oversight

The Flint Housing Commission, Flint, MI, Did Not Always Administer Its Grant in Accordance With Recovery Act, HUD's, and Its Own Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2013-09-27.

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

OFFICE OF AUDIT
REGION 5
CHICAGO, IL




                  Flint Housing Commission
                          Flint, MI

    American Recovery and Reinvestment Act Public
        Housing Capital Fund Formula Grant




2013-CH-1009                             SEPTEMBER 27, 2013
                                                        Issue Date: September 27, 2013

                                                        Audit Report Number: 2013-CH-1009




TO:        Willie C. Garrett, Director of Public Housing, 5FPH

           //signed//
FROM:      Kelly Anderson, Regional Inspector General for Audit, Chicago Region, 5AGA

SUBJECT:       The Flint Housing Commission, Flint, MI, Did Not Always Administer Its Grant
               in Accordance With Recovery Act, HUD’s, and Its Own Requirements


    Attached is the U.S. Department of Housing and Urban Development (HUD), Office of
Inspector General’s (OIG) final audit report on the Flint Housing Commission’s American
Recovery and Reinvestment Act Public Housing Capital Fund formula grant.

    HUD Handbook 2000.06, REV-4, sets specific timeframes for management decisions on
recommended corrective actions. For each recommendation without a management decision,
please respond and provide status reports in accordance with the HUD Handbook. Please furnish
us copies of any correspondence or directives issued because of the audit.

    The Inspector General Act, Title 5 United States Code, section 8M, requires that OIG post its
publicly available reports on the OIG Web site. Accordingly, this report will be posted at
http://www.hudoig.gov.

   If you have any questions or comments about this report, please do not hesitate to call me at
(312) 353-7832.
                                             September 27, 2013
                                             The Flint Housing Commission, Flint, MI, Did Not
                                             Always Administer Its Grant in Accordance With
                                             Recovery Act, HUD’s, and Its Own Requirements



Highlights
Audit Report 2013-CH-1009


    What We Audited and Why                   What We Found

We audited the Flint Housing                 The Commission did not always comply with the
Commission’s American Recovery and           Recovery Act, HUD’s, and its own procurement
Reinvestment Act of 2009 Public              requirements. Specifically, it did not adequately
Housing Capital Fund formula grant           support the cost reasonableness of its architectural
based upon our analysis of risk factors      services’ contracts and Recovery Act funded projects.
relating to the housing agencies in          As a result, HUD and the Commission lacked
Region 5’s1 jurisdiction. Our objective      assurance that more than $960,000 in Recovery Act
was to determine whether the                 formula grant funds was used appropriately.
Commission administered its grant in
accordance with Recovery Act, the U.S. Also, the Commission did not always follow HUD’s
Department of Housing and Urban        and its own contract management requirements for its
Development’s (HUD), and its own       Recovery Act Capital Fund formula grant.
requirements. This is the second of twoSpecifically, it did not (1) issue payments to its
audit reports on the Commission’s      contractor in accordance with HUD’s requirements for
Recovery Act grants.                   one project, (2) adequately manage its force account
                                       labor unit renovations project, and (3) ensure that its
                                       own employees were paid the appropriate Federal
  What We Recommend
                                       labor standard wage rates as required by the Davis-
                                       Bacon Act. As a result, HUD and the Commission
We recommend that HUD require the      lacked assurance that Recovery Act formula grant
Commission to (1) provide sufficient   funds were used appropriately. Further, the
documentation or reimburse HUD more Commission underpaid employees nearly $22,000.
than $960,000 for the unsupported cost
estimates, wages, and materials and
supplies and (2) reimburse its
employees nearly $22,000 for Federal
labor standard wage rates not paid.




1
 Region 5 includes the States of Illinois,
Indiana, Michigan, Minnesota, Ohio, and
Wisconsin.
                            TABLE OF CONTENTS

Background and Objective                                                        3

Results of Audit
       Finding 1: The Commission Did Not Always Comply With the Recovery Act,
                  HUD’s, and Its Own Procurement Requirements                    5

       Finding 2: The Commission Did Not Always Comply With HUD’s and Its
                  Own Contract Management Requirements                           9

Scope and Methodology                                                           14

Internal Controls                                                               16

Appendixes
A. Schedule of Questioned Costs and Funds To Be Put to Better Use               18
B. Auditee Comments and OIG’s Evaluation                                        19
C. Federal and the Commission’s Requirements                                    24




                                             2
                       BACKGROUND AND OBJECTIVE

The Flint Housing Commission operates a public housing program that consists of 10 low-
income housing communities with 1,248 units including 133 scattered sites throughout Flint, MI.
The following seven housing communities received American Recovery and Reinvestment Act
of 2009 formula grant funds: Richert Manor, Mince Manor, Howard Estates, Aldridge Place,
River Park, Atherton East, and scattered site homes. Richert Manor is a 132-unit single-room
high-rise building. Mince Manor is a 110-unit complex for the elderly. Howard Estates is a
family site that consists of 96 townhomes. Aldridge Place is a family site that consists of 97-
townhomes. River Park is a family site that consists of 173 townhomes. Atherton East is a
family site that consists of 192 units.

The Commission was established by the City of Flint, MI, on July 27, 1964. The Commission’s
primary funding source is the U.S. Department of Housing and Urban Development (HUD)
under the regulation of the State of Michigan’s Act 18 of 1933, MCL 125.651-709e. A five-
member board of commissioners is appointed by the mayor of Flint to serve a 5-year term. The
executive director, appointed by the board, is responsible for general supervision over the
administration of the Commission’s business and is charged with the management of its housing
projects. The Commission administers the projects under its annual contributions contract with
HUD.

On February 17, 2009, the President signed the American Recovery and Reinvestment Act. The
Recovery Act provided an additional $4 billion to public housing agencies to carry out capital and
management activities, including the modernization and development of public housing. The
Recovery Act required that $3 billion of these funds be distributed as formula grants and the
remaining $1 billion be distributed through a competitive process. In March 2009, the Commission
received a formula grant of more than $2.5 million.

According to the Recovery Act, the Commission was required to obligate 100 percent of its formula
grant funds within 1 year, expend 60 percent of the funds within 2 years, and fully expend the funds
within 3 years. The Commission had obligated 100 percent of its formula grant funds by March 17,
2010 and had spent 100 percent of its formula grant funds by March 17, 2012.

The Commission used its Recovery Act formula grant funds to procure two architectural and
engineering agreements totaling $238,127 and conduct the following 18 projects totaling more
than $2.3 million in Recovery Act grant funds.




                                                 3
                                                                        Contract
              Count    Development                 Project              amount
                1      Aldridge Place      Drainage improvements         $300,273
                2                         Repair or replacement of
                       Scattered sites             fencing                 28,475
                3      Scattered sites    Basement waterproofing           31,750
                4                        Repair of sidewalks or entry
                       Mince Manor                  drives                 40,260
                5                         Repair or replacement of
                       Howard Estates    porches, sidewalks, or steps      40,721
                6                         Repair or replacement of
                       Atherton East     porches, sidewalks, or steps     147,000
                7                         Repair or replacement of
                       Aldridge Place    porches, sidewalks, or steps      80,699
                 8     Howard Estates    Bathroom floor replacement        45,239
                 9     Aldridge Place     Kitchen floor replacement        46,938
                10     Howard Estates       Repair of parking lots         70,000
                11                        Repair or replacement of
                       Mince Manor               parking lot              173,500
                12                        Repair or replacement of
                       Atherton East             parking lots             285,500
                13    Richert Manor      Replacement of parking lot       190,717
                14      River Park          Repair of parking lot         198,248
                15    Richert Manor           Exterior painting            96,025
                16    Howard Estates         Exterior renovations         294,027
                17     Force account
                           labor             Unit renovations              250,000
                18    Richert Manor       Lobby floor replacement           $8,506
                      Total                                             $2,327,878

For the fiscal years ending June 30, 2008 and June 30, 2009, HUD designated the Commission
as substandard physical based on poor physical inspection reports. Since this designation
classified the Commission as a troubled public housing agency, execution of the Recovery Act
annual contributions contract amendments was the Commission’s agreement to additional
monitoring and oversight by HUD as deemed necessary in order to ensure proper use of the
Recovery Act capital funds. The Commission was notified of HUD’s minimum baseline strategy
of monitoring and oversight, which included a manual review of all of its Recovery Act Capital
Fund grants.

Our objective was to determine whether the Commission administered its Recovery Act formula
grant in accordance with HUD’s requirements and its own policies. Specifically, we wanted to
determine whether it followed HUD’s and its own procurement requirements for its Recovery
Act formula grant activities.




                                              4
                                    RESULTS OF AUDIT


Finding 1: The Commission Did Not Always Comply With the
           Recovery Act, HUD’s, and Its Own Procurement
           Requirements
The Commission did not always comply with the Recovery Act, HUD’s, and its own
procurement requirements. Specifically, it did not adequately support the cost reasonableness of
its architectural services’ contracts and Recovery Act-funded projects. The deficiencies occurred
because the Commission lacked a sufficient understanding of HUD’s and its own requirements
and did not adequately monitor its architect. As a result, HUD and the Commission lacked
assurance that it paid reasonable prices for more than $960,000 in Recovery Act Capital Fund
formula grant projects.


    The Commission Did Not
    Adequately Support the Cost
    Reasonableness of Recovery Act
    Funded Activities

                We reviewed 100 percent of the Commission’s procurement documentation
                related to its two contracts for architectural services totaling more than $238,000
                and four projects totaling nearly $723,000 (the scattered sites basement
                waterproofing; the Atherton East Apartments repair and replacement of
                sidewalks, porches, and steps; the force account labor unit renovations; and the
                Howard Estates exterior renovation projects) to determine whether procurements
                were conducted in accordance with HUD’s and the Commission’s requirements
                during the period of March 18, 2009, through March 17, 2012.

                The Commission generally planned for its Recovery Act projects and selected the
                appropriate method of procurement in accordance with Recovery Act and HUD’s
                requirements. However, the Commission did not evaluate the proposals for
                architectural services in accordance with HUD’s or its own requirements.2
                Specifically, the procurement file did not include documentation of the
                architectural firms’ written cost proposals. Also, the Commission did not
                maintain documentation showing that it negotiated with the firms to arrive at a
                fair and reasonable cost.

                The Commission also did not maintain in its procurement files the source
                documentation for the independent cost estimates prepared for the scattered sites’
                basement waterproofing project; the Atherton East project to repair or replace the
2
 24 CFR (Code of Federal Regulations) 85.36(f) and the Commission’s Capital Fund Stimulus Grant procurement
policy, and request for proposals for architectural and engineering services.

                                                     5
sidewalks, porches, and steps; and the Howard Estates’ exterior renovation
project. Since it was a troubled public housing agency, execution of the Recovery
Act annual contributions contract amendment was the Commission’s agreement
to additional monitoring and oversight by HUD as deemed necessary to ensure
proper use of the Recovery Act capital funds. This additional oversight included
following the obligation submission approval requirements, which required the
Commission to submit an independent cost estimate and identify the source of
data used to develop the cost analysis (for instance, historical means, previous
contracts, etc.). However, neither the Commission nor its architect was able to
provide the source data to support the cost reasonableness for these three projects.

Further, the Commission did not maintain support showing that it was cost
effective to use force account labor to perform unit renovations. The Commission
used the winning bid from a sealed bid procurement performed in 2007 and
compared the per unit costs for using a contractor ($33,508 per unit) against using
force account labor ($22,000 per unit) to support the cost effectiveness of using
force account labor. However, the Commission did not maintain documentation
to support the estimates, and the estimates were based upon costs for a HOME
Investment Partnerships Program grant project, not the Recovery Act formula
grant.

The actual costs incurred by the Commission for the Recovery Act formula grant
averaged $5,000 per unit, which is a significant difference from the estimate
submitted to HUD by the Commission. Therefore, we were unable to evaluate the
estimates submitted by the Commission since the work performed was not the
same and the Commission could not detail what work was done in each unit. In
addition, the contractor’s estimates were nearly 2 years old. According to section
VII of Public and Indian Housing Notice 2009-12 and section 10.2 of HUD
Handbook 7485.3G, the use of force account labor must be approved only when it
is cost effective and appropriate to the scope and type of physical improvements
and the authority has the capacity to serve as its own main contractor and
maintain an adequate level of routine maintenance during force account activity.

Inadequate Cost Analysis

Neither the Commission nor its architect performed a cost analysis in accordance
with HUD’s requirements for the Atherton East Apartments project to repair or
replace the sidewalks, porches, and steps. The bid package for this project
included a cost breakdown form, document 00405, which required all bidders to
submit costs for various items of work, including demolition and excavation,
masonry porch structures, concrete porch slab, handrails and guards, concrete
steps, sidewalk replacement, landscape restoration, allowance, general conditions,
overhead and profit, and bond. The Commission and its architect stated that their
review of the bid submissions included only those documents requested of all




                                 6
                  bidders (including document 00405), and they looked only at the total amount for
                  the project, not the individual line items as required by HUD.3

                  However, we determined that the individual line items indicated on the cost
                  breakdown form were used to evaluate some bid submissions but not all.
                  Specifically, the lowest bidder for this procurement was Sorenson Gross
                  Construction Services. The Commission and its architect CLM Architects, LLC
                  determined that the dollar value submitted by this contractor appeared too low for
                  the handrails and guards work item. Therefore, Sorenson Gross Construction
                  Services was contacted for clarification of its bid regarding this individual work
                  item, and the Commission and its architect determined this bidder to be
                  nonresponsive because the cost for this work item was determined to be
                  materially unbalanced. The next lowest and ultimately winning bidder was
                  Superior Contracting Group. The various work items were not used to evaluate
                  this bidder. Instead, the Commission and its architect CLM Architects, LLC
                  relied only on the bottom line amount, although the total amount of the work
                  items indicated by Superior Contracting Group on the cost breakdown form was
                  nearly $24,000 less than the total bid amount indicated on the form. In addition,
                  this contractor’s dollar amount of $6,950 for the masonry porch structures work
                  item appeared low in comparison to the architect’s reformatted independent cost
                  estimate of $25,185 and the other bidders’ estimates of $56,376 and $63,325 for
                  the same work item.

    The Commission Lacked
    Adequate Procedures and
    Controls

                  The Commission lacked a sufficient understanding of HUD’s and its own
                  procurement and Recovery Act requirements. The Commission did not
                  adequately monitor the architects’ work for the Recovery Act formula grant
                  activities. According to the Commission’s modernization director, the sources of
                  data for the independent cost estimates prepared by the Commission’s architects
                  were not obtained because the Commission relied on the architects’ estimates the
                  same way it would rely on pricing information retrieved online, such as the RS
                  Means Construction Cost Estimate.4 Additionally, the Commission did not
                  perform a cost analysis for the Atherton East Apartments project to repair or
                  replace the sidewalks, steps, and porches because the contract was awarded based
                  upon the lowest responsive bidder since the sealed bids method of procurement
                  was used.

                  The Commission could not explain how the independent cost estimates were used
                  to determine the reasonableness of the contractors’ proposed costs or evaluate the
3
 HUD Handbook 7460.8, REV-2, paragraphs 10.3.A and 6.12.E
4
 An online database that provides cost information to the construction industry so contractors in the industry can
provide accurate estimates and projections for their project costs. It has become a data standard for government
work in terms of pricing and is widely used by the industry as a whole.

                                                          7
                   separate elements that make up a contractor’s total cost proposal or price to
                   determine whether the costs are allowable, directly related to the requirement, and
                   reasonable as required by HUD.5 The modernization director said that she had
                   used the independent cost estimates only to assist in determining how much the
                   Commission could budget for a project, not to evaluate the bids that were
                   submitted by the contractors.

    Conclusion

                   The Commission lacked a sufficient understanding of HUD’s and its own
                   requirements and did not adequately monitor its architect. As a result, HUD and
                   the Commission lacked assurance that it paid reasonable prices for more than
                   $960,000 in Recovery Act Capital Fund formula grant projects.

    Recommendations

                   We recommend that the Director of HUD’s Detroit Office of Public Housing
                   require the Commission to

                   1A. Provide sufficient documentation to support the reasonableness of $960,904
                       in expenses or reimburse HUD $935,412 ($960,904 - $2,147 - $12,165 -
                       $8,554 - $1,820 - $429 - $377)6 for transmission to the U.S. Treasury for the
                       unsupported costs cited in this finding.

                   1B. Develop and implement an adequate contract administration system that
                       complies with HUD’s and its own procurement requirements.




5
    HUD Handbook 7460.8, REV-2, paragraph 10.3.A
6
    The reduced amounts were included as part of the recommendations in finding 2.

                                                          8
Finding 2: The Commission Did Not Always Comply With HUD’s and
           Its Own Contract Management Requirements
The Commission did not (1) issue payments to its contractor in accordance with HUD’s
requirements for one project, (2) adequately manage its force account labor unit renovations
project, and (3) ensure that its employees were paid the appropriate Federal labor standard wage
rates as required by the Davis-Bacon Act. The deficiencies occurred because the Commission
lacked an adequate contract administration system to ensure compliance with HUD’s and its own
requirements. Further, its staff lacked a sufficient understanding of Federal and its own
procurement requirements. As a result, it (1) underpaid nearly $22,000 to its 20 force account
labor employees and (2) overpaid more than$2,100 due to duplicate payments and nearly $2,200
due to incomplete work. Further, HUD and the Commission lacked assurance that more than
$21,000 in wages, taxes, appliances, materials and supplies was for its Recovery Act funded
projects.


    Contract Payments Were Not
    Issued in Accordance With
    HUD’s Requirements

                  The Commission made progress payments to its contractor, Superior Contracting
                  Group, for the Atherton East Apartments project to repair or replace the
                  sidewalks, steps, or porches and to CLM Architects, LLC for architectural
                  services performed. However, it failed to ensure that work was completed in
                  accordance with the contract and supporting documentation before it paid for the
                  work.7 As of December 2010, Superior Contracting Group had submitted
                  invoices totaling $147,000 for the entire cost associated with this project.
                  According to the invitation for bids, the contractor’s bid submissions, and the
                  executed contract, this project involved work at 10 buildings. However, during
                  walk-through observations performed on April 17, 2013, we determined that 1 of
                  the 10 buildings did not receive any repairs or replacement of sidewalks, steps, or
                  porches. However, the Commission failed to deduct the costs of the activities that
                  were not completed from the progress payments made for this project.9

                  Based on the independent cost estimate for this project, we estimated that the cost
                  to repair or replace the sidewalks, porches, or steps at building 17 was $1,820 (for
                  a small single unit). In addition, since the Commission’s architect oversaw this
                  project, it did not provide adequate contract administration services under its
                  agreement with the Commission. The architect’s invoices indicated that $3,765
                  was allocated for the construction phase of the Atherton East project. Since the
                  work at 1 of 10 buildings for this project was not completed, we estimated that
                  $377 ($3,765 x 1/10) was inappropriately paid to the architect due to the lack of
                  oversight.

7
    HUD Handbook 7460.8, REV-2, paragraph 11.2.E.7(c)

                                                        9
                   As a result of our audit, the Commission provided documentation that the repair
                   or replacement of sidewalks, porches, or steps at building 17 of Atherton East
                   Apartments was completed in accordance with contract documents in July 2013.
                   However since this project was completed after the Recovery Act expenditure
                   deadline of March 17, 2012, the Recovery Act formula grant funds associated
                   with this work was ineligible.

    The Commission’s Force
    Account Labor Unit
    Renovations Were Not
    Adequately Managed

                   The Commission did not adequately manage its force account labor unit
                   renovations as required by HUD.8 Specifically, it did not provide adequate
                   supporting documentation, such as purchase orders, labor logs, inspection reports,
                   and inventory records, for more than $21,000 in payments for materials and
                   supplies, wages and taxes, and appliances. The Commission inappropriately drew
                   down funds through HUD’s Line of Credit Control System to pay duplicate
                   expenses and purchase an appliance that was installed in a housing unit that was
                   not part of a Recovery Act-funded project. The following table shows the total
                   amount of unsupported and ineligible expenses incurred by the Commission for
                   its force account labor.

                                                               Unsupported          Ineligible
                               Payment description              payments            payments
                              Materials and supplies                $12,165                  $0
                              Wages and taxes                         8,554                    0
                              Materials and supplies                       0             $2,147
                              Appliances                               $429                    0
                              Total                                 $21,148              $2,147

    The Commission Did Not
    Ensure That Its Employees
    Were Adequately Compensated

                   For the three contractual agreements reviewed, the Commission generally
                   complied with the requirements of the Davis-Bacon Act. However, the
                   Commission failed to pay the prevailing wage rate for the unit renovations
                   performed by its force account labor employees in accordance with HUD’s
                   requirements.9 As a result, 20 of its temporary employees were underpaid a total
                   of $21,861 in wages.

8
    Section VII of Public and Indian Housing Notice 2009-12 and HUD Handbook 7485.3G, paragraph 10.2
9
    24 CFR 968.110(e)

                                                      10
     The Commission Did Not
     Comply With HUD’s
     Requirements

                   The Commission lacked an adequate contract administration system to ensure
                   compliance with HUD’s and the Commission’s requirements.10 Further, its staff
                   lacked a sufficient understanding of Federal and its own procurement
                   requirements. The Commission’s modernization director said she did not know
                   why all of the work for the Atherton East Apartments project to repair or replace
                   the sidewalks, porches, or steps was not completed. However as previously
                   discussed, the Commission provided documentation that the contractor completed
                   the work at building 17 of Atherton East Apartments in July 2013 (after the
                   expenditure deadline of March 17, 2012).

                   Further, according to the Commission’s modernization director, the former
                   executive director hired a modernization special project coordinator to oversee the
                   force account labor employees and did not allow her to supervise the work of the
                   coordinator, who generally prepared the purchase orders. However, all staff
                   employees received a copy of the Commission’s procurement policy; therefore,
                   he should have been aware of the purchase order requirements. The
                   modernization director said that the former executive director allowed the
                   coordinator to purchase additional items under previously prepared purchase
                   orders. Regarding the duplicate payments, the modernization director said she did
                   not know how the invoices were submitted for payment twice. However, she had
                   contacted the vendor and taken steps to resolve the duplicate payments.

                   Wages and taxes for the force account labor unit renovations were unsupported
                   because the Commission did not always consider the different funding sources
                   when preparing requisitions for HUD’s Line of Credit Control System. Initially,
                   the modernization director provided the personnel director with a breakdown of
                   each employee’s work, with consideration of work performed for the grant.
                   However, these procedures were not continued when the coordinator was
                   assigned the responsibility of overseeing the force account labor employees.
                   Therefore, the personnel director no longer received a breakdown of the work
                   performed. Instead, the requisitions were based solely upon the employees’
                   timecard reports, without consideration of the recorded information indicated on
                   the employees’ labor logs for the force account labor.

                   The Commission did not pay its force account labor employees Davis-Bacon
                   wages because the modernization director said that HUD had previously told her
                   that the Commission’s regular maintenance wages could be applied. However,
                   she was not familiar with HUD’s requirements concerning the Recovery Act


10
     24 CFR 941.402(b), the Commission’s Capital Fund Stimulus Grant procurement policy, and 24 CFR 85.40(a)

                                                       11
             formula grant. In addition, she said that HUD’s criteria regarding the use of HUD
             determined wages versus the Davis-Bacon wage rates were not clear.

Conclusion

             The Commission lacked an adequate contract administration system to ensure
             compliance with HUD’s requirements. Further, its staff lacked a sufficient
             understanding of Federal and its own procurement requirements. As a result, it
             (1) underpaid nearly $22,000 to its 20 force account labor employees and (2)
             overpaid more than $2,100 due to duplicate payments and nearly $2,200 due to
             incomplete work. Further, HUD and the Commission lacked assurance that more
             than $21,000 in wages, taxes, appliances, materials and supplies was used for its
             Recovery Act-funded projects.

Recommendations

             We recommend that the Director of HUD’s Detroit Office of Public Housing
             require the Commission to

             2A.    Provide documentation or reimburse HUD $12,165 for transmission to the
                    U.S. Treasury for the materials and supplies for its force account labor unit
                    renovations due to missing or inadequate purchase orders, invoices,
                    receipts, or inventory records cited in this finding.

             2B.    Provide documentation or reimburse HUD $8,554 from the appropriate
                    fund for transmission to the U.S. Treasury for its force account labor
                    employees due to missing labor logs or labor logs that indicated work on
                    projects other than the Recovery Act formula grant work.

             2C.    Reimburse HUD $2,147 from its capital funds for transmission to the U.S.
                    Treasury for the duplicate payment made for its materials and supplies for
                    its Recovery Act formula grant force account labor unit renovations.

             2D.    Reimburse HUD $2,197 from its capital funds for transmission to the U.S.
                    Treasury for the work at building 17 of Atherton East Apartments
                    completed after the expenditure deadline of March 17, 2012.

             2E.    Provide sufficient documentation to support that the appliance was
                    installed in a unit renovated under the Recovery Act formula grant or
                    reimburse HUD $429 from its capital funds for transmission to the U.S.
                    Treasury.

             2F.    Develop and implement an adequate contract administration system to
                    ensure that its contracts and projects are managed in accordance with
                    HUD’s requirements and the Commission’s procurement policy.

                                             12
We recommend that the Director of HUD’s Detroit Office of Labor Relations
require the Commission to

2G.    Reimburse its 20 temporary employees $21,861 from its capital funds for
       the wages paid for the force labor unit renovations that were less than
       required by the Davis-Bacon Act.

2H.    Develop and implement adequate written procedures and controls to
       ensure that its employees are paid at the appropriate Federal prevailing
       wage rates for covered contracts or work and provide training to its
       employees on Federal labor requirements.




                                13
                        SCOPE AND METHODOLOGY

We performed our onsite audit work between December 2012 and June 2013 at the
Commission’s office located at 3820 Richfield Road, Flint, MI. The audit covered the period
March 18, 2009, through March 17, 2012, but was expanded when necessary to include other
periods.

To accomplish our objective, we reviewed

      Applicable laws; regulations; Federal Register notices; HUD’s program requirements at
       24 CFR (Code of Federal Regulations) Parts 85, 902, 905, 941, 965, and 968; 29 CFR
       Parts 5 and 541; HUD public and Indian housing notices; HUD Handbook 7460.8, REV-
       2; HUD Handbook 7485.3G; HUD Guidebook 7510.1; the United States Housing Act of
       1937 as amended; Office of Management and Budget (OMB) requirements at 2 CFR Part
       225; OMB Circular A-133; and OMB Memorandums M-09-10, M-09-15, M-09-21, M-
       10-08, M-10-14, M-10-17, and M-10-34.

      The Commission’s accounting records; annual audited financial statements for fiscal
       years 2008, 2009, and 2010; bank statements; general ledgers; contract and procurement
       files; policies and procedures; board meeting minutes for March 2009 through September
       2011; organizational charts; program annual contributions contract with HUD; and
       HUD’s Line of Credit Control System information and request for payment. Assessment
       of the reliability of the data in this system was limited to the data sampled, which was
       reconciled to Commission’s records.

      HUD’s files for the Commission.

We also interviewed the Commission’s employees and HUD staff.

Finding 1

We reviewed the Commission’s architectural contracts and statistically selected four additional
projects to determine whether the Commission followed HUD’s and its own requirements during
the contract administration process during the period March 18, 2009, through March 17, 2012.
These contracts and projects included (1) the architectural and engineering contract with CLM
Architects; (2) the scattered sites basement waterproofing project; (3) the Atherton East
Apartments project to repair or replace sidewalks, porches, or steps; (4) the force account labor
unit renovation project; and (5) the Howard Estates exterior renovation project. The total
amount of Recovery Act funds spent on the contracts and projects reviewed totaled more than
$900,000.

Finding 2

We used the one contract and four projects selected in finding 1 to review the Commission’s
contract management process during the period March 18, 2009, through March 17, 2012.

                                               14
For our site observations, we performed a 100 percent review of the scattered site basement
waterproofing activity. We used data mining software to statistically select five buildings to
observe the repair or replacement of sidewalks, porches, and steps at Atherton East Apartments
and five buildings to observe the exterior renovations at Howard Estates Apartments. We were
unable to perform site observations for the force labor unit renovations since the Commission did
not maintain documentation of the type of work that was performed and the type of materials or
supplies that were used in each of the 49 units renovated.

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.




                                               15
                              INTERNAL CONTROLS

Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to

      Effectiveness and efficiency of operations,
      Reliability of financial reporting, and
      Compliance with applicable laws and regulations.

Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals, and objectives. Internal controls include the processes and
procedures for planning, organizing, directing, and controlling program operations as well as the
systems for measuring, reporting, and monitoring program performance.


 Relevant Internal Controls

               We determined that the following internal controls were relevant to our audit
               objectives:

                     Effectiveness and efficiency of operations – Policies and procedures that
                      management has implemented to reasonably ensure that a program meets its
                      objectives.

                     Reliability of financial reporting – Policies and procedures that management
                      has implemented to reasonably ensure that valid and reliable data are
                      obtained, maintained, and fairly disclosed in reports.

                     Compliance with applicable laws and regulations – Policies and procedures
                      that management has implemented to reasonably ensure that resource use is
                      consistent with laws and regulations.

               We assessed the relevant controls identified above.

               A deficiency in internal control exists when the design or operation of a control does
               not allow management or employees, in the normal course of performing their
               assigned functions, the reasonable opportunity to prevent, detect, or correct (1)
               impairments to effectiveness or efficiency of operations, (2) misstatements in
               financial or performance information, or (3) violations of laws and regulations on a
               timely basis.

 Significant Deficiencies


                                                 16
Based on our review, we believe that the following items are significant deficiencies:

      The Commission did not comply with the Recovery Act, HUD’s, and its
       own procurement requirements (see finding 1).

      The Commission lacked adequate procedures and controls to ensure
       compliance with HUD’s and its own contract management requirements for
       its Recovery Act formula grant (see finding 2).




                                 17
                                   APPENDIXES

Appendix A

              SCHEDULE OF QUESTIONED COSTS
             AND FUNDS TO BE PUT TO BETTER USE

        Recommendation                               Unsupported    Funds to be put
                                Ineligible 1/
            number                                       2/         to better use 3/
                    1A                                  $935,412
                    2A                                   $12,165
                    2B                                     $8,554
                    2C                   $2,147
                    2D                   $2,197
                    2E                                      $429
                    2G                                                      $21,861
                 Totals                  $4,344         $956,560            $21,861



1/   Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity
     that the auditor believes are not allowable by law; contract; or Federal, State, or local
     policies or regulations.

2/   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.

3/   Recommendations that funds be put to better use are estimates of amounts that could be
     used more efficiently if an Office of Inspector General (OIG) recommendation is
     implemented. These amounts include reductions in outlays, deobligation of funds,
     withdrawal of interest, costs not incurred by implementing recommended improvements,
     avoidance of unnecessary expenditures noted in preaward reviews, and any other savings
     that are specifically identified.




                                                18
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation                       Auditee Comments



                                                             FLINT HOUSING COMMISSION

                                                             3820 Richfield Rd. ● Flint, Michigan 48506
                                                                      Phone: (810) 736-3050




                                            August 27,2013
              MI 9-1
              Richert Manor
              902 E. Court St. 48503
              (810) 736-3094                Kelly Anderson
              MI 9-1                        Regional Inspector General for Audit- Region 5
              Garland Apartments            U.S. Department of Housing and Urban Development
              820 & 906 Garland St. 48503
              (810) 736-3094                Office of Inspector General
              MI 9-1                        77 West Jackson Blvd.
              Forest Park                   Chicago, IL 60604
              4060 M.L King Ave. 48505
              (810) 736-3094

              MI 9-2                        Dear Ms. Anderson:
              Howard Estates (Family)
              801 Flora Park 48503
              (810) 234-4614
                                            In response to the draft, report of your audit dated August 9, 2013 and your Exit
              MI 9-3                        Conference on August 22, 2013, regarding the American Recovery and
              Atherton East (Family)
              3123 Chambers 48507           Reinvestment Act Capital Fund Formula Grant 2009S,the Flint Housing Commission
              (810) 743-4810
                                            would like to give our written comments.
              MI 9-5
              River Park Apartments
              (Family)                      In response to Finding #1:
              7002 Pemberton Dr. 48505
              (810) 789-3464                The Flint Housing Commission disagrees with the statement that the FHC failed to
              MI 9-6
                                            consider cost effectiveness or that expenditures are unsupported.
              Centerview Apartments
              2001 N. Center Rd. 48506
                                            The Flint Housing Commission acted within reason with hiring architectural firms to
Comment 1     MI 9-8 & MI 9-10
                                            supply bid packages for the 2009S ARRA grant. We signed the ACC for the 2009S
              Scattered Site Houses
              (Family)
                                            ARRA Grant on March 3, 2009 and were told that HUD need the ACC's in to them by
              MI 9-11                       March 9, 2009 in order to release the funds to the Housing Commission by March
              Mince Manor (Elderly)
              3800 Richfield Rd. 48506      18, 2009. We believe this meant we were receiving the grant funds.
              (810)736-3377

              MI 9-14                       The FHC believed, from the ACC,that we would receive funding, so the FHC put out an
              Aldridge Place (Family)
                                            ad and a request for proposals on March 8, 2009 for architectural firms to
Comment 1     5838 Edgar Holt Drive 48505
              (810) 785-8102
                                            handle the work that would be in the ARRA grant. In the Request for Proposals, it
              MI 9-15                       stated on page 6 of the request, "If the funds for the grant do not get approved or
              Kenneth M. Simmons Square
              2102 Stedron 48504            released, the funds for the architect/engineering fees will not be available and any
              (810) 787-5910
                                            and all contracts will be null and void." Contracts were not signed until April 27,
              Section 8 Program             2009, 40 days after we were notified the funds were released.
              (810) 736-3050

              Section 3 Program
              (810) 736-3050

              Family Self-Sufficiency
              Program
              (810) 736-3050
                                                                           Fax: (810) 736-0158




                                                               19
Ref to OIG Evaluation                            Auditee Comments



                        The Flint Housing Commission's committee choosing the architectural firm(s) read
Comment 2               all proposals, rated all proposals, interviewed the top three candidate and
                        negotiated with the best firms for t he amount of the contract based on information
                        we had on file. This is per our Procurement and HUD's Procurement Policy.

                        All bid packages and contracts were viewed by the architects and recommendations
Comment 3               were given to the Housing Commission. The lowest bidder, in all but one case, was
                        the bid that was approved, per HUD regulation CFR 24, Part 85.36, 12 (d)(2)(D). In
                        one instance, the contractor left out a large amount of material and admitted that
                        in his written review. He was deemed un-responsive and we went to the next low bidder.

                        The Flint Housing Commission did comply with the Recovery Act, HUD's and our
Comment 4               own Procurement requirement in hiring architects, we did monitor the architectural
                        work, and since we used low bidder on the projects, we had assurance that we paid
                        reasonable prices for all our contracts with the Recovery Act Capital Fund Grant
                        Formula Grant 2009S.

                        In Response to Finding #2:
Comment 5               In response to Finding #2, the Flint Housing Commission believes it has an adequate
                        contract administration system in place.

                        Since the Flint Housing Commission has been given permission in the past, from the
                        Department of Labor, to pay our temporary employees,who did work through the
Comment 6
                        grant, to be paid as a "Maintenance Tech", the FHC was under the understanding
                        that if the work was work that maintenance usually does (on their job descriptions),
                         then we could pay them the maintenance wage to do the same work.

                        The Flint Housing Commission has already responded to the OIG regarding the
Comment 7               change of work that was not recorded in the files properly. This work has been
Comment 8               completed and the information submitted to the OIG. In regards to appliances, the
                        FHC removes appliances from units when a move out occurs. These appliances may
                        be installed into a different unit.




                        Terrence Clark
                        Executive Director

                        CC: Anthony Smith, OIG; Richard Wears; Dan Micoff




                                                     20
                         OIG Evaluation of Auditee Comments

Comment 1   Based upon additional documentation provided by HUD, the deficiency regarding
            the ineligible obligation related to the architectural and engineering services has
            been removed from the audit report.

Comment 2   The Commission's procurement and capital fund stimulus grant procurement
            policies states that for the competitive proposals procurement method, the
            proposals must be evaluated only on the criteria stated in the request for
            proposals. They also state that the Commission must maintain records sufficient
            to detail the significant history of each procurement action. These records should
            include the basis for contract price.

            The Commission's request for proposals for its architectural and engineering
            services, states that in evaluating proposals, the Commission would contact and
            request written cost proposals. However its procurement files did not include
            written cost proposals that were submitted by the top three firms. The request for
            proposal also states that the Commission would then select and negotiate with that
            firm to arrive at a fair and reasonable cost. In the event that an agreeable price
            cannot be obtained, the Commission would begin negotiations with the next lower
            ranked firm and so on until an agreement has been reached. However, the
            Commission's procurement files did not include documentation to support that
            negotiations occurred with the two firms that were awarded the architectural and
            engineering services contract.

            Further, in its obligations submission approval requirements package, dated July
            30, 2009, the Commission stated that costs were negotiated using past
            architectural and engineering fees and the State of Michigan architectural fee
            schedule. The type of work being completed also played a part in the cost of the
            architectural fees. However, the Commission did not provide a copy of the
            previous architectural and engineering fees, and the architectural fee schedule,
            which was from 2003, did not provide detail of the Commission's analysis of
            costs.

            During the course of the audit, the Commission did not (1) provide documentation
            that it evaluated the proposals for its architectural and engineering services in
            accordance with the request for proposals and its own procurement policy or (2)
            provide the previous architectural and engineering fees or the details of its
            analysis of the State of Michigan’s architectural fee schedule that were used to
            negotiate costs. Therefore, we determined that it lacked sufficient support that the
            cost for these services was reasonable.

Comment 3   The audit report has been revised to indicate that neither the Commission nor its
            architect performed a cost analysis for the Atherton East Apartments project to
            repair or replace the sidewalks, porches, and steps in accordance with HUD's
            requirements. As indicated in the report, the instance where the contractor left out


                                             21
            a large amount of material pertained to Sorenson Gross Construction Services'
            dollar value submitted for the handrails and guards work item.

            The report acknowledges that the Commission and its architect performed a cost
            analysis on Sorenson Gross Construction Services’ individual work items.
            However, an adequate cost analysis was not performed for the individual work
            items of the winning bidder Superior Contracting Group. Because the
            Commission did not perform a cost analysis in accordance with HUD's
            requirements (specifically, 24 CFR 85.36(f)(1) and paragraphs 10.3.A and 6.12.E
            of HUD Handbook 7460.8, Rev-2), the nearly $24,000 difference in the total of
            the individual line items and the total bid amount indicated on the cost breakdown
            form submitted by Superior Contracting Group was not accounted for. In
            addition, the contractor's cost for its masonry porch structure work item appeared
            low in comparison to the architect's independent cost estimate and the other
            bidders' estimate, but this difference was not evaluated.

Comment 4   We disagree with the Commission that it complied with Recovery Act, HUD’s
            and its own procurement requirements in monitoring its architectural work and
            assuring reasonable prices for its contracts and projects. As indicated in the audit
            report and comment 2, the Commission did not properly evaluate its architects’
            cost proposals in accordance with its policies. Further, it did not always (1)
            maintain documentation to support independent cost estimates or (2) perform
            adequate cost analyses for its Recovery Act projects to ensure it paid reasonable
            prices.

Comment 5   We disagree with the Commission that it had an adequate contract administration
            system. The audit scope was limited to the period covering the Recovery Act
            formula grant. Based on the deficiencies cited in both the contract management
            and contract administration processes, discussed in findings 1 and 2, the
            Commission did not have an adequate contract administration system for its
            Recovery Act formula grant.

Comment 6   The Commission did not provide documentation from the Department of Labor
            regarding permission to pay temporary employees its maintenance technician
            wages. Rather, the Commission provided documentation in which a HUD labor
            relations specialist stated in August 2011 that temporary employees who replaced
            doors on units at one of its apartment complexes could be paid at the rate of the
            Commission's maintenance tech. However, there was no discussion of Davis-
            Bacon wage requirements in this correspondence. Further, the work performed in
            renovating its vacant units, based upon the invoices provided, did not just involve
            replacing doors. Instead, development-type work was performed, including
            countertop installations, window installations, floor installations, electrical work
            (due to the purchase of receptacles), cleaning, painting, and other work.

            HUD's regulations and policies (including HUD’s Frequently Asked Questions
            #2, dated October 5, 2009 and 24 CFR 968.110(e)) indicate that the Davis-Bacon
            wage rates were applicable for the Recovery Act capital fund formula grant. In

                                             22
            addition, HUD’s Labor Relations Letter 2004-02 states that force account
            employees are entitled to receive no less than the wages determined to be
            prevailing pursuant to the Davis-Bacon Act (for development work) and the
            prevailing wages determined or adopted by HUD (for operations work). HUD’s
            Making Davis-Bacon Work Guidance states that Davis-Bacon wage rates must be
            paid to all laborers and mechanics employed in the development. This means the
            force account labor must receive the prevailing wages applicable to the work they
            perform.

            Since the Commission's documentation did not indicate what type of work was
            performed in each unit or by each employee for the duration of the force account
            labor unit renovation project, the Davis-Bacon wage rate was applied to all
            temporary employees who participated in this Recovery Act project.

            Further, the Commission's executive director was instructed by HUD, in email
            correspondence dated October 8, 2009, to follow the applicable labor standards
            for its force account labor, including Davis-Bacon wage rates.

Comment 7   We agree with the Commission that it provided documentation regarding the
            incomplete work discussed in finding 2. The audit report has been revised to
            reflect that the Commission completed the repair or replacement of sidewalks,
            porches, or steps at building 17 of the Atherton East Apartments in accordance
            with contract documents. However, since this work was completed after the
            expenditure deadline of March 17, 2012, the cost associated with the work is still
            an ineligible expense of the Commission's Recovery Act capital fund formula
            grant.

Comment 8   During the administration of its Recovery Act formula grant, the Commission did
            not maintain inspection records for each unit or inventory records of its
            appliances. As a result of our audit, the Commission performed an inventory of
            its appliances and provided its inventory records in July 2013, which included the
            appliances purchased using Recovery Act funds for the force account labor unit
            renovation project. These inventory records did not indicate (1) when the
            appliances were installed in the units, (2) whether they were moved out of a unit,
            or (3) whether they were transferred, as specified on its inventory log. Based on
            these inventory records, we concluded that 3 of the 4 appliances purchased with
            Recovery Act funds were installed in units renovated using Recovery Act funds.
            However, the Commission did not provide documentation to support that the
            fourth appliance was ever installed in a unit renovated using Recovery Act funds.




                                            23
Appendix C

     FEDERAL AND THE COMMISSION’S REQUIREMENTS

Finding 1
HUD’s Recovery Act Capital Fund Formula Grant Frequently Asked Questions #1, dated April
10, 2009, eligible use of funds, question 8 asked, “…some public housing agencies have made
obligations after Recovery Act enactment but before they have received the annual contributions
award. With proper support that these obligations are proper and in connection with Recovery
Act, will public housing agencies be able to pay costs incurred after enactment but before
receiving their annual contributions contract award from Recovery Act Capital Fund resources?”
HUD answered that “public housing agencies can begin to obligate Recovery Act funds starting
March 18, 2009. The public housing agency must be sure that any obligations it is recording
against Recovery Act funds is for new work that has not been previously obligated. Public
housing agencies should contact their local field office with questions regarding eligible
obligations.”

HUD regulations at 24 CFR 85.36(d)(4) define cost analysis as verifying the proposed cost data,
the projections of the data, and the evaluation of the specific elements of costs and profits.

HUD regulations at 24 CFR 85.36(f)(1) state that a cost analysis must be performed when the
offeror is required to submit the elements of its estimated cost.

HUD Handbook 7460.8, REV-2, paragraph 10.3.A, states that “for every procurement, public
housing agencies are required to perform a cost or price analysis to determine that the price is
reasonable. Public housing agencies should always compare the prices offered with the
independent cost estimate. While this initial cost estimate may not be sufficient for price
reasonableness, it can assist the contracting officer in determining the extent to which the
offerors understand the public housing agencies’ requirements. A cost analysis is an evaluation
of the separate elements that make up a contractor’s total cost proposal or price to determine
whether they are allowable, directly related to the requirement, and reasonable.”

Paragraph 10.3.E of the handbook states with respect to price reasonableness that the
procurement file should be documented to support the actions taken.

Paragraph 6.12.E of the handbook states that any bid may be rejected if the contracting officer
determines that the price is unreasonable. Determining a bid price to be unreasonable includes
not only the total price of the bid, but the prices for individual items as well. Any bid may be
rejected if the prices for any of the items are materially unbalanced (such as bidding a high price
for the first items and then low prices for later items).

Paragraph 7.2.E of the handbook states that price must be a factor in making awards. In terms of
evaluating price, a public housing agency has two options, which must be indicated in the

                                                24
request for proposals: “(2) Where Price and Other Technical Factors are Considered. Under this
method, technical factors are first determined and offerors are ranked. Then, prices are
evaluated. The public housing agency can award to the offeror whose price and technical factors
are the most advantageous to the public housing agency. This method is also known as the
‘trade-off’ method in that the public housing agency trades-off, or weighs the importance of,
price versus technical factors. All amendments must be in writing.”

Paragraph 7.2.M of the handbook states that the evaluation of price is made using the cost and
price analysis techniques in Chapter 10 and other evaluation processes described in the request
for proposals.

Paragraph 7.2.N of the handbook states that after the evaluation committee has evaluated all
proposals, the contracting officer should determine a competitive range. The competitive range
includes the proposals that have a reasonable chance of being selected for award considering
their technical evaluation results and their proposed costs or prices. The contracting officer
analyzes the proposed cost or pricing information to decide whether the offers propose a
reasonable total cost or price. The contracting officer then considers the combination of
technical and cost (the “total package”) presented by each proposal to decide whether it should
be kept in the running for negotiations and possible award. Before conducting negotiations,
technical proposals included in the competitive range should be classified as acceptable,
potentially acceptable, or unacceptable. The competitive range, including the contracting
officer’s rationale for it, must be documented in the contract file.

The Commission’s Capital Fund Stimulus Grant procurement policy, adopted by its board of
commissioners on September 25, 2009, states the following:

   Section III, Part D, states that the board of commissioners designates the executive director
    as the contracting officer. The executive director is responsible for ensuring that
    procurement actions comply with this policy. The executive director may delegate all or
    some procurement authority as is necessary and appropriate to conduct the business of the
    Commission. The executive director must appoint delegations of contract authority in
    writing. The appointment should state the scope and limitations of authority. The executive
    director or designee(s) must ensure that a cost or price analysis is conducted on responses for
    all procurement actions that exceed $2,500.

   Section IV.E.3 discusses evaluations and states that the proposals must be evaluated only on
    the criteria stated in the request for proposals. When not apparent from the evaluation
    criteria, the Commission should establish an appropriately appointed evaluation committee.

   Section IV.E.4 discusses negotiations and states that unless there is no need for negotiations
    with any of the offerors, negotiations should be conducted with offerors that submit
    proposals determined to have a reasonable chance of being selected for award, based on
    evaluation against the technical and price factors as specified in the request for proposals.

Regulations at 24 CFR 85.36(b)(9) state that grantees and subgrantees must maintain records
sufficient to detail the significant history of a procurement. These records must include but are

                                                25
not necessarily limited to the following: rationale for the method of procurement, selection of
contract type, contractor selection or rejection, and the basis for the contract price.

The Commission’s request for proposals for architectural and engineering services, dated March
5, 2009, states that the housing authority will use the following procedure to evaluate proposals:
An evaluation panel (committee) of three or more members will be established. The evaluation
panel will evaluate the qualifications of all respondents. The committee will then interview the
top three firms. Then the top ranked firm, after the interviews, will be contacted and asked to
submit a written cost proposal. The housing authority will then negotiate with that firm to arrive
at a fair and reasonable cost. In the event that an agreeable price cannot be obtained, the housing
authority will begin negotiations with the next lower ranked firm and so on until an agreement
has been reached.

Finding 2

The American Recovery and Reinvestment Act of 2009, January 6, 2009, Public Law 111-5,
Section 1606, states that despite any other provision of law and in a manner consistent with other
provisions in the Act, all laborers and mechanics employed by contractors and subcontractors on
projects funded directly by or assisted in whole or in part by and through the Federal
Government based on the Act must be paid wages at rates not less than those prevailing on
projects of a character similar in the locality as determined by the Secretary of Labor in
accordance with subchapter IV of chapter 31 of Title 40, United States Code.

HUD’s Recovery Act Capital Fund Formula Grant Frequently Asked Questions #2, dated
October 5, 2009, general question 12, states that the Davis-Bacon wage requirements apply to
the activities funded with Recovery Act Capital Fund formula grants.

HUD regulations at 24 CFR 968.110(e) state that with respect to modernization work or
contracts over $2,000 (except for nonroutine maintenance work), all laborers and mechanics
(other than volunteers under the conditions set out in 24 CFR Part 70) who are employed by the
public housing agency or its contractors must be paid not less than the wages prevailing in the
locality, as predetermined by the Secretary of Labor based on the Davis-Bacon Act (40 U.S.C.
276a–276a–5).

HUD regulations at 24 CFR 968.140 state that it is the responsibility of the public housing
agency, not HUD, to provide, by contract or otherwise, adequate and competent supervisory and
inspection personnel during modernization, whether work is performed by contract or force
account labor and with or without the services of an architect or engineer, to ensure work quality
and progress.

HUD’s Procurement Handbook 7460.8, REV-2, paragraph 1.9, defines inspection as the
examination and testing of supplies and services to determine conformance with the contract
requirements.

Paragraph 11.2.C of the handbook states that the quality of the inspection is critical, and the
authority should ensure that either the architect, engineer, or designated person responsible for

                                                26
inspection is fully qualified and performs the inspections frequently and thoroughly. “(1) All
progress inspections should be documented using an appropriate public housing agency
inspection report form. The inspection report should include a description of the work
completed and a determination as to whether or not the work is acceptable. If payment is made
on a unit price basis, quantities must be verified. If payment is made on a time and materials
basis, the report should show that the time charged was spent on public housing agency work and
that materials were charged at cost. A copy of the inspection report should be included in the
contract file. Based on the progress report, the contracting officer should initiate any needed
follow-up actions to ensure that the terms of the contract are being fulfilled.”

Paragraph 11.2.E.7(c) of the handbook states, “The public housing agency should review each
contractor request and should approve the payment if the following conditions have been met (if
the contractor requests payment for items that have not been acceptably completed, the authority
should delete those items and adjust the payment accordingly), including that the work has been
performed in accordance with the construction documents.”

HUD’s regulations at 24 CFR 941.402(b) state that the public housing agency must be
responsible for contract administration and should contract for the services of an architect or
other person licensed under State law to assist and advise the public housing agency in contract
administration and inspections to ensure that the work is done in accordance with HUD
requirements.

HUD’s regulations at 24 CFR 85.40(a) state that grantees are responsible for managing the day-
to-day operations of grant- and subgrant-supported activities. Grantees must monitor grant- and
subgrant-supported activities to ensure compliance with applicable Federal requirements and that
performance goals are achieved. Grantee monitoring must cover each program, function or
activity.

The Commission’s Capital Fund Stimulus Grant procurement policy, adopted by its board of
commissioners on September 25, 2009, states in Section IX.D that the Commission must
maintain a system of contract administration designed to ensure that contractors perform in
accordance with their contracts. These systems shall provide for inspection of supplies, services,
or construction, as well as monitoring contractor performance, status reporting on major projects
including construction contracts, and similar matters.




                                                27