Issue Date
September 26, 2011
Audit Report Number
2011-LA-1019
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 County of San Bernardino, CA, Did Not
Adequately Complete All Procurements for Its Recovery Act Capital Fund
Grants in Accordance With HUD Requirements
HIGHLIGHTS
What We Audited and Why
We audited the Housing Authority of the County of San Bernardino‟s American
Recovery and Reinvestment Act of 2009 Public Housing Capital Fund formula
and competitive grants. We performed the audit because Recovery Act reviews
are part of the Office of Inspector General‟s (OIG) annual plan and the Los
Angeles Office Public Housing‟s 2011 risk assessment rated the Authority as high
risk based on data from the Authority‟s most recent Real Estate Assessment
Center physical inspections and Financial Data Schedule submission.
Our audit objective was to determine whether the Authority completed
procurements for Recovery Act capital funds in accordance with 24 CFR (Code of
Federal Regulations) Part 85 and U.S. Department of Housing and Urban
Development (HUD) Recovery Act requirements.
What We Found
The Authority did not complete all procurements for its Recovery Act capital
funds in accordance with 24 CFR Part 85 and HUD Recovery Act requirements.
Specifically, it procured one vendor through noncompetitive procurement without
adequate justification, and the related contracts were missing 5 of 13 required
provisions. In addition, we identified an expired assurance of completion for
ongoing work, a lack of backup documentation for the independent cost estimates
in two of the files reviewed, and a control weakness in the Authority‟s process for
approving change orders. Therefore, the Authority may have spent more
Recovery Act money toward its projects than it would have had it completed
proper procurement procedures.
What We Recommend
We recommend that the Director of HUD‟s Los Angeles Office of Public Housing
require the Authority to (1) support the reasonableness of the $247,834 contracted
through noncompetitive procurement or repay the Recovery Act funding
expended thus far and ensure that no additional Recovery Act funding is
disbursed under the contracts, (2) amend the ongoing noncompetitive
procurement contracts to include the missing contract provisions, (3) implement a
policy to ensure that its procurement and contracts manager reviews all contracts
before they are executed, (4) implement controls to ensure that assurance of
completion documents are obtained and valid for the duration of an ongoing
contract, (5) implement controls to ensure that all contractor backup
documentation is retained and accessible, and (6) implement controls to ensure
that all documents requiring signature are approved by multiple parties as
intended and that one person does not sign on multiple lines.
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 the discussion draft report on August 29, 2011, and
held an exit conference with the Authority‟s officials on September 7, 2011. The
Authority provided written comments on September 8, 2011, and generally
disagreed with our findings. The complete text of the auditee‟s response, along
with our evaluation of that response, can be found in appendix B of this report.
The auditee also included additional attachments with its response; however, we
did not include these in the report and they are available upon request.
2
TABLE OF CONTENTS
Background and Objective 4
Results of Audit
Finding: The Authority Did Not Complete All Procurements for Its Recovery 5
Act Capital Funds in Accordance With 24 CFR Part 85 and HUD
Recovery Act Requirements
Scope and Methodology 11
Internal Controls 13
Appendixes
A. Schedule of Questioned Costs 14
B. Auditee Comments and OIG‟s Evaluation 15
C. Criteria 24
3
BACKGROUND AND OBJECTIVE
The Housing Authority of the County of San Bernardino was organized in 1941 and is the largest
provider of affordable housing in the County, owning or managing more than 10,000 housing
units and serving nearly 30,000 individuals and families throughout the County. As a public
agency, the Authority is tasked to address the local housing needs throughout the County;
therefore, the Authority works with various community partners and local government officials
to acquire, build, and manage more high quality housing. In March 2008, the Authority became
one of only 1 percent of housing authorities nationwide to be designated as a Moving to Work
demonstration site by the U.S. Department of Housing and Urban Development (HUD).
On February 17, 2009, the President enacted the American Recovery and Reinvestment Act of
2009. 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 are 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
Authority on March 18 and September 24, 2009, respectively. The Authority was awarded
stimulus funds of more than $5 million under the formula grant and more than $3 million under
the Capital Fund Green Communities Option 2 Recovery competitive grant. As of July 31, 2011,
the Authority had expended 100 percent of its formula grant funds and 93 percent of its
competitive grant funds.
The Authority expended the funds among 25 vendors, in addition to paying administrative costs
and force account1 program labor. The funds enabled the Authority to complete exterior
improvements at four of its public housing sites, including but not limited to lead-based paint
abatement and selective demolition, window replacement, swamp cooler replacement, exterior
paint, and Americans With Disabilities Act upgrades. In addition, the Authority expended funds
for roofing and electrical preparations for solar panel installation, to be paid under a different
program, at its Maplewood Homes public housing site.
Our audit objective was to determine whether the Authority completed procurements for
Recovery Act capital funds in accordance with 24 CFR (Code of Federal Regulations) Part 85
and HUD Recovery Act requirements.
1
Force account is defined in the Capital Fund program as labor employed directly by the public housing authority
either on a permanent or a temporary basis.
4
RESULTS OF AUDIT
Finding: The Authority Did Not Complete All Procurements for Its
Recovery Act Capital Funds in Accordance With 24 CFR Part
85 and HUD Recovery Act Requirements
The Authority did not complete all procurements for its Recovery Act capital funds in
accordance with HUD rules and regulations. Specifically, the Authority procured one vendor
through noncompetitive procurement without adequate justification, and the related contracts
were missing 5 of 13 required provisions. In addition, we identified an expired assurance of
completion for ongoing work, a lack of backup documentation for the independent cost estimates
in two of the files reviewed, and a control weakness in the Authority‟s process for approving
change orders. These conditions occurred because the Authority did not have adequate controls
over procurement and Authority staff misinterpreted HUD regulations. As a result, the Authority
may have spent more Recovery Act money toward its projects than necessary.
Improper Procurement Method
Used
The Authority procured HelioPower, Inc., through noncompetitive procurement
without adequate justification, which violated the requirements of full and open
competition set forth at 24 CFR 85.36(c)(1) (see appendix C). Helio previously
completed an application on behalf of the Authority for the local electrical supply
company to partially fund solar panel installation at the Authority‟s Maplewood
Homes public housing site under the Multifamily Affordable Solar Housing
program. When Helio completed that application, it was acting as a subconsultant
under the Heschong Mahone Group, Inc., contract. However, when the Authority
was awarded funding through the Multifamily Affordable Solar Housing program,
it contracted with Helio directly to complete the resulting work using Recovery
Act funds.
The Authority divided Helio‟s work into two contracts for $91,222 and $156,612
in Recovery Act Public Housing Capital Fund competitive grant funding. These
contracts were for solar roof stanchion installation and solar service entry
electrical upgrades, respectively. Both contracts were executed on the same day
but for different aspects of the same overall project. Because of the nature of the
work involved in each contract, it was acceptable to separate the work into two
contracts; however, the Authority should have procured the contracts using small
purchase and sealed bid procedures, respectively. The Authority did not obtain an
independent cost estimate for the work as required by 24 CFR 85.36(f)(1),
5
publicly solicit bids as required by 24 CFR 85.36(d)(2), or obtain price or rate
quotations from an adequate number of qualified sources as required by 24
CFR 85.36(d)(1), each of which was also required by the Authority‟s own
procurement policies (see appendix C).
Further, the Authority did not proceed with the noncompetitive procurement in
accordance with HUD regulations or its own procurement policy. HUD
Handbook 7460.8 states, “Procurement by noncompetitive proposals shall be
conducted only if a written justification is made as to the necessity of using this
method in accordance with the procedures described in the PHA‟s [public housing
agency] procurement policy.” Moreover, the Authority‟s procurement policy and
24 CFR 85.36(d)(4)(i) provide for noncompetitive procurement only when the
award of the contract is infeasible using small purchase procedures, sealed bids,
or competitive proposals and if the item is only available from a single source, an
emergency exists, HUD authorizes the use of noncompetitive proposals, or
competition is determined inadequate after soliciting a number of sources.
However, none of these conditions was in effect at the time the Authority awarded
its Recovery Act contracts with Helio.
The Authority‟s procurement policy requires each procurement based on
noncompetitive proposal to be supported by a written justification for the
selection of that procurement method. The policy requires the justification to be
approved in writing by the contracting officer, be maintained in the procurement
file, and include the following information:
1. Description of the requirement;
2. History of prior purchases and their nature (competitive vs.
noncompetitive);
3. Specific exception above which applies;
4. Statement as to the unique circumstances that require award by
noncompetitive proposals;
5. Description of the efforts made to find competitive sources (advertisement
in trade journals or local publications, phone calls to local suppliers,
issuance of a written solicitation, etc.);
6. Statement as to efforts that will be taken in the future to promote
competition for the requirement;
7. Cost analysis in compliance with 24 CFR 85.36 and a declaration from the
contracting officer stating that the cost is reasonable;
8. Signature by the contracting officer‟s supervisor (or someone above the
level of the contracting officer); and
9. Price reasonableness. The reasonableness of the price for all
procurements based on noncompetitive proposals must be determined by
performing an analysis.
24 CFR 85.36(d)(4)(ii) also requires cost analysis, including verifying the
proposed cost data, projections of the data, and evaluation of the specific elements
6
of costs and profits. Further, 24 CFR 85.36(f)(2) requires grantees to negotiate
profit as a separate element of the price of each contract in which
there is no price competition. However, the justification the Authority presented
to its board of commissioners lacked six of the nine key required elements
identified above, including (1) the history of prior purchases and their nature, (2)
the statement as to the unique circumstances that required award by
noncompetitive proposal, (3) the description of the efforts made to find
competitive sources, (4) the statement as to efforts that would be taken in the
future to promote competition for the requirement, (5) a cost analysis in
compliance with 24 CFR 85.36, and (6) a declaration from the contracting officer
stating that the cost was reasonable as well as a price reasonableness analysis. In
addition, the “scope of work detail” section in exhibit A of each of the Helio
contracts did not indicate that the Authority had negotiated profit as a separate
element of the price of each contract.
The Authority‟s June 30, 2010, justification to its board of commissioners for
using noncompetitive procurement misinterpreted an allowed exception in the
Authority‟s procurement policy. Although its policy stated the exception as
“HUD authorizes the use of noncompetitive proposals,” the justification presented
to the board used the wording from 24 CFR 85.36(d)(4)(i)(C), which states the
exception as “the awarding agency authorizes noncompetitive proposals.”
Although both statements say the same thing since HUD is the awarding agency
for the Authority‟s Recovery Act Capital Fund grants, the justification to the
board inferred that the board was the awarding agency. Therefore, Authority staff
misinterpreted 24 CFR 85.36 when completing the Helio procurement.
Contracts Missing Required
Provisions
Each of the Helio contracts was missing 5 of the 13 provisions required under 24
CFR 85.36(i) (see appendix C). Specifically, the contracts were missing the
following provisions:
#4 – Compliance with the Copeland “Anti-Kickback” Act as
supplemented in U.S. Department of Labor regulations.
#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.
#9 – Awarding agency requirements and regulations pertaining to
copyrights and rights in data.
#11 – Retention of all required records for 3 years after grantees or
subgrantees make final payments and all other pending matters are closed.
#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.
7
The Authority executed the contracts without the review or approval of its
procurement and contracts manager. According to the Authority‟s deputy
executive director for its Office of Real Estate Development, the Authority
completed the Helio contracts based on California Public Contract Code, and the
contracts were geared to follow State requirements of the California Solar
Initiative; however, as such, the contracts did not include all of the required
Federal provisions. Authority staff relied on Helio to guide the process due to
Helio‟s experience in the solar initiative arena, and the Authority‟s legal counsel
reviewed contract negotiations along the way in lieu of the procurement and
contracts manager‟s involvement. The Authority should implement a policy to
ensure that the procurement and contracts manager reviews all contracts before
they are executed to ensure compliance with all applicable laws and regulations.
Expired Assurance of
Completion
The Authority‟s solar service entry upgrade contract with Helio was over the
$100,000 small purchase threshold and was, therefore, subject to the bonding
requirements set forth at 24 CFR 85.36(h) (see appendix C). In addition, section
3.13.1 of the contract required the contractor to execute and provide the Authority
with a payment bond in the amount of 100 percent of the total contract price.
However, the Authority did not obtain a payment bond for this contract. In lieu of
a payment bond, the Authority opted to obtain a 25 percent irrevocable letter of
credit as allowed by 24 CFR 968.135(b).
The 25 percent irrevocable letter of credit was initially due to expire on February
28, 2011, but it was amended to expire on April 30, 2011. However, there were
no further extensions, despite the contract‟s being only 40 percent complete with
more than $71,000 remaining on the purchase order as of July 6, 2011. If the
contractor had stopped working at that time, the Authority would not have had a
current assurance of completion to protect itself.
We brought the expired letter of credit to the Authority‟s attention on July 12,
2011, and Authority staff confirmed that there were no additional amendments or
extensions. By July 19, 2011, Authority staff had obtained another extension
through August 31, 2011. Although the matter was corrected, the oversight
represents a control weakness which the Authority needs to address to ensure that
assurance of completion documents are obtained and valid for the duration of an
ongoing contract.
8
Other Issues
In addition to the Helio contract, we reviewed the procurement and contracting
for two vendors that the Authority procured through sealed bid procedures for its
Recovery Act grants, including Queen City Glass and D. Webb, Inc. Services
were properly procured, monitored, and completed for the two contracts reviewed
for these two vendors. However, we did note items that the Authority could
improve upon in future procurements.
For both of the sealed bid procurements reviewed, the Authority was
unable to provide backup documentation from its construction manager
for its independent cost estimate required by 24 CFR 85.36(f)(1) (see
appendix C); however, the procurement file did contain a summary sheet
for the independent cost estimate in both cases. Although services were
properly procured, in the future, the Authority needs to ensure that the
construction manager‟s backup documentation is retained and accessible
according to the access and retention contract provisions set forth in 24
CFR 85.36(i)(10) and (11).
Additionally, in the D. Webb, Inc., file, we identified a control weakness
that the Authority needs to address to ensure that all documents requiring
signature are approved by multiple parties as intended and that one person
does not sign on multiple lines. The Authority‟s deputy executive director
of its Office of Real Estate Development approved two change orders as
both the “supervisor” and the “executive director” when the executive
director was out of the office and unable to sign for herself.
Conclusion
The Authority violated Federal procurement requirements and its own policies by
entering into two contracts with Helio without undergoing proper procurement
procedures because Authority staff misinterpreted HUD regulations and did not
obtain approval from its procurement and contracts manager before executing the
related contracts. In addition, there was a lack of backup documentation for the
independent cost estimates in two of the files reviewed and a control weakness in
the Authority‟s process for approving change orders because it did not have
adequate controls over procurement. Consequently, the Authority limited
competition and may have spent more Recovery Act money toward its projects
than it would have had it completed proper procurement procedures. It contracted
$247,834 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.
9
Recommendations
We recommend the that Director of HUD‟s Los Angeles Office of Public Housing
require the Authority to
1A. Support the reasonableness of the $247,834 contracted through
noncompetitive procurement or repay the Recovery Act funding expended
thus far and ensure that no additional Recovery Act funding is disbursed
under the contracts.
1B. Amend the ongoing noncompetitive procurement contracts to include the
missing contract provisions.
1C. Implement a policy to ensure that its procurement and contracts manager
reviews all contracts before execution.
1D. Implement controls to ensure that assurance of completion documents are
obtained and valid for the duration of an ongoing contract.
1E. Implement controls to ensure that all contractor backup documentation is
retained and accessible.
1F. Implement controls to ensure that all documents requiring signature are
approved by multiple parties as intended and that one person does not sign
on multiple lines.
10
SCOPE AND METHODOLOGY
We performed our onsite work at the Authority‟s administrative office at 715 East Brier Drive,
San Bernardino, CA, between April and July 2011. Our audit generally covered the period
March 2009 to July 2011. We expanded our scope as necessary.
To accomplish our audit objective, we
Obtained an understanding of the Recovery Act, the Authority‟s grant agreements with
HUD, and the Authority‟s planned activities for its Recovery Act capital funds.
Reviewed applicable HUD regulations, including but not limited to 24 CFR Part 85,
Administrative Requirements for Grants and Cooperative Agreements to State, Local,
and Federally Recognized Indian Tribal Governments; 24 CFR Part 905, The Public
Housing Capital Fund Program; HUD Handbook 7460.8, The Procurement Handbook for
Public Housing Agencies; applicable Office of Public and Indian Housing notices; and
Public Law 111-5, American Recovery and Reinvestment Act of 2009.
Reviewed the Authority‟s annual plans for 2009, 2010, and 2011; audited financial
statements for 2009; chart of accounts; employee listing and organizational chart; and
relevant internal policies and procedures.
Interviewed appropriate HUD officials from the Office of Public Housing, Los Angeles
field office.
Reviewed 2010 and 2011 HUD monitoring reports.
Interviewed the Authority‟s supervisors and staff.
Reviewed the Authority‟s financial records and procurement files.
Reviewed Authority data from HUD‟s Line of Credit Control System.
Conducted site visits at the Authority‟s Maplewood Homes and Colton Public Housing
sites to observe the progress of work and ensure that purchases were received.
Selected a sample to test whether the Authority conducted its procurement activities in
accordance with HUD rules and regulations.
We selected a nonstatistical sample of 2 of the 39 contracts (5 percent) awarded via sealed bid
and funded with Recovery Act capital funds. Of the two contracts, D. Webb, Inc., was funded
with the Authority‟s Capital Fund Recovery formula grant, while Queen City Glass was funded
with the Authority‟s Capital Fund Recovery competitive grant. We selected the D. Webb, Inc.,
contract because it was the single largest contract ($148,776) for the vendor, which received the
most Recovery Act Capital Fund awards from the Authority–seven contracts totaling $545,203.
We selected the Queen City Glass contract because it was the single largest contract ($2.194
million) the Authority awarded using Recovery Act capital funds.
In addition, we reviewed one of four vendors the Authority procured through methods other than
sealed bid and paid using Recovery Act funds (HelioPower, Inc.). The Authority contracted with
Helio for $247,834 in competitive funds, divided between two contracts. The remaining three
vendors that were not procured via sealed bid fell under the $2,000 micro purchase limit or the
11
Authority‟s direct pay list, and we did not note any reason for additional review of those three
vendors.
The four contracts we reviewed (one each for D. Webb, Inc., and Queen City Glass plus two
contracts for Helio) comprise almost 31 percent of the total Capital Fund Recovery Act grant
funds the Authority received. 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.
To achieve our objective, we relied in part on spreadsheets maintained by the auditee. We
performed a moderate level of testing to assess the integrity of the data with respect to the
Authority‟s bid log and Recovery Act expense detail and found the data to be generally accurate
for our purposes.
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 finding and
conclusion based on our audit objective.
12
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
objective:
Policies, procedures, and controls to ensure that all procurements for the
Authority‟s Recovery Act capital funds are in accordance with HUD
requirements.
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 Deficiency
Based on our review, we believe the following item is a significant deficiency:
The Authority did not implement sufficient policies, procedures, and
controls to ensure that all procurements for its Recovery Act capital funds
were in accordance with HUD requirements (see finding).
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APPENDIXES
Appendix A
SCHEDULE OF QUESTIONED COSTS
Recommendation Unsupported 1/
number
1A $247,834
Total $247,834
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.
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Appendix B
AUDITEE COMMENTS AND OIG’S EVALUATION
Ref to OIG Evaluation Auditee Comments
Comment 1
15
Comment 2
Comment 3
16
Comment 4
17
Comment 5
Comment 5
18
Comment 5
19
Comment 5
20
Comment 5
21
OIG Evaluation of Auditee Comments
Comment 1 The OIG disagrees that HelioPower, Inc. was in fact procured through a
competitive process. We reviewed Heschong Mahone Group‟s (HMG) response
to the Authority‟s Request for Proposals (RFP) PC 452, and we acknowledged in
the report that Helio was initially acting as a subconsultant under the HMG
contract. However, while HMG‟s proposal included a “Program and Strategy
Development Phase” (Phase 1) and a “Program Implementation/Support Phase”
(Phase 2), Phase 2 was optional. The Authority previously confirmed during
audit field work that the Strategic Energy Plan, prepared by HMG under Phase 1,
did not include any specific reference to the Helio projects at the Maplewood
Homes public housing site. HMG‟s proposal for Phase 2 detailed that Helio
would “assist [the Authority] with the development of RFPs to support the
implementation of the strategic plan” and “assist in selecting service providers
and contractors.” The proposal did not indicate that Helio would do the
implementation directly.
Furthermore, HMG‟s proposed project budget did not include any labor hours or
costs for Helio under the optional Phase 2. Although HUD Handbook 7460.8
paragraph 10.8(B) does allow the PHA to order additional supplies or services
through an option clause in the contract, paragraph 10.8(C)(1) clarifies the option
“may only be exercised if the contract contained an options clause and if a price
for the additional supplies or services was included.” In this case, the Authority
has not provided support showing its contract with HMG included an options
clause with prices for the additional Helio supplies and labor. HUD Handbook
7460.8 paragraph 10.8(C)(1) states, “An unpriced option is considered a new
procurement and, therefore, may not be used.”
24 CFR 85.36(c)(1) states “All procurement transactions will be conducted in a
manner providing full and open competition consistent with the standards of
[section] 85.36.” It also clarifies that situations considered to be restrictive of
competition include noncompetitive pricing and awards, and arbitrary actions in
the procurement process. Since the two Helio contracts were not part of the
original HMG proposal, they were not competitively awarded or priced, and
therefore violated HUD‟s requirements.
Comment 2 The OIG disagrees that the selection of Helio met the requirements of the
Authority‟s procurement policy and 24 CFR 85.36(d)(4)(i) as only being available
from a single source. Step 2 of the Multifamily Solar Affordable Housing
(MASH) program fact sheet instructs the applicant to “choose a reputable solar
contractor by obtaining bids from at least three licensed contractors before
making your selection.” This indicates the award of the grant money was not
initially contingent on the use of Helio as the solar contractor, and the Authority
should have obtained bids from at least three licensed solar contractors before
selecting one to submit for its proposal to Southern California Edison. The
22
Authority has not provided any support showing it would not have been awarded
funding if it had selected an alternate reputable solar contractor.
Comment 3 The OIG acknowledges the Authority‟s efforts to “minimize costs wherever
possible.” However, costs may have been further reduced through the use of
competitive procurement for the solar roof stanchion installation and solar service
entry electrical upgrade projects.
Comment 4 The OIG acknowledges the Recovery Act federal funds were a very small portion
of the total cost of the Authority‟s solar project; however, the amount of federal
funds in question in comparison to the anticipated benefit does not justify
deviating from the applicable federal requirements. Both Helio contracts were
scheduled to be fully expended using Recovery Act Capital Fund competitive
grant funding, and as such, federal provisions applied. Section VI(B)(3)(a)(2) of
the procurement requirements in the Notice of Funding Availability (NOFA) for
HUD‟s Recovery Act Capital Fund Recovery Competition (CFRC) Grants
(Docket No. FR-5311-N-01) stated “Any requirements relating to the
procurement of goods and services arising under state and local laws and
regulations shall not apply to Capital Fund Stimulus (including CFRC) Grants.
PHAs shall instead follow the Part 85 requirements.”
Comment 5 The OIG acknowledges the Authority‟s proactive approach to implementing our
recommendations; however, the Authority did not provide the revised Helio
contract or amended procurement procedures for our review. HUD will evaluate
the Authority‟s amendments as part of audit resolution.
23
Appendix C
CRITERIA
The following sections of the Code of Federal Regulations and HUD handbook, as noted below,
apply to our audit objective.
Competition
24 CFR 85.36(c)(1) states, “All procurement transactions will be conducted in a manner
providing full and open competition consistent with the standards of [section] 85.36.”
Methods of Procurement
24 CFR 85.36(d)(1) states, “Small purchase procedures are those relatively simple and
informal procurement methods for securing services, supplies, or other property that do
not cost more than the simplified acquisition threshold fixed at 41 U.S.C. [United States
Code] 403(11) (currently set at $100,000). If small purchase procedures are used, price
or rate quotations shall be obtained from an adequate number of qualified sources.”
24 CFR 85.36(d)(2) states, “Procurement by sealed bids (formal advertising). Bids are
publicly solicited and a firm-fixed-price contract (lump sum or unit price) is awarded to
the responsible bidder whose bid, conforming with all the material terms and conditions
of the invitation for bids, is the lowest in price. The sealed bid method is the preferred
method for procuring construction, if the conditions in [section] 85.36(d)(2)(i) apply.”
Section (d)(2)(i) goes on to state, “In order for sealed bidding to be feasible, the
following conditions should be present:
A. A complete, adequate, and realistic specification or purchase description is
available;
B. Two or more responsible bidders are willing and able to compete effectively and
for the business; and
C. The procurement lends itself to a firm fixed price contract and the selection of the
successful bidder can be made principally on the basis of price.”
HUD Handbook 7460.8 paragraph 8.5(A) states, “Procurement by noncompetitive
proposals shall be conducted only if a written justification is made as to the necessity of
using this method in accordance with the procedures described in the PHA‟s procurement
policy.”
24 CFR 85.36(d)(4) states, “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.”
24 CFR 85.36(d)(4)(i) states, “Procurement by noncompetitive proposals may be used
only when the award of a contract is infeasible under small purchase procedures, sealed
24
bids or competitive proposals and one of the following circumstances applies, [including]
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(d)(4)(ii) states, “Cost analysis, i.e., verifying the proposed cost data, the
projections of the data, and the evaluation of the specific elements of costs and profits, is
required.”
Contract Cost and Price
24 CFR 85.36(f)(1) states, “Grantees and subgrantees must perform a cost or price
analysis in connection with every procurement action including contract modifications.
The method and degree of analysis is dependent on the facts surrounding the particular
procurement situation, but as a starting point, grantees must make independent estimates
before receiving bids or proposals. A cost analysis must be performed when the offeror
is required to submit the elements of his estimated cost, e.g., under professional,
consulting, and architectural engineering services contracts. A cost analysis will be
necessary when adequate price competition is lacking, and for sole source procurements,
including contract modifications or change orders, unless price reasonableness can be
established on the basis of a catalog or market price of a commercial product sold in
substantial quantities to the general public or based on prices set by law or regulation. A
price analysis will be used in all other instances to determine the reasonableness of the
proposed contract price.”
24 CFR 85.36(f)(2) states, “Grantees and subgrantees will negotiate profit as a separate
element of the price for each contract in which there is no price competition and in all
cases where cost analysis is performed. To establish a fair and reasonable profit,
consideration will be given to the complexity of the work to be performed, the risk borne
by the contractor, the contractor‟s investment, the amount of subcontracting, the quality
of its record of past performance, and industry profit rates in the surrounding
geographical area for similar work.”
Bonding Requirements
24 CFR 85.36(h) states, “For construction or facility improvement contracts or
subcontracts exceeding the simplified acquisition threshold, the awarding agency may
accept the bonding policy and requirements of the grantee or subgrantee provided the
awarding agency has made a determination that the awarding agency‟s interest is
adequately protected. If such a determination has not been made, the minimum
requirements shall be as follows:
1. A bid guarantee from each bidder equivalent to five percent of the bid price. The
„bid guarantee‟ shall consist of a firm commitment such as a bid bond, certified
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check, or other negotiable instrument accompanying a bid as assurance that the
bidder will, upon acceptance of his bid, execute such contractual documents as
may be required within the time specified.
2. A performance bond on the part of the contractor for 100 percent of the contract
price. A „performance bond‟ is one executed in connection with a contract to
secure fulfillment of all the contractor's obligations under such contract.
3. A payment bond on the part of the contractor for 100 percent of the contract price.
A „payment bond‟ is one executed in connection with a contract to assure
payment as required by law of all persons supplying labor and material in the
execution of the work provided for in the contract.”
24 CFR 968.135(b) states, “For [the Comprehensive Grant Program] and notwithstanding
24 CFR 85.36(h), for each construction contract over $100,000, the contractor shall
furnish a bid guarantee from each bidder equivalent to 5% of the bid price; and one of the
following:
1. A performance and payment bond for 100 percent of the contract price; or
2. Separate performance and payment bonds, each for 50% or more of the contract
price; or
3. A 20% cash escrow; or
4. A 25% irrevocable letter of credit.”
Contract Provisions
24 CFR 85.36(i) states, “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.
1. Administrative, contractual, or legal remedies in instances where contractors
violate or breach contract terms, and provide for such sanctions and penalties as
may be appropriate. (Contracts more than the simplified acquisition threshold)
2. Termination for cause and for convenience by the grantee or subgrantee including
the manner by which it will be effected and the basis for settlement. (All
contracts in excess of $10,000)
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. 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 $2000 awarded by grantees and subgrantees
when required by Federal grant program legislation)
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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 $2000, and in excess of $2500 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.
9. Awarding agency requirements and regulations pertaining to copyrights and rights
in data.
10. Access by the grantee, the subgrantee, the Federal grantor agency, the
Comptroller General of the United States, or any of their duly authorized
representatives to any books, documents, papers, and records of the contractor
which are directly pertinent to that specific contract for the purpose of making
audit, examination, excerpts, and transcriptions.
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).”
Authority Internal Criteria:
The following sections of the Authority‟s internal procurement policy apply to our audit
objective.
Small Purchases
Section 6.02(C) states, “This Policy establishes a separate Small Purchase threshold of up
to $100,000 per purchase.” The corresponding “Authorized usage” reads, “A comparison
with the ICE [Independent Cost Estimate] and other offers shall generally be sufficient
determination of the reasonableness of price and no further analysis is required. If a
reasonable number of quotes are not obtained to establish reasonableness through price
competition, the Contracting Officer shall document price reasonableness through other
means, such as prior purchases of this nature, catalog prices, the Contracting Officer‟s
personal knowledge at the time of purchase, comparison to the ICE, or any other
reasonable basis. At least 3 quotes shall be solicited orally, through fax, or by any other
reasonable method. If less than 3 offers are made, the Contracting Officer must obtain
documentation from those not submitting quotes stating why they elected not to
respond.”
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Sealed Bids
Section 6.02(D) states, “Sealed bidding is the preferred method for procuring
construction, supply, and non-complex service contracts in excess of the $100,000
[threshold]. Sealed bidding should be used whenever the following can be met:
A compete, adequate, and realistic specification or purchase description is
available;
Two or more responsible bidders are willing and able to compete effectively for the
business; and
The procurement lends itself to a firm fixed price contract and the selection of the
successful bidder can be made principally on the basis of price.”
Noncompetitive Proposals
Section 6.02(F) states, “Procurement by noncompetitive proposals (sole-source) shall be
used only when the award of the contract is not feasible using small purchase procedures,
sealed bids, cooperative purchasing, or competitive proposals, AND if one of the
following applies:
The item is available only from a single source, based on a good faith review of
available sources;
An emergency exists that seriously threatens the public health, welfare, or safety, or
endangers property, or would otherwise cause serious injury, as may arise by
reason of a flood, earthquake, epidemic, riot, equipment failure or similar event.
In such cases, there must be an immediate and serious need for supplies, services,
or construction such that the need cannot be met though any of the other
procurement methods, and the emergency procurement shall be limited to those
supplies, services, or construction necessary simply to meet the emergency;
HUD authorizes the use of noncompetitive proposals; or
After solicitation of a number of sources, competition is determined inadequate.”
Section 6.02(F) also states, “Each procurement based on noncompetitive proposals shall
be supported by a written justification for the selection of this method.” It goes on to
state that the justification should be approved in writing by the contracting officer,
maintained in the procurement file, and include the following information:
Description of the requirement;
History of prior purchases and their nature (competitive vs. noncompetitive);
Specific exception above which applies;
Statement as to the unique circumstances that require award by noncompetitive
proposals;
Description of the efforts made to find competitive sources (advertisement in trade
journals or local publications, phone calls to local suppliers, issuance of a written
solicitation, etc.);
Statement as to efforts that will be taken in the future to promote competition for
the requirement;
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Cost analysis in compliance with 24 CFR 85.36 and a declaration from the
contracting officer stating that the cost is reasonable;
Signature by the contracting officer‟s supervisor (or someone above the level of the
contracting officer); and
Price reasonableness. The reasonableness of the price for all procurements based
on noncompetitive proposals must be determined by performing an analysis.
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The Housing Authority of the County of San Bernardino, CA, Did Not Adequately Complete All Procurements for Its Recovery Act Capital Fund Grants in Accordance With HUD Requirements
Published by the Department of Housing and Urban Development, Office of Inspector General on 2011-09-26.
Below is a raw (and likely hideous) rendition of the original report. (PDF)