating to the toilets; however, the
           Authority has not provided documentation to show that the services portion of the
           fire damaged units was eligible and reasonable. Further, the County’s
           documentation did not include a price analysis of services. Therefore, we do not




                                               40
              agree that the Authority submitted clear documentation demonstrating that there is
              no basis for our recommended actions.

Comment 20 We agree that the project miscoding was discovered by the Authority; however, it
           did not establish its project numbers until after we began our audit fieldwork. It
           also did not redistribute the employees’ payroll to the correct project sites until
           after we notified it of the deficiency. We agree that the Authority would not have
           overdrawn on this grant; however, coding payroll to the correct projects will
           ensure the accuracy the documentation it submits to HUD.

Comment 21 We agree that the Authority established procedures to set up project numbers;
           however, it has not completely reallocated its payroll costs accurately. We
           provided the Authority with a list showing the inaccurate reporting at the exit
           conference.

Comment 22 At the end of our audit fieldwork, we were provided with a control log template;
           however, we were unable to verify whether the log was implemented to monitor
           submission of certified payroll.

Comment 23 We disagree with Home Depot’s contention that repair and restoration of fire
           damaged units is a routine service for public agencies. See comment #7.

Comment 24 Together with the Authority, we spoke with the County’s procurement consultant
           after the exit conference. His explanation contradicts the information provided by
           the Home Depot director of renovation services. The County’s procurement
           consultant stated that the original intent of the contract was to purchase supplies
           only. He added that Home Depot offered services at the time of the contract;
           however, services were not included as part of the Home Depot contract. Further,
           services were not considered as part of the evaluation of the proposals, which
           explains why category #17 (services) of the price analysis was left blank. The
           County’s procurement consultant stated that the scope of the County’s contract
           was later expanded solely based on Home Depot’s low price guarantee.

Comment 25 We agree that the additional documentation supports the evaluation of the
           response to the request for proposal (RFP) for supplies between the Home Depot
           and MSC contracts. However, this documentation was needed by the Authority to
           determine whether the County complied in some part to 24 CFR 85.36. The
           Authority did not obtain this documentation until after our exit conference.

Comment 26 The “0% Retail Discount” included in Home Depot’s bid in the “Attachment A:
           Pricing” does not clearly indicate that services were included in the scope of the
           original contract. Further, during the referenced conference call with the County
           and the Authority (see comment 8), the County’s procurement consultant,
           clarified that services were not contemplated in the original contract and that the
           scope was expanded approximately 4 years later to include services.




                                              41
Comment 27 We agree that the general intent listed in section 1.1 of the RFP mentioned
           providing “a comprehensively competitively solicited Master Agreement offering
           products and services to government nationwide.” However, the executed contract
           did not include this scope, and it is clear that section 1.1 of RFP provision was
           altered before it was incorporated in the executed contract. Section 1.1 of the
           County’s executed contract states “the intent of this contract is to provide a source
           for retail and wholesale supply of general and specialty hardware, building and
           construction equipment and materials, building supplies, tools, and other related
           maintenance repair and operating supplies.” Further, the County confirmed that
           the original intent of the contract was to purchase supplies and not services.

Comment 28 It is not feasible or allowed under 24 CFR 85.36 to award a contract to Home
           Depot without following proper procurement requirements even if its pricing
           would be “the lowest available pricing to local agencies nationwide, and if a local
           agency is eligible for lower price (Home Depot) will match pricing.” Further,
           Home Depot was selected over MSC based on other factors that take precedence
           over price, such as proven experience, national coverage, and marketing. Based
           on the evaluation sheet provided by the County, Home Depot scored 8.4 out of 10
           in the pricing category, while its competitor, MSC, scored 10 out of 10, indicating
           that MSC’s prices (based on the product price analysis and price discounts
           proposed) were lower than Home Depot. Because the Authority did not provide a
           comparison of cost for the wages aspect of its fire job contracts, it did not
           demonstrate the reasonableness of Home Depot’s prices, despite its low price
           guarantee.

Comment 29 The Authority provided documentation showing it performed cost estimates on
           work to be performed at its fire-damaged units. Its first cost estimate for three fire
           damaged units was $247,920 or $82,640 per unit, and its second cost estimate for
           nine fire damaged units was $657,283 or $73,031 per unit. The Authority’s
           contract for the repair of three fire-damaged units at Nickerson Gardens was
           $247,920, which is exactly the amount of the Authority’s cost estimate. The
           Authority’s contract for the repair of nine fire-damaged units at Nickerson
           Gardens was $451,305, or $205,978 less than the cost estimate. Even though the
           amount contracted for the second contract was less than the cost estimate, the
           Authority had not provided documentation substantiating the basis for how it
           arrived at this contracted amount. It may be that the cost estimate factored in
           work that Home Depot did not feel was necessary; therefore, reducing the total
           cost. At this point, we do not know what the basis was for contracting the fire
           damaged units and do not believe that the cost estimates alone were sufficient
           documentation to show the price reasonableness of the contract, or an adequate
           substitute for competitive procurement.




                                               42
Appendix C

                                        CRITERIA
24 CFR 85.36(c). Competition.1. All procurement transactions will be conducted in a manner
providing full and open competition consistent with the standards of Sec. 85.36.

24 CFR 85.36(d). 4. Procurement by noncompetitive proposals is procurement through
solicitation of a proposal from only one source, or after solicitation of a number of sources,
competition is determined inadequate.
        i. Procurement by noncompetitive proposals may be used only when the award of a
        contract is infeasible under small purchase procedures, sealed bids or competitive
        proposals and one of the following circumstances applies:
                 A. The item is available only from a single source;
                 B. The public exigency or emergency for the requirement will not permit a delay
                 resulting from competitive solicitation;
                 C. The awarding agency authorizes noncompetitive proposals; or
                 D. After solicitation of a number of sources, competition is determined
                 inadequate.

24 CFR 85.36(i). Contract provisions. A grantee’s and subgrantee’s contracts must contain
provisions in paragraph (i) of this section. Federal agencies are permitted to require changes,
remedies, changed conditions, access and records retention, suspension of work, and other
clauses approved by the Office of Federal Procurement Policy.
       3.Compliance with Executive Order 11246 of September 24, 1965, entitled “Equal
       Employment Opportunity,” as amended by Executive Order 11375 of October 13, 1967,
       and as supplemented in Department of Labor regulations (41 CFR chapter 60). (All
       construction contracts awarded in excess of $10,000 by grantees and their contractors or
       subgrantees)
       4. Compliance with the Copeland “Anti-Kickback” Act (18 U.S.C. [United States Code]
       874) as supplemented in Department of Labor regulations (29 CFR part 3). (All contracts
       and subgrants for construction or repair)
       5. Compliance with the Davis-Bacon Act (40 U.S.C. 276a to 276a-7) as supplemented by
       Department of Labor regulations (29 CFR part 5). (Construction contracts in excess of
       $2,000 awarded by grantees and subgrantees when required by Federal grant program
       legislation)
       6. Compliance with Sections 103 and 107 of the Contract Work Hours and Safety
       Standards Act (40 U.S.C. 327-330) as supplemented by Department of Labor regulations
       (29 CFR part 5). (Construction contracts awarded by grantees and subgrantees in excess
       of $2,000, and in excess of $2,500 for other contracts which involve the employment of
       mechanics or laborers)
       7. Notice of awarding agency requirements and regulations pertaining to reporting.
       8. Notice of awarding agency requirements and regulations pertaining to patent rights
       with respect to any discovery or invention which arises or is developed in the course of or
       under such contract.



                                               43
       9. Awarding agency requirements and regulations pertaining to copyrights and rights in
       data.
       11. Retention of all required records for three years after grantees or subgrantees make
       final payments and all other pending matters are closed.
       12. Compliance with all applicable standards, orders, or requirements issued under
       section 306 of the Clean Air Act (42 U.S.C. 1857(h)), section 508 of the Clean Water Act
       (33 U.S.C. 1368), Executive Order 11738, and Environmental Protection Agency
       regulations (40 CFR part 15). (Contracts, subcontracts, and subgrants of amounts in
       excess of $100,000).
       13. Mandatory standards and policies relating to energy efficiency which are contained in
       the state energy conservation plan issued in compliance with the Energy Policy and
       Conservation Act (Pub. L. 94-163, 89 Stat. 871).

29 CFR 3.4(a) and (b). Submission of weekly statements and the preservation and inspection of
weekly payroll records.
      (a) Each weekly statement required under section 3.3 shall be delivered by the contractor
      or subcontractor, within seven days after the regular payment date of the payroll period,
      to a representative of a Federal or State agency in charge at the site of the building or
      work, or, if there is no representative of a Federal or State agency at the site of the
      building or work, the statement shall be mailed by the contractor or subcontractor, within
      such time, to a Federal or State agency contracting for or financing the building or work.
      After such examination and check as may be made, such statement, or a copy thereof,
      shall be kept available, or shall be transmitted together with a report of any violation, in
      accordance with applicable procedures prescribed by the United States Department of
      Labor.
      (b) Each contractor or subcontractor shall preserve his weekly payroll records for a
      period of three years from date of completion of the contract. The payroll records shall
      set out accurately and completely the name and address of each laborer and mechanic, his
      correct classification, rate of pay, daily and weekly number of hours worked, deductions
      made, and actual wages paid. Such payroll records shall be made available at all times
      for inspection by the contracting officer or his authorized representative, and by
      authorized representatives of the Department of Labor.

HUD Procurement Handbook for Public Housing Agencies, 7460.8, REV-2, Section 1.9.
Glossary. Change Order – A unilateral modification made to the contract by the Contracting
Officer under the authority of the contract’s Changes clause. Only the specific changes
permitted by the particular Changes clause may be made under a change order (e.g., modify the
drawings, design, specifications, method of shipping or packaging, place of inspection, delivery,
acceptance, or other such contractual requirement; see form HUD-5370). All change orders
must be within the scope of the contract.

Major Change – Modification to an existing contract that is beyond the general scope of the
contract or a change to a substantive element of the contract that is so extensive that a new
procurement should be used.




                                                44
HUD Procurement Handbook for Public Housing Agencies, 7460.8, REV-2, Section 10.8
     C. Limitations.
     1) Price. The option to extend the term of the contract or to order additional quantities
     may only be exercised if the contract contained an options clause and if a price for the
     additional supplies or services was included. An unpriced option is considered a new
     procurement and, therefore, may not be used.
     2) Time and Quantity. There must be a finite period for a contract, including all options,
     and a specific limit on the total quantity or maximum value of items to be purchased
     under an option.
     3) Option to Extend.
             a. Any contract containing options must specify the timeframe within which the
             option to extend the term of the contract must be exercised.
             b. If the PHA decides to include options in a solicitation, the pricing of the
             options should be evaluated as part of the overall contract award.


HUD Procurement Handbook for Public Housing Agencies, 7460.8, REV-2, Section 10.1
Contract pricing and types.
C. Contract Types
        3) Indefinite-delivery contracts
                iii. Indefinite-quantity contracts provide for delivery of an indefinite quantity,
within stated limits (a minimum and maximum quantity), of supplies or services during a fixed
period. Quantity limits may be stated in the contract as number of units or as dollar values.
PHAs may use an indefinite-quantity contract when they cannot predetermine, above a specified
minimum, the precise quantities of supplies or services that they will require during the contract
period, and it is inadvisable to commit itself for more than a minimum quantity. PHAs should
use an indefinite-quantity contract only when a recurring need is anticipated.

HUD Procurement Handbook for Public Housing Agencies, 7460.8, REV-2, Section 10.10.
Federal labor standards and wage rates – maintenance.
       F. Compliance. The contractor and any/all subcontractors are responsible, on no less
       than a semi-monthly basis, for paying not less than the applicable wage rates to all
       maintenance laborers and mechanics in their employ and engaged in work under the
       contract. The contractor is responsible for its own full compliance, and for the full
       compliance of any/all subcontractors, with all wage, overtime and record keeping
       requirements included in the contract.
       G. Enforcement. The PHA [public housing agency] is responsible for the administration
       and enforcement of labor standards requirements as provided in Labor Relations Letter
       LR-2004-01. These activities include:
               2. On-site Interviews. The PHA is responsible for conducting interviews with the
               laborers and mechanics on the jobsite to determine if the work performed and
               wages received are consistent with the job classifications and wage rates
               contained in the applicable wage determination and the classifications and wages
               reported by the employer on certified payrolls. On-site interviews are
               documented on form HUD-11, Record of Employee Interview, which can be
               found at HUDClips.



                                                45
              3. Enforcement. The PHA must perform contractor compliance monitoring with
              such frequency and depth as appropriate (based upon the scope and duration of
              the contract involved) to ensure that all laborers and mechanics are paid no less
              than the HUD prevailing wage rate for the type of work they perform.
       H. Recordkeeping. The PHA shall retain all compliance monitoring records, including
       employee interview records, for three years from the date of contract completion and
       acceptance by the PHA, or from the date of resolution of any labor standards issues
       outstanding at contract completion.

HUD Procurement Handbook for Public Housing Agencies, 7460.8, REV-2, Section 11.4.
Contract Modifications.
C. Limitations on Change Orders. The Changes clause contained in forms HUD-5370, 5370-C,
and 5370-EZ, prescribes the specific circumstances in which a change order may be issued. For
example, adding the construction of a new building to a modernization contract would not be
considered within the scope of the contract or within the authority of the Changes clause but
should be considered a new contract (and subject to competition).
E. HUD Approval of Modifications. PHAs must submit to HUD for prior approval any
proposed contract modifications changing the scope of the contract in accordance with the
Changes clause in the contract, or that increases the contract by more than the Federal small
purchase threshold, unless exempted under paragraph 12.5 of this handbook.

HUD Procurement Handbook for Public Housing Agencies, 7460.8, REV-2, Section 14.1.
General.

PHAs can choose to coordinate, collaborate, partner, or contract with various types of public or
private entities to administer or manage any or all of their programs or to handle procurement
matters. This chapter assists PHAs in recognizing the benefits of these relationships and
explains how the Federal procurement regulations apply. Please note that, for PHAs to access
various interagency purchasing agreements, the underlying contract(s) must have been procured
in accordance with 24 CFR 85.36. Use of cooperative and interagency agreements can often
greatly simplify and expedite the procurement process by relieving the PHA of developing
specifications or issuing solicitations. These cooperative arrangements can also offer substantial
discounts over what a PHA might be required to pay if it purchased the items on its own.

HUD Procurement Handbook for Public Housing Agencies, 7460.8, REV-2, Section 14.2.

Intergovernmental Agreements for Procurement Activity.
Requirements. A PHA may enter into intergovernmental or interagency purchasing agreements
without competitive procurement provided the following conditions are met:

     1.The agreement provides for greater economy and efficiency and results in cost savings to
         the PHA. Before utilizing an interagency agreement for procurement, the PHA should
         compare the cost and availability of the identified supplies or services on the open
         market with the cost of purchasing them through another unit of government to
         determine if it is the most economical and efficient method;




                                                46
     2.   The agreement is used for common supplies and services that are of a routine nature
          only. In deciding whether it is appropriate for the PHA to obtain supplies or services
          through an intergovernmental agreement rather than through a competitive
          procurement, the nature of the required supplies or services will be a determining
          factor. Intergovernmental agreements may be used only for the procurement and use
          of common supplies and services. If services, required by the PHA, are provided by
          the State or locality and are part of that government’s normal duties and
          responsibilities, it is permissible for the PHA to share the services and cost of staff
          under an agreement. For example, a PHA could enter into an intergovernmental
          agreement, without competitive procurement, to use the services of a local
          government’s accounting office to conduct an annual audit of its books or to use the
          services of a city health agency to provide advice about drug abuse prevention
          strategies. A PHA could not, however, without competitive procurement, enter into an
          intergovernmental agreement with a local police department to purchase cabinets
          manufactured by the police department (the manufacturing of cabinets is not a normal
          function of a law enforcement agency);
     3.   PHAs must take steps to ensure that any supplies or services obtained using another
          agency’s contract are purchased in compliance with 24 CFR 85.36;
     4.   A PHA’s procurement files should contain a copy of the Intergovernmental Agreement
          and documentation showing that cost and availability were evaluated before the
          agreement was executed, and these factors are reviewed and compared at least
          annually with those contained in the agreement; and
     5.   The agreement must be between the PHA and a state or local governmental agency,
          which may be another PHA.

The Authority's Policy, “Policies Pertaining to Federal Awards.”
Monitoring of Subrecipients
      7. The Housing Authority shall assign one of its employees the responsibility of
      monitoring each subrecipient on an ongoing basis, during the period of performance by
      the subrecipient. This employee will establish and document, based on her/his
      understanding of the requirements that have been delegated to the subrecipient, a system
      for the ongoing monitoring of the subrecipient.
      8. Ongoing monitoring of subrecipients by the Housing Authority will inherently vary
      from subrecipient to subrecipient, based on the nature of work assigned to each
      subrecipient. However, ongoing monitoring activities may involve any or all of the
      following:

              a. Regular contacts with subrecipients and appropriate inquiries regarding the
              program.
              b. Reviewing programmatic and financial reports prepared and submitted by the
              subrecipient and following up on areas of concern.
              c. Monitoring subrecipient budgets.
              d. Performing site visits to the subrecipient to review financial and programmatic
              records and assess compliance with applicable laws, regulations, and provisions
              of the subaward.
              e. Offering subrecipients technical assistance where needed.



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              f. Maintaining a system to track and follow up on deficiencies noted at the
              subrecipient in order to assure that appropriate corrective action is taken.
              g. Establishing and maintaining a tracking system to assure timely submission of
              all reports required of the subrecipient.

       9. Documentation shall be maintained in support of all efforts associated with the
       Housing Authority’s monitoring of subrecipients.

The Authority’s Procurement Policy.
      I. Cooperative purchasing. HACLA [the Authority] may enter into Federal, State or
      local inter-governmental agreements to purchase or use common goods and services.
      The decision to use an intergovernmental agreement or conduct a direct procurement
      shall be based on economy and efficiency. If used, the intergovernmental agreement
      shall stipulate who is authorized to purchase on behalf of the participating parties and
      shall specify inspection, acceptance, termination, payment and other relevant terms and
      conditions. HACLA is encouraged to use Federal or State excess and surplus property
      instead of purchasing new equipment and property whenever such use is feasible and
      reduces project costs.

       V. A. Contract Types. All procurements shall include the clauses and provisions
       necessary to define the rights and responsibilities of the parties.

       V. B. Options. Options for additional quantities or performance periods may be included
       in contracts provided that:
             The option is contained in the solicitation.
             The option is a unilateral right of HACLA.
             The contract states a limit on the additional quantities and the overall term of the
               contract.
             The options are evaluated as part of the initial competition.
             The contract states the period within which the options may be exercised.
             The options may be exercised only at a price specified in, or reasonably determined
               from, the contract; and
             The options may be exercised only if determined to be more advantageous to
               HACLA than conducting a new procurement.

       V.C. Contract Clauses. In addition to containing a clause identifying the contract type,
       all contracts shall include any clauses required by federal statutes, executive orders, and
       their implementing regulations, as provided in 24 CFR 85.36(i), such as the following:

       Termination for convenience, termination for default, equal employment opportunity, anti
       kickback act, Davis-Bacon provisions of the United States Housing Act of 1937, contract
       work hours and safety standards act, reporting requirements, patent rights, rights in data,
       examination of records by comptroller general, retention of records for three years after
       closeout, clear air and water, energy efficiency standards, bid protests and contract



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       claims, value engineering, payment of funds to influence certain federal transactions,
       section 3 clause, pursuant to 24 CFR 135.38, and insurance requirements.

       The operational procedures required by section II.A. of this policy shall contain the text
       of all clauses and required certifications (such as required non-collusive affidavits and
       lobbying disclosures) used by HACLA. Any required HUD forms which contain all
       HUD-required clauses and certifications for contracts of more than $100,000, as well as
       any forms/clauses as required by HUD for small purchases, shall be used in all
       solicitations and contracts issued by HACLA.

OMB Circular A-122.
a. Support of salaries and wages.
   (1) Charges to awards for salaries and wages, whether treated as direct costs or indirect costs,
       will be based on documented payrolls approved by a responsible official(s) of the
       organization. The distribution of salaries and wages to awards must be supported by
       personnel activity reports, as prescribed in subparagraph (2), except when a substitute
   (2) system has been approved in writing by the cognizant agency. (See subparagraph E.2 of
       Attachment A.)
   (2) Reports reflecting the distribution of activity of each employee must be maintained for all
       staff members (professionals and nonprofessionals) whose compensation is charged, in
       whole or in part, directly to awards. In addition, in order to support the allocation of
       indirect costs, such reports must also be maintained for other employees whose work
       involves two or more functions or activities if a distribution of their compensation
       between such functions or activities is needed in the determination of the organization’s
       indirect cost rate(s) (e.g., an employee engaged part-time in indirect cost activities and
       part-time in a direct function). Reports maintained by non-profit organizations to satisfy
       these requirements must meet the following standards:
               (a) The reports must reflect an after-the-fact determination of the actual activity of
               each employee. Budget estimates (i.e., estimates determined before the services
               are performed) do not qualify as support for charges to awards.
               (b) Each report must account for the total activity for which employees are
               compensated and which is required in fulfillment of their obligations to the
               organization.
               (c) The reports must be signed by the individual employee, or by a responsible
               supervisory official having firsthand knowledge of the activities performed by the
               employee, that the distribution of activity represents a reasonable estimate of the
               actual work performed by the employee during the periods covered by the reports.
               (d) The reports must be prepared at least monthly and must coincide with one or
               more pay periods.




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