oversight

The Hamtramck Housing Commission, Hamtramck, MI, Did Not 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 2013-09-30.

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

OFFICE OF AUDIT
REGION 5
CHICAGO, IL




               Hamtramck Housing Commission
                     Hamtramck, MI


    American Recovery and Reinvestment Act Public
        Housing Capital Fund Formula Grant




2013-CH-1012                         SEPTEMBER 30, 2013
                                                        Issue Date: September 30, 2013

                                                        Audit Report Number: 2013-CH-1012




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

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

SUBJECT:       The Hamtramck Housing Commission, Hamtramck, MI, Did Not 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 report on our audit of the Hamtramck 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 30, 2013
                                             The Hamtramck Housing Commission, Hamtramck, MI,
                                             Did Not Administer Its Grant in Accordance With
                                             Recovery Act, HUD’s, and Its Own Requirements



Highlights
Audit Report 2013-CH-1012


    What We Audited and Why                   What We Found

We audited the Hamtramck Housing             The Commission did not administer its grant in
Commission’s American Recovery and           accordance with Recovery Act, HUD’s, and its own
Reinvestment Act of 2009 Public              requirements. While the Commission generally
Housing Capital Fund Stimulus formula        obligated and expended its Recovery Act funds in
grant. We selected the Commission            accordance with Recovery Act rules and regulations, it
based upon our analysis of risk factors      did not maintain adequate procurement documentation
related to the public housing agencies in    or ensure that it paid reasonable prices for Recovery
Region 5’s1 jurisdiction. Our objective      Act-funded construction projects. It also failed to
was to determine whether the                 perform adequate independent cost estimates or
Commission administered its grant in         prepare cost analyses of contract modifications. As a
accordance with Recovery Act, the U.S.       result, HUD and the Commission lacked assurance that
Department of Housing and Urban              Recovery Act grant funds were used appropriately.
Development’s (HUD), and its own
requirements.                                The Commission also did not ensure that (1) its
                                             contractors paid their employees the appropriate
                                             Federal labor standard wage rates as required by the
    What We Recommend
                                             Davis-Bacon Act, (2) eligible Section 3 participants
                                             were provided opportunities to become employed or
We recommend that the Director of            receive employment training, and (3) it accurately
HUD’s Detroit Office of Public               reported in FederalReporting.gov the number of jobs
Housing require the Commission to (1)        created and retained. As a result, HUD and the
provide documentation or reimburse           Commission lacked assurance that (1) contractors’
more than $230,000 from non-Federal          employees were paid the appropriate labor wage rate in
funds to HUD, (2) provide support for        accordance with the Davis-Bacon Act, (2)
11 apprentices or pursue collections         opportunities to become employed or receive
from applicable contractors to               employment training were provided to eligible Section
reimburse the appropriate employees          3 participants, and (3) the public had access to accurate
more than $14,000 from non-Federal           information regarding the number of jobs created and
funds, and (3) implement adequate            retained with formula grant funds, and the
procedures and controls to address the       Commission’s use of formula grant funds was not
findings cited in this audit report.         transparent.


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 Comply With HUD’s or Its Own
                 Procurement Requirements                                       4
      Finding 2: The Commission Did Not Follow Recovery Act, HUD’s, or Its Own
                 Requirements for the Davis-Bacon Act                          12
      Finding 3: The Commission Did Not Comply With HUD’s or Its Own Section
                 3 Requirements                                                15
      Finding 4: The Commission Did Not Accurately Report Recovery Act Grant
                 Information in FederalReporting.gov                           18

Scope and Methodology                                                         20

Internal Controls                                                             22

Appendixes
A.    Schedule of Questioned Costs and Funds To Be Put to Better Use          24
B.    Auditee Comments and OIG’s Evaluation                                   25
C.    Federal and the Commission’s Requirements                               59




                                            2
                      BACKGROUND AND OBJECTIVE

The Hamtramck Housing Commission was established in 1936 under the regulation of the State
of Michigan’s Act 18 of 1933, MCL 125.651-709e, to provide decent, safe, sanitary, and
affordable housing for low- and moderate-income residents of Hamtramck. The Commission
consists of two housing developments: Colonel Hamtramck Homes and Hamtramck Senior
Plaza. Colonel Hamtramck Homes, completed in 1943, consists of 300 housing units within 36
two-story buildings. Hamtramck Senior Plaza, completed in 1986, consists of 150 housing units
in an eight-story building. A five-member board of commissioners, appointed by the mayor,
governs the Commission. The Commission’s executive director is appointed by the board of
commissioners and is responsible for coordinating established policy and carrying out the
Commission’s day-to-day operations.

The Public Housing Capital Fund Stimulus (formula) Recovery Act-funded grant is administered by
the U.S. Department of Housing and Urban Development’s (HUD) Office of Public Housing. The
grant funds are available for capital and management activities, including the development,
financing, and modernization of public housing projects.

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 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 $1.3 million.

According to the Recovery Act, the Commission was required to obligate 100 percent of its 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.

Our objective was to determine whether the Commission followed Recovery Act and HUD
requirements regarding the administration of its Recovery Act grant. Specifically, we wanted to
determine whether the Commission (1) properly procured contracts, (2) ensured that Davis-
Bacon Act requirements were met, (3) complied with Section 3 requirements, and (4) accurately
reported Recovery Act grant activities in FederalReporting.gov.




                                                3
                                RESULTS OF AUDIT


 Finding 1: The Commission Did Not Comply With HUD’s or Its Own
                   Procurement Requirements
The Commission did not maintain adequate procurement documentation or ensure that it paid
reasonable prices for Recovery Act-funded construction projects. It failed to perform adequate
independent cost estimates or prepare cost analyses of contract modifications. The weaknesses
occurred because the Commission did not monitor its architects to ensure compliance with
Federal and its own procurement requirements. As a result, HUD and the Commission lacked
assurance that more than $230,000 in Recovery Act grant funds was used appropriately.


 The Commission Did Not
 Maintain Adequate
 Documentation

              The Commission received more than $1.3 million in Recovery Act formula grant
              funds to perform capital and management activities. In addition to its
              administrative and architectural and engineering fees, the Commission used its
              funds to perform seven projects. The seven projects included (1) community
              building roof replacement; (2) signage at Colonel Hamtramck Homes; (3) closed-
              circuit television security surveillance; (4) kitchen cabinet replacement; (5)
              parking lot renovation; (6) canopy and lobby renovations; and (7) heating,
              ventilation, and air conditioning (HVAC) replacement. We reviewed 100 percent
              of the Commission’s procurement documentation for the seven projects to
              determine whether the procurements were conducted in accordance with HUD’s
              and the Commission’s requirements during the period March 18, 2009, through
              September 30, 2011. Neither the Commission nor its architect maintained
              complete documentation for three of the seven projects, including the kitchen
              cabinet replacement, canopy and lobby renovation, and the parking lot resurfacing
              projects.

 The Commission Did Not
 Ensure That Contract
 Modifications for Its Kitchen
 Cabinet Replacement Project
 Were Reasonably Priced

              In April 2009, the Commission solicited bids for a Recovery Act grant-funded
              project to replace the kitchen cabinets, countertops, and sinks for 285 units at the
              Colonel Hamtramck Homes location. The original contract was awarded in
              August 2009 to National Maintenance Services, LLC, for $485,000.

                                                4
On October 8, 2009, the Commission executed a change order with its contractor
to include items such as cabinets and handles and services such as electricity and
plumbing, cleanup, installation, and supervision at the remaining 15 units. The
change order totaled $33,347. On February 25, 2010, the Commission executed
another change order with its contractor for additional carpentry, electrical, and
plumbing items. This change order totaled $159,954.

The Commission did not ensure that the contract modifications for its kitchen
cabinet replacement project were reasonably priced in accordance with HUD’s
requirements. Collectively, the two change orders increased the original contract
price by more than $193,000 (40 percent). However, the Commission did not
perform an adequate cost analysis to properly evaluate the contractor’s change
proposals for both of the modifications before entering into agreements on price.
Further, since the Commission’s independent cost estimate was more than 10
percent greater than the winning bid, the Commission should have reassessed its
estimate when evaluating the cost reasonableness of the modifications. For the
first contract modification, neither the Commission nor the architect was able to
provide a record of price negotiation. Therefore, we were unable to determine the
reasonableness of the contract modification. Contrary to 24 CFR (Code of
Federal Regulations) 85.36(f)(1) and its own procurement policy, the Commission
did not ensure that it performed cost analyses for two contract modifications to its
kitchen cabinet replacement contract at Colonel Hamtramck Homes.

The Commission provided 9 schedules that summarized nearly 600 contractor
work order forms that were used to price the second modification. According to
the schedule, the contractor’s work order forms provided the basis for the
contractor to charge nearly $160,000. The Commission provided the contractor’s
job work order forms to support more than $155,000 of the charges. However, it
did not provide job work order forms for the remaining costs of nearly $4,700,
which were also included on the summarized schedules.

Further, of the more than $155,000 in costs for which the Commission provided
contractor job work order forms, nearly $127,000 was for labor only. At the time
of negotiation, the Commission did not obtain from the contractor adequate
supporting documentation for the labor rates to determine whether they were
reasonable. The amount for labor, which was first calculated on the job work
order forms and then added to the summary schedules, included $81 per hour for
carpenters, $56 per hour for electricians, and $150 per hour for trucking fees.
However, the documentation provided by the Commission’s contractor in March
2012 showed that the labor rates included a 1 percent increase for the Michigan
business tax and a 10 percent increase for profit and overhead that were included
as separate costs on the summary schedules. Therefore, the Commission overpaid
$14,139 for labor costs because the Michigan business tax assessment, overhead,
and profit were included twice.



                                 5
           Additionally, the supporting documentation for labor rates was based only on
           foreman and journeyman wages and did not account for the use of apprentices,
           who were paid less. Therefore, the schedules used to determine the rates were
           inadequate. The labor schedules showed that the labor wage rate had increased by
           144 percent, which was attributable to 108 percent for fringe benefits plus 36
           percent for labor burden (144 percent added to the direct labor rate). The
           schedules also did not include a corresponding history to compare with the costs
           used to develop the trucking rates. The reasonableness of the labor and trucking
           rates could not be determined without adequately detailed supporting
           documentation and analysis as required by HUD Handbook 2210.18, section 1-2.

           The Commission did not ensure that these prices were reasonable before it
           modified the original contract. Also, the procurement file did not contain
           documentation to support the incurred costs to the contractor for the additional
           work performed and the additional profit, which should have been separately
           negotiated.

           Additionally, the nearly 600 work orders prepared by the contractor and signed by
           the Commission’s operations director, who authorized the work, were not dated.
           The date of signature is required so that the Commission can determine whether
           the change was properly authorized according to the contract. Therefore, we
           could not determine whether the work was properly authorized before it was
           performed and that the priced work orders prepared by the contractor included
           only the work that the operations director authorized. In reviewing the work
           descriptions included on the work order forms, we identified work items that were
           included in the initial contract. These work items should not have been paid with
           Recovery Act grant funds and included (1) plumbing labor costs totaling $27,398,
           (2) kitchen filler labor costs totaling $24,300, (3) electrical labor costs totaling
           $7,168, (4) electrical material costs totaling $6,247, (5) drywall labor costs
           totaling $27,135, and (6) labor costs totaling $11,178 for toe kicks and the
           installation of range cabinets. In addition, we identified duplicate work orders to
           perform the same work for the same housing unit, which totaled $9,154. Because
           the work orders were not adequately compared, we could not differentiate the
           costs among the multiple activities described on each work order.

The Commission Did Not
Ensure That Contract
Modifications for Its Canopy
and Lobby Renovation Project
Were Reasonably Priced

           In February 2010, the Commission solicited bids for a Recovery Act formula
           grant-funded project to renovate the canopy and lobby at the Hamtramck Senior
           Plaza location. The original contract was awarded in March 2010 to National
           Maintenance Services, LLC, for $211,000. However, the Commission’s
           independent cost estimate for the project was $260,000, which was $49,000 less

                                            6
than the winning bid. Additionally, the estimate did not include a breakdown of
major categories, including labor, materials, and other direct costs, as required

The Commission executed two contract modifications for $125,955 and $30,520
on November 12, 2010, and June 8, 2011, respectively, which changed the scope
of the work beyond the original contract and increased the price by more than
$156,000 (74 percent). The modification was mainly as a result of additional
discretionary items decided upon during the construction phase, such as
installation of flood lights in the parking lot, repairs to existing parking lot
lighting, additional tile work, additional movable bulkhead doors, etc. The
Commission used $29,961 in Recovery Act grant funds for the first contract
modification. It used $126,514 from its Public Housing Capital Fund program to
pay for the balance of the first contract modification and all of the second.

The Commission did not ensure the contract modifications for its canopy and
lobby renovation project were reasonably priced. Specifically, it did not ensure
that the required cost analysis was prepared for the first contract modification or
that the cost analysis for the second modification was adequate. HUD Handbook
7460.8, REV-2, states that 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. A cost analysis
must be conducted when there is a contract modification. The level of detail and
complexity of the cost analysis should reflect the dollar value and complexity of
the contract.

Additionally, since the Commission’s independent cost estimate was more than
10 percent less than the winning bid, the Commission should have reassessed its
estimate when evaluating the cost reasonableness of the modifications. The
contract modifications were executed after the work was completed; therefore, the
Commission had already incurred the costs. It should have requested
documentation of the costs to assist in determining the cost reasonableness for
each modification. According to HUD’s requirements, techniques to determine
cost reasonableness include a comparison of actual costs previously incurred by
the same contractor and previous cost estimates from the contractor or other
contractors for the same or similar items.

The Commission provided a schedule for the first contract modification, which
summarized 22 of the subcontractor’s change order proposals and job work order
forms showing the use of $125,955 for various extras that were used to price the
modification. Of that amount, Recovery Act funds were used to pay for 23.8
percent ($29,961 * $125,955) of the contract modification.

Additionally, the change order proposals and job work order forms included more
than 450 hours for supervision, carpenters, cleanup, tapers, administrative costs,
and trucking fees totaling nearly $43,000 for labor charges paid (more than
$10,000 paid with Recovery Act funds). The amounts for labor were calculated

                                 7
on the job work order forms and then added to the summary schedules based on
nearly $82per hour for supervision; $81 per hour for carpenters, tapers, and
administrative costs; $78 per hour for cleanup; and $175 per hour for trucking
fees. The Commission did not provide adequate supporting documentation for the
labor rates to determine their reasonableness. The documentation provided
showed that the total labor cost was $42,610, which included 1 percent for
Michigan business tax ($38,353 * 1 percent = $384) and 10 percent for overhead
and profit ($38,736 * 10 percent = $3,874). However, the contractor’s Michigan
business tax, overhead, and profit were included on the summary schedule.
Therefore, the Commission overpaid $1,013 (($384 + $3,874) * 23.8 percent) for
the Michigan business tax and all labor included in the first modification because
the Michigan business tax assessment of 1 percent and overhead and profit of 10
percent were included twice.

Also, the labor and trucking rate documentation provided by the contractor during
the audit was not adequate to support that the rates were reasonable. The
supporting documentation for the labor rates was based only on foreman and
journeyman wages and did not account for the use of apprentices, who were paid
less. Additionally, the schedules used to determine the rates were inadequate.
The schedules did not include a corresponding history to compare with the costs
used to develop the labor and trucking rates. The labor schedules showed that the
labor wage rate had increased by 144 percent, which was attributable to 108
percent for fringe benefits plus 36 percent for labor burden added to the direct
labor rate (108 + 36 = 144). The reasonableness of the labor and trucking rates
could not be determined without adequately detailed supporting documentation
and analysis as required by HUD Handbook 2210.18, section 1-2.

Further, the work orders were prepared by the contractor and signed by the
Commission’s property manager authorizing the work. However, the property
manager’s signatures authorizing 10 work orders were dated after the work was
completed, and another 17 signatures were not dated. Therefore, we could not
determine whether the work was properly authorized before it was performed and
that the priced work orders prepared by the contractor after the property manager
signed them included only the work that the property manager authorized.
Additionally, our review of the work descriptions included on the job work order
forms found that some included costs for work that was also performed and priced
on different work orders. Therefore, the Commission did not provide
documentation to support that the price paid for the contract modification was
reasonable.

The contractor used subcontractors to perform electrical, concrete, roofing, and
millwork on the canopy and lobby renovation project. The contractor’s change
order proposals were supported by quotes submitted by these subcontractors at or
near the time the work was performed; therefore, the contract modification was
based on the quotes. Since November 22, 2010, the date the contract modification



                                8
            was executed, the Commission had not obtained evidence of available incurred
            cost or the amount the subcontractors were paid.

            Further, after the contract was awarded, the Commission decided to modify the
            contract to install new lights in the parking lot. On April 10, 2010, the contractor
            submitted change order proposal 6, which was based on an electrical
            subcontractor’s quote of $27,781 and added 24 hours of contractor supervision, a
            Michigan business tax assessment, overhead, and profit, which increased the price
            charged to the Commission to $32,956. However the Commission stated that
            once the work began, unforeseen buried concrete was encountered and hand
            trenching included in the quote was no longer a sufficient method. Therefore, the
            contractor revised and submitted change order proposal 1, and added proposal 7.
            The change order proposals increased the cost of installing the lights due to the
            unforeseen excavation issues.

            The modified change order proposal 1 was for a concrete subcontractor to take
            over the excavation portion. Change order proposal 6 was for the cost of hand
            trenching, quoted at $6,050 by the electrical subcontractor, which had been
            determined by the contractor as no longer necessary. Change order proposal 7
            was for an additional 9 hours of contractor supervision of the concrete
            subcontractor on April 22 and 23, 2010; however, change order proposal 1
            included contractor supervision, and no concrete excavation was performed on
            April 22, 2010. Therefore, the first contract modification included ineligible costs
            of $6,838 ($1,626 in Recovery Act funds) consisting of hand trenching costs of
            $6,050 ($1,439 in Recovery Act funds) for change order proposal 6 because
            deductions were not applied and supervision costs of $788 ($187 in Recovery Act
            funds) for change order proposal 7.

The Commission Did Not
Ensure That Its Contract
Modification for Its Parking
Lot Resurfacing Project Was
Reasonably Priced

            In February 2010, the Commission solicited bids for a Recovery Act formula
            grant-funded project to resurface the parking lot at the Hamtramck Senior Plaza
            location. The original contract was awarded in March 2010 to Asphalt
            Specialists, Incorporated, for $98,675.

            On November 9, 2010, the Commission executed a change order with its
            contractor for additional work. This contract modification totaled $7,334 and
            increased the total cost of this project to $106,009. The Commission did not
            ensure that the contract modification for its parking lot resurfacing project was
            reasonably priced. Contrary to Federal regulations and its own policies, the
            Commission did not prepare a cost estimate or analysis for the contract
            modification.

                                              9
             The contract modification provided a schedule of the additional costs, which
             included (1) $2,816 to furnish and install all labor and materials to trench for
             electric utilities, replace trench spoils with aggregate base, and compact in place
             and (2) $2,700 to provide labor and material to excavate and backfill electric
             utility trenches at the north parking lot. The trenching for electrical utilities was
             included in change order proposals 1 and 6 of modification 1 of the canopy and
             lobby renovation contract. Therefore, the parking lot resurfacing contract
             included $5,516 in questionable costs for work impacted by change orders for the
             canopy and lobby renovation contract, and the Commission did not ensure that the
             change included credits for work no longer required. The Commission’s
             procurement file did not include documentation showing the incurred cost to the
             contractor for the additional work performed and the additional profit that should
             have been separately negotiated.

The Commission Did Not
Provide Adequate Oversight of
Its Architects

             The Commission did not provide adequate oversight of its architects. The
             weakness occurred because the Commission relied too heavily on its architects to
             ensure compliance with Federal and Commission procurement requirements and
             control the administration of the contract. The executive director said that the
             architects were hired based on their experience with HUD’s projects and it was
             the Commission’s expectation that the architects obtained all of the
             documentation and analyses required for negotiating the contract modifications.

             However, regardless of whether the architect obtained all of the analyses and
             documentation required for the negotiation of contract modifications, it was the
             Commission’s responsibility to ensure that all of the required analyses were
             performed and the documentation maintained. Further, documents provided by
             one of the Commission’s architects showed that the architect was aware of the
             duplication of profit in contractor’s proposals for the canopy and lobby renovation
             contract modifications.

             Lastly, HUD’s Detroit Office of Public and Indian Housing’s monitoring reports
             for the Commission’s Recovery Act grants found significant deficiencies in the
             quality of the documentation included in the procurement files. Some of the
             issues related to the contract modifications identified in this report were the
             subject of the monitoring reports. As part of HUD’s proposed corrective actions,
             documentation was required of the Commission; however we did not find support
             that the issues related to cost estimates, cost analyses, and documentation that
             costs were reasonable were addressed before the findings were closed by HUD.

Conclusion


                                              10
          The Commission did not always ensure that it paid reasonable prices for Recovery
          Act-funded construction projects. As a result, HUD and the Commission lacked
          assurance that contract modifications totaling more than $230,596 ($33,347 +
          159,954 + 29,961+ 7,334) paid using Recovery Act funds were reasonable and
          justified and that more than $121,830 ($14,139 + 27,398 + 24,300 + 11,178 +
          7,168 + $6,247 + $27,135 + 1,013 + 1,626+ 1,439 +187) was for eligible
          contractor payments rather than for duplicate profit and overhead on labor and
          trucking rates and duplicate payments made for kitchen cabinet installations and
          canopy and lobby renovations.

Recommendations

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

          1A.     Reimburse from non-Federal funds, for repayment to the U.S. Treasury,
                  $121,830 for ineligible expenses, including duplicate profit and overhead
                  paid on labor and trucking rates and duplicate payments made for kitchen
                  cabinet installations and canopy and lobby renovations.

          1B.     Provide documentation for the three contracts to support that the costs
                  paid for the contract modifications totaling $108,766 ($230,596 less the
                  ineligible use of funds from recommendation 1A) were reasonable. Any
                  amounts that cannot be shown to be reasonable should be repaid to the
                  U.S. Treasury from non-Federal funds.

          1C.     Develop and implement adequate quality control procedures to ensure that
                  contracts are procured and executed in accordance with Federal
                  requirements and the Commission’s policies and procedures. These
                  procedures and controls should include but not limit to providing oversight
                  of its architects on any future construction work for compliance with
                  Federal and other applicable requirements.




                                           11
 Finding 2: The Commission Did Not Follow Recovery Act, HUD’s, or
            Its Own Requirements for the Davis-Bacon Act
The Commission did not follow Recovery Act, HUD’s, or its own procurement and Davis-Bacon
Act requirements. Specifically, it did not ensure that its contractors and subcontractors paid
prevailing wages in accordance with the Davis-Bacon Act. The weaknesses occurred because
the Commission lacked written procedures or a process to verify contractors’ payrolls and did
not fully understand the requirements under the Act. As a result, two contractors underpaid their
employees a total of $702, and HUD and the Commission lacked assurance that nearly $14,000
in wages was not withheld from workers compensated as eligible apprentices since their
eligibility was not sufficiently supported according to Davis-Bacon Act requirements.



 The Commission Did Not
 Ensure That Contractor
 Employees Were Adequately
 Compensated

              The Commission did not adequately administer the Davis-Bacon requirements for
              all of its Recovery Act grant projects. Its contractors for the canopy and lobby
              renovation and HVAC projects underpaid three employees, collectively, $702 in
              wages. Despite the Commission’s having received the appropriate certified
              payroll records and performed a targeted interview with one of the underpaid
              employees, it failed to identify the underpayment or take action to remedy either
              of the contractors’ noncompliance with Federal regulations until July 2012. On
              July 27, 2012, the Commission provided support that the contractor for the HVAC
              project wrote a check to the underpaid employee on July 13, 2012, in payment of
              wage restitution to comply with the Davis-Bacon Act. However, there was no
              certification from the worker that the worker received the payment.

              Further, the Commission did not ensure that each of 11 apprentices who worked
              on its kitchen cabinet replacement and canopy and lobby renovation projects were
              eligible via enrollment in an approved apprenticeship program and, thus,
              adequately compensated. The Commission did not provide sufficient
              documentation showing that the apprentices were enrolled in approved
              apprenticeship programs to justify their receiving $13,905 ($6,411 for the kitchen
              cabinet replacement + $7,494 for the canopy and lobby renovation projects) less
              than the amount required in accordance with Davis-Bacon.

 The Commission Lacked an
 Understanding of Davis-Bacon
 Act Requirements



                                               12
             The Commission had weaknesses in its procedures and controls and lacked an
             understanding of Davis-Bacon Act requirements. The Commission’s executive
             assistant said that the problem with employees other than apprentices, who were
             paid less than prevailing wages, was due to the lack of written procedures or a
             process for verifying all contractor payrolls to ensure compliance with the Davis-
             Bacon Act. Further, she said that the Commission had verbally verified that some
             employees were apprentices and were, therefore, paid less than prevailing wages.
             However, she said that the Commission was unaware that specific documentation
             was required to verify that the employees were in an approved apprenticeship
             program.

Conclusion

             The Commission did not follow Recovery Act, HUD’s, or its own procurement
             and Davis-Bacon Act requirements. As a result, two contractors underpaid their
             employees $702, and HUD and the Commission lacked assurance that nearly
             $14,000 ($6,411 for the kitchen cabinet replacement + $7,494 for the canopy and
             lobby renovation projects) in wages was not withheld from workers compensated as
             eligible apprentices in accordance with the Davis-Bacon Act.

Recommendations

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

             2A.    Pursue collections from the applicable contractor and reimburse the
                    appropriate employees $327 from non-Federal funds for the wages paid by
                    the canopy and lobby renovation that were less than those required by the
                    Davis-Bacon Act.

             2B.    Ensure that the employee who received $375 less than required from the
                    HVAC contract receives the wage restitution payment that was prepared by
                    the contractor.

             2C.    Provide support that all of the 11 apprentices were enrolled in an approved
                    apprenticeship program in accordance with the Davis-Bacon Act or fulfill
                    its administrative duties, including (1) taking appropriate actions to ensure
                    that workers who received less than the prevailing rate receive $13,905
                    ($6,411 from the kitchen cabinet replacement project and $7,494 from the
                    canopy and lobby renovation project) in wage restitution from non-Federal
                    funds and (2) taking the appropriate administrative actions as outlined in
                    the requirements for contractors that willingly do not meet their
                    obligations.




                                             13
2D.   Develop and implement adequate written procedures, controls, and
      supervision to ensure that its contractors’ and subcontractors’ employees
      are paid at the appropriate Federal prevailing wage rates for covered
      contracts and provide training to its employees on Federal labor
      requirements.




                               14
 Finding 3: The Commission Did Not Comply With HUD’s or Its Own
                     Section 3 Requirements
The Commission did not comply with HUD’s or its own Section 3 requirements. Specifically, it
(1) did not achieve its Section 3 minimal numerical goals for contracting, (2) did not ensure that
contractors complied with the Section 3 requirements, and (3) did not submit the required form
HUD-60002 for 2009 and 2010. The weaknesses occurred because the Commission lacked a
complete understanding of how to adequately implement the requirements under Section 3. As a
result, the Commission did not ensure that opportunities to become employed or receive
employment training were provided to eligible Section 3 participants.


 The Commission Did Not
 Ensure Its Section 3 Policies

               The Commission did not achieve its Section 3 minimal numerical goal of
               awarding 10 percent of the total dollar amount of all covered construction
               contracts to Section 3 business concerns as described at 24 CFR 135.30 and did
               not provide sufficient documentation showing that it was unable to meet the goals
               required by the regulations. Additionally, rather than through advertised
               invitations to bid, the Commission used a modified procurement method by
               directly soliciting bids from contractors. Therefore, Section 3 business concerns
               may have been deprived of the opportunity to compete for the contracts.

 The Commission Did Not Take
 an Active Role To Ensure
 Contractor Compliance With
 Section 3 Requirements

               The Commission, throughout the term of its contracts, did not take an active role
               to ensure contractor compliance with the Section 3 requirements. It attempted to
               determine compliance through six contractors’ statements received between
               October 2011 and February 2012 which was after the contracts were completed.
               Final payments to the contractors were issued between November 2010 and
               January 2011. However, the Commission’s actions did not ensure contractor
               compliance with Section 3 requirements. Further, in reviewing the six statements,
               we determined that two identified current low-income residents but did not
               identify whether new employment or training opportunities were created by the
               projects. Since none of the contractors claimed to be Section 3 business concerns,
               Section 3 resident low-income designations did not apply to existing employees.

               Additionally, for four of the Commission’s seven Recovery Act-funded projects
               (kitchen cabinet replacements, new community building roof, canopy and lobby
               renovation, and signage), the Commission or its architects were unable to
               document actions, if any, that were undertaken by contractors to comply with
                                                15
           Section 3 requirements. The Commission’s kitchen cabinet replacement, canopy
           and lobby renovation, and signage contractors stated that they employed low-
           income individuals, but they did not claim to be Section 3 business concerns.

           For the Commission’s HVAC project, the contractor identified a new employee
           that it hired for compliance with Section 3. However, neither the Commission nor
           its architects were able to provide documentation showing that the Commission
           verified the eligibility of the newly hired employee as a Section 3 resident as
           defined in the Commission’s Section 3 plan. The Commission also did not
           provide documentation showing actions taken by its contractors to provide
           subcontracting opportunities to Section 3 business concerns, in compliance with
           the regulations, for four projects (new community building roof replacement,
           kitchen cabinet replacement, canopy and lobby renovation, and signage) that used
           a total of nine subcontractors.

           The Commission’s Section 3 plan and written procurement policies and
           procedures did not include steps to identify Section 3 business concerns or a
           method for considering Section 3 businesses for preference in contracting
           opportunities. Further, its procurement policy contained the statement that
           because of the administrative impracticality of Section 3 for smaller contracts, the
           agency had established a contract threshold of $25,000 for application of Section
           3. However, its policy contradicted HUD’s regulations at 24 CFR 135.3, which
           state that there are no thresholds for Section 3-covered public and Indian housing
           assistance. The requirements of this part apply to Section 3-covered assistance
           provided to recipients, regardless of the amount of the assistance provided to the
           recipient and to all contractors and subcontractors performing work in connection
           with projects and activities funded by public and Indian housing assistance
           covered by Section 3, regardless of the amount of the contract or subcontract.

           As a result of this finding, the Commission provided documentation to show that
           its board of commissioners had taken action to amend its policies to remove the
           threshold and enact a method of providing preference to Section 3 business
           concerns.

The Required Form HUD-
60002 Was Not Submitted in
Fiscal Years 2009 and 2010

           The Commission submitted its fiscal year 2011 form HUD-60002 (Section 3
           Summary Report) but had not submitted its fiscal years 2009 and 2010 forms.
           The form is used to report the number of Section 3 hires to HUD. Regulations at
           24 CFR 135.90 state that the report is to be submitted by January 10 of each year
           or within 10 days of project completion, whichever is earlier.
           Office of Management and Budget (OMB) Circular A-133, Compliance
           Supplement, addendum 1, Public and Indian Housing, section III(L)(2), states that
           the prime recipient must submit form HUD-60002.

                                            16
The Commission Lacked
Knowledge of the Section 3
Requirements

             The Commission’s executive assistant stated that the Commission believed that it
             complied with Section 3 requirements and was unaware of issues within its
             program. She added that the Commission’s employees did not have adequate
             training for Section 3. The Commission lacked adequate knowledge of HUD’s
             Section 3 requirements, and its procedures and controls had weaknesses as a
             result.

Conclusion

             The Commission did not comply with HUD’s or its own Section 3 requirements.
             As a result, HUD lacked assurance that the Commission, its contractors, and its
             subcontractors complied with Section 3 requirements to the greatest extent
             feasible and low-income persons, very low-income persons, and Section 3
             business concerns were afforded adequate opportunities to receive Recovery Act
             grant awards.

Recommendations

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

             3A.    Ensure that staff members responsible for contract administration receive
                    training on Section 3 requirements.

             3B.    Implement adequate procedures and controls to ensure that its policies and
                    procedures comply with HUD’s requirements and contain clear guidance
                    on how to ensure that its contractors comply with Section 3 requirements.




                                            17
 Finding 4: The Commission Did Not Accurately Report Recovery Act
              Grant Information in FederalReporting.gov
The Commission did not correctly report the number of jobs created or retained for various
quarters and was unable to justify its reported estimates for the number of jobs reported in
FederalReporting.gov. This condition occurred because the Commission lacked adequate
procedures and controls to ensure that it fully implemented federally mandated changes to its
program and its reporting of program results. As a result, the public did not have access to
accurate information regarding the number of jobs created and retained with formula grant funds,
and the Commission’s use of formula grant funds was not transparent.



 Jobs Created or Retained Were
 Not Properly Calculated or
 Reported

              The Commission was unable to justify the number of jobs created or retained that
              it reported in FederalReporting.gov based on its Recovery Act activities.

              OMB Memorandum M-10-08 states that the number of new jobs created or jobs
              retained should be reported using the following formula: total number of hours
              worked and funded by the Recovery Act within a reporting quarter divided by
              quarterly hours in a full-time schedule equals the full-time equivalent. Our
              review of the Davis-Bacon payroll reports the Commission provided for its grant-
              funded projects revealed that work was performed on the kitchen cabinet
              replacement project during the first quarter of 2010, although the Commission did
              not report jobs created or retained during the first quarter of 2010.

              Additionally, the Commission reported that it created 12 jobs in each of the 4
              quarters of 2011, although based on the payroll reports provided by the
              Commission, there was no work performed during those quarters for any of the
              grant projects.

 The Commission Did Not Use
 the New Methodology for Its
 Jobs Calculation

              The Commission’s executive assistant said that despite receiving timely
              notifications from HUD, the Commission mistakenly did not incorporate the
              change to the methodology for calculating the number of jobs created and
              retained.

 Conclusion

                                              18
          The Commission did not correctly report the number of new jobs created or
          retained. As a result, the Commission’s use of formula grant funds was not
          transparent, and HUD and the public did not have access to accurate information
          regarding the number of jobs created and retained with formula grant funds.

Recommendations

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

          4A.     Develop and implement procedures and controls to ensure the accuracy,
                  completeness, and timeliness of the all reports submitted to HUD or other
                  Federal agencies for the Commission’s programs.




                                          19
                        SCOPE AND METHODOLOGY

We performed our onsite audit work from October 2011 to April 2012 at the Commission’s
office located at 12025 Dequindre Avenue, Hamtramck, MI, and HUD’s Detroit field office.
The audit covered the period March 18, 2009, through September 30, 2011, but was expanded
when necessary to include other periods.

To accomplish our objective, we reviewed

      Applicable laws; regulations; Federal Register notices; 2 CFR Part 176; 24 CFR Parts 85
       and 135; 29 CFR Parts 3 and 5; Office of Public and Indian Housing Notices 2009-12,
       2009-16, 2009-25, 2009-31, 2010-34, 2010-44, 2011-4, 2011-12, and 2011-37; HUD
       Handbooks 1344.1, REV-1, 7460.8, REV-2, 7475.1, and Supplement to HUD Handbook
       7475.1; the Recovery Act; The United States Housing Act of 1937 as amended; 40
       U.S.C. (United States Code) chapter 31, subchapter IV, 3141; OMB Circulars A-87 and
       A-133; OMB Memorandums M-09-21, M-10-08, and M-10-34; HUD’s Making Davis-
       Bacon Work guide for public housing agencies; and the U.S. Department of Labor’s
       Memorandum Number 207.

      The Commission’s annual contributions contract with HUD, accounting records, bank
       statements, computerized databases, policies and procedures, board meeting minutes
       pertinent to the program, organizational chart, and Line of Credit Control System
       information and requests for payment.

      HUD’s files for the Commission.

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

Finding 1

We reviewed 100 percent of the Commission’s procurement documentation related to projects
funded by the Recovery Act grant to determine whether procurements were conducted in
accordance with HUD’s and the Commission’s requirements during the period March 18, 2009,
through September 30, 2011. The audit period was expanded when necessary to include other
periods. We determined that the Commission did not maintain all of the required documentation.
We also contacted the Commission’s architect to determine whether he maintained additional
documentation pertinent to the Commission’s Recovery Act grant projects.

We reviewed 100 percent of the Commission’s reporting of core activities in the Recovery Act
Management and Performance System.

Finding 2




                                              20
We reviewed 100 percent of the Commission’s project files to determine whether the
Commission maintained documentation to support that it ensured that its contractors paid the
appropriate prevailing wages.

Finding 3

We reviewed the Commission’s Section 3 policies. We also reviewed 100 percent of the
Commission’s Recovery Act grant contracts to determine whether required Section 3 clauses
were included as part of the contracts.

We reviewed the Commission’s submission of form HUD-60002, Section 3 Summary Report,
for fiscal years 2008 and 2011 for the Recovery Act grant.

Finding 4

We reviewed 100 percent of the Commission’s submissions to FederalReporting.gov for the
third quarter of 2009 through the fourth quarter of 2011 to determine whether they were accurate,
complete, and timely.

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.




                                               21
                              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:

                  Effectiveness and efficiency of operations – Policies and procedures that the
                   audited entity has implemented to provide reasonable assurance that a program
                   meets its objectives, while considering cost effectiveness and efficiency.

                  Reliability of financial reporting – Policies and procedures that management has
                   implemented to provide reasonable assurance regarding the reliability of
                   financial reporting and the preparation of financial statements in accordance with
                   generally accepted accounting principles.

                  Compliance with 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

                                                 22
Based on our review, we believe that the following items are significant deficiencies:

      The Commission lacked adequate procedures and controls to ensure that
       procurements were conducted in accordance with HUD’s requirements and
       the Commission’s policies and procedures (see finding 1).

      The Commission lacked adequate procedures and controls to ensure that it
       complied with Recovery Act, HUD’s, or its own requirements for the
       Davis-Bacon Act (see finding 2).

      The Commission lacked an understanding of Federal requirements to ensure
       compliance with Section 3 requirements (see finding 3).

      The Commission lacked adequate procedures and controls to ensure
       compliance with Federal and its own requirements regarding the reporting of
       appropriate information in FederalReporting.gov (see finding 4).




                                 23
                                   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                      $121,830
              1B                                       $108,766
              2A                                                               $327
              2B                                           $375
              2C                                        $13,905
             Totals                   $121,830         $123,046                $327


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.




                                             24
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation                         Auditee Comments




              Audit Draft Response
              July 25, 2012

                       By way of introduction, The Hamtramck Housing Commission (HHC) is the
              fourth oldest public housing agency (MI004) in the state of Michigan. Built in 1936 by the
              Civilian Conservation Corps, all of the original buildings (36), including the
              administrative offices are still fully utilized. In fact, the Hamtramck Housing Commission
              is recognized by the Department of Housing and Urban Development (HUD) as the
              largest ”Public Housing High Performer” (by CFP) in the state of Michigan, and has
              been for the last four years running. The fact that our buildings are three-quarters (3/4) of
              a century old is an important aspect when considering retrofitting anything, particularly
              kitchen cabinets, and must be adamantly considered when assessing this audit. The
              Colonel Hamtramck Homes is comprised of 36 buildings encompassing three hundred
              (300) mixed family units ranging in size from 1 to 5 bedrooms. The other property in the
              HHC portfolio is an eight (8) story tall “Senior” high rise built in 1986 and encompasses
              150 elderly apartments.

                        The HHC received notice of the ARRA formula grant in March 2009. From the
              very day of receiving notification the HHC has worked hand in hand with numerous
              personnel from the Detroit Field Office of HUD to ensure that all ARRA monies were
              obligated and expended appropriately and in compliance with all HUD regulations. In
              fact, the HHC received three on site reviews from various personnel of the (HUD) Detroit
Comment 1
              Field Office who inspected everything from the grade of plywood used in cabinet
              replacements to the placement of “Recovery Act Fraud Posters” throughout our
              premises.(See appendix MM for copies of the reviews from HUD) All reviews have been
              duly noted by the auditors. Through the course of the seven (7) contracts and $1,393,865
              expended with Recovery Act funds the HHC and the Detroit Field Office of HUD have
              been in continuous contact, with HUD lending guidance and support every step of the
              way.




                                                 25
Ref to OIG Evaluation                         Auditee Comments

                      The Office of Inspector General(OIG) began their American Recovery Act audit
             in October 2011 and stayed on site at the Hamtramck Housing Commission offices for six
             months(6) until April 2012. The audit was performed by two (2) OIG auditors who
Comment 2    worked full time during the entire six (6) month audit procedure. During this time the two
             auditors were presented with all requested information several times in different formats.
             The auditors were taken through both developments at their request and were encouraged
             to take pictures at will and were let into apartments that they themselves selected. The
             auditors were given in-depth descriptions of the cabinets installed at the Colonel
             Hamtramck Homes (CHH), to the point of being presented with the actual physical
             cabinets for a hands-on inspection. Personnel from the HHC, and James Childs and
             Architects, spent an entire half day showing the auditors the necessary work which was
             completed at the Hamtramck Senior Plaza. The auditors were given access to both of the
             architectural firms employed by the HHC. The first, James Childs Architects with 35
             years of architectural experience in public housing, and the second Tuomaala and
             Associates with 48 years of government architectural experience

             FINDING 1:

                       The Hamtramck Housing Commission (HHC) did maintain adequate
Comment 3    procurement documentation and ensured that the HHC paid reasonable prices for
             Recovery Act-funded construction projects. Independent cost estimates and cost analysis
             of contract modifications associated with the Canopy and Lobby Renovation Project, the
             Asphalt Replacement Project, and the Kitchen/Cabinet/Countertop Replacement Project
             were completed by our third party architectural and engineering firms, James Childs
             Architects and Siegel Toumaala and Associates. These cost estimates and cost analysis
             were submitted in a form widely and historically accepted as the industry standard.
             Further, they were submitted by two firms with over a half century of combined
             experience in construction and HUD documents, and have been accepted and recognized
             by HUD as meeting procurement regulations as set forth in section 24 of the Code of
             Federal Regulations (24 CFR). (See appendices A through H for the Independent Cost
             Estimates and Cost Analysis performed in conjunction with the aforementioned ARRA-
             Funded Projects). Justifications for the modifications were maintained and given in
             multiple discussions with the auditors during the six (6) months that they were on site.
Comment 4    The justifications were reviewed and reiterated to the auditors in a meeting and physical
             walk through on Wednesday, February 22, 2012. The management staff of the HHC, the
             Managing Partner of James Childs Architects, and the Project Staff Architect discussed at
             length with the auditors during this meeting the justifications and reasons for all
             modifications. There were not duplicate costs paid to contractors for the same work as
             was the original fear of the auditors. These items were explained at length and with great
Comment 5    detail to the auditor showing that no duplicate payments had been made for duplicative
             work. The enclosed Independent Cost Estimates and Cost Analysis shows that the
             Commission had assurances that it paid reasonable prices for the original contract sums as
             well as the $212,00.00 in contract modifications. Ibid.




                                                26
Ref to OIG Evaluation                         Auditee Comments


                       The Commission ensured contract modifications for its Canopy and Lobby
Comment 6    Renovation Project were reasonably priced. (see appendices A,D & E for the Independent
             Cost Estimate and the Cost Analysis prepared by our Independent third party
             Architectural firm James Childs Architects) HHC felt that the Independent Cost
             Estimates and the Cost Analysis performed by its Architects were done in compliance
             with 24 CFR 85.36 (f.). Ibid. In the industry this is a confidently and generally accepted
             standard method of performing an Independent Cost Analysis, performed by a company
             with 35 years experiences in meeting HUD procurement guidelines. The HHC decided to
             move forward with the contract after reviewing the cost analysis performed and source
             documentation reviewed by our architect in accordance with 24 CFR 85.20(b)(6) and 24
             CFR 85.36 (d)(4).(see appendices D & E). In conducting the Cost Analysis, and in
             utilizing the Procurement Handbook for Public Housing Agencies, 7460.58 REV 2, the
             HHC stringently adhered to Section 10.3, and complied fully with sub part a (2), which
             states, “If adequate competition does not exist, including sole source procurements or non-
             competitive proposals, the PHA must perform a Cost Analysis….”(see appendices D &
             E). The Cost Analysis performed ensured the cost submitted were,
             “allowable…allocable…and reasonable…” per the Procurement Handbook for Public
             Housing Agencies, HUD-Handbook 7460.8 REV 2, section 3 Conducting a Cost Analysis.
             (See appendix M)
                       All modifications made to the Canopy and Lobby Renovation Project was
             directly driven by the HHC’s required compliance with Section 504, “The Americans with
             Disabilities Act” (ADA), state codes, and local ordinances. Furthering the demand for the
Comment 7    modifications were the health, safety, welfare, and exigency factors surrounding the
             project. Further compelling the modification was the HHC’s dedication to its residents,
             the mandate to uphold and adhere to its Admissions and Continued Occupancy Policy
             (ACOP) and its mission statement to provide safe housing. The necessity to provide safe
             housing for the residents we serve is not discretionary. The aforementioned factors are
             evidenced by a letter from an elderly, severely handicapped resident requesting a
             reasonable accommodation to alleviate the barrier for her wheel chair to access emergency
             exit doors on the first floor. (See appendix N) Further evidence of an ADA issue is the
             Hamtramck Fire Marshall’s letter dated; August 13, 2012, citing the exits located on the
             first floor as emergency egresses and that the hallways leading to them had to be free from
             barriers to our wheel chair bound residents. (See appendix O) All modifications
             generating additional work, specifically additional concrete work, security lighting in the
             parking lot, canopy area, emergency egress tile work, and structurally integral bulk heads
             were necessary to




                                                 27
Ref to OIG Evaluation                         Auditee Comments


                       ensure compliance and imperative to the health, safety, and welfare of our
             residents. As evidence to the non-discretionary nature of the additional work, refer to
             Appendix I.
                       The HHC justified its non-competitive bidding of additional work by directly
Comment 8    referring to an e-mail sent to the HHC by Roberta Scott of the Detroit HUD Field Office
             on March 3, 2009. The e-mail (supplied to the auditors) which specifically addressed
             ARRA CFP funds provided to Michigan PHA’s per the American Recovery and
             Reinvestment Act of 2009, stated emphatically, “PHA’s MUST consider the current
             circumstances as a time of public exigency which will not permit delays resulting from
             competitive solicitation.” (See appendix P) This directive, along with the pragmatic
             concerns of time, expense, advertising, printing, and remobilization is the only
             justification needed by the Commission to use non-competitive bidding, period. Based on
             the Directive from the Detroit Field Office of HUD, the HHC performed a supplemental
Comment 9    agreement with the contractor per the Procurement Handbook for Public Housing
             Agencies, HUD-Handbook 7460.8 REV 2 Chapter 11.4(a) (2) which states under the
             heading of Contract Modifications;
                       A. General. Occasionally, it is necessary to modify a contract or purchase order
                           to reflect changes in the required effort, period of performance, or price.
                           Contract and purchase order modifications shall be issued in writing in one of
                           the following forms:
                           1. Unilateral . . . . . . . . . . . . , or
                           2. “Bilateral modifications (such as a supplemental agreement in which
                                both parties mutually agree on contract changes) that is signed by both
                                the Contracting Officer and the contractor. Bilateral modifications are
                                the preferred method of modifying contracts and purchase orders.”
             This is the correct regulation to utilize since it addresses modifications to contracts that
             are already in place, just as is the case with the HHC contracts. The HHC by conducting a
             cost analysis through its independent third –party architect followed the appropriate steps
             in modifying the original contract.
             The Commission’s further justification for non-competitively bidding the additional work
Comment 8    was due to the exigent nature of the work, the barriers imposed by the staging of
             concurrent contracts that affected the same area, and as allowable under 24 CFR
             85.36(d)(4)(B) and (C). Under section 85.36(d) (4) (i) the handbook states, “procurement
             by noncompetitive proposals may be used only when the award of a contract is infeasible
             under small purchase procedures, sealed bids or competitive proposals and one of the
             following circumstances applies:” It then




                                                 28
Ref to OIG Evaluation                         Auditee Comments


                       lists four (4) circumstances, two of the four (B) and (C) are met by HUD and the
             HHC in this contract. Under subsection (B) “The Public Exigency or emergency for the
             requirement will not permit a delay from competitive solicitation” and (C) in which it
             states, “The awarding agency authorizes non-competitive proposals”, as HUD, the
             awarding agency did under the ARRA regulations. This language was adopted by the
             Hamtramck Housing Commission as an amendment to our procurement policy entitled,
             Stimulus Grant Procurement Policy at our March 2009, regular board meeting via
             unanimous vote. This was done as a direct mandate by the HUD Detroit Field Office in
             the Roberta Scott email which stated “ . . .PHA’s MUST amend their procurement
             policies as necessary to expedite the use of funds”. (See appendix J, K, L and R) Again,
             11.4 (a)(2) of the HUD Procurement Handbook for Public Housing Agencies HUD-
             Handbook 7460.8 REV 2, (See appendix Q) states in part that, “…bilateral modifications
             are the preferred method of modifying contracts and purchase orders”.
                       The Commission did ensure that the required cost analyses were performed for
Comment 10   both Contract Modifications. In the professional opinion of our independent Architectural
             firm James Childs Architects, the cost analysis performed and provided hereto, in
             appendices D and E, are in full compliance with the requirements of 24 CFR 85.36. Please
             refer to appendices D and E which includes the job work orders that comprise the $156,
Comment 11   474.77 total change orders. Negotiated profit as indicated by the auditors had already been
             stipulated within the contract document under, “Adjustments to the Contract”, and agreed
             upon and signed by both parties in the Executed Contract. (See appendix S)
                       According to auditors, “the contractor’s actual cost for the modifications should
Comment 12   have been provided by the contractor and used by the Commission to determine the cost”.
             The HHC followed the Procurement Handbook for Public Housing Agencies, HUD
             Handbook 7460.8 REV 2, Chapter 11.4(b)(4), the requirements of which the contractor
             fully complied. (See appendix Q)
                       The auditors state that, “the HHC did not provide all the change order proposals
             and job work order forms need to support the entire $125,955 that was used for this
Comment 13   project.” The Housing Commission absolutely provided each and every change order
             proposal and work order forms several times, as evidenced by 159 pages in appendix D
             and 73 pages in appendix E.
             The auditors state, HHC did not provide, “adequate” supporting documentation for labor
Comment 14   rates to determine reasonableness. The HHC provided the following supporting
             documents for the corporate labor rates; wage, vacation/holiday, special assessment,
             health and welfare, pension, apprentice, training, industry, app/reimbursement fund,
             annuity fund, jbc fund, small




                                                 29
Ref to OIG Evaluation                          Auditee Comments


                      tools/phones/safety/training/admin, OT production loss, and labor burden rates.
             This information is nearly identical to the information submitted by other contractors to
             support their labor rates. (See appendix T) James Childs Architects’ thirty-five (35) years
             of architectural HUD experience throughout the mid-west supports the fact that the
             documentation provided by them is not only more than adequate, but likely the industry
             standard. The HHC, throughout this project relied upon our architects’ 35 years of public
             housing experience to identify the standards necessary to meet adequate compliance with
             the Procurement Handbook for Public Housing Agencies. Adequacy, identified by the
             auditors to date, is still nebulous at best.
Comment 15            The labor and trucking rate provided during the audit are more than necessary to
             support the reasonableness of the trucking rates billed and expended. In the professional
             opinion of our architects, after performing a cost reasonableness test, determined the rate
             of $175.00 was reasonable and commensurate with comparable trucking rates in the area.
             HHC obtained three more independent additional quotes for trucking fees and found that
             the $175.00 per hour rate was reasonable as compared to other rates obtained for similar
             work in the area. The use of apprentices as truck drivers was never stated in any invoices
             and therefore makes the accounting of apprentice wages inapplicable. (See appendix U)
                      The HHC cannot formulate a response to the accusations of the auditors in the
Comment 16   final paragraph of page 7 because the calculations and conclusion of the auditors were not
             adequately defined. For example, from what base was the 108% labor wage increase
             derived from? The 36% for labor burden stated by the auditors is inaccurate. The true
             figure is 13.7%, i.e. calculated by 11.19 (labor burden) divided by $81.50 (hourly rate is
             13.7%).
                      The project manager reviewed all work orders before submitting them to the
             Architect. His acquiescence to their veracity is supported by the acknowledgement of the
             architect that the work was performed successfully and thus approved for the next step.
                      The auditors state that some of the additional work in the modifications was part
             of the original contract. He further states that the same additional work was billed multiple
             times on different work orders. This is blatantly false and misleading. During the meeting
Comment 17   on February 22, 2012, held with the auditors, the HHC’s Executive Director, The
             Managing Partner from James Childs Architects, the Project Architect, the HHC’s
             Financial Officer, Property Manager, and the Executive Assistant, the following facts
             were disclosed:
                      A spreadsheet was generated by the auditors and given to the HHC. The
             spreadsheet contained the auditors’ concerns for work that they felt may be duplicative.
             (Please refer to the




                                                  30
Ref to OIG Evaluation                        Auditee Comments


             spreadsheet included below.) Each of the auditors’ separate concerns are labeled as A
             through J, and are addressed as such after the spreadsheet as part of the body of our
Comment 17   response. The HHC addressed each line of the auditors’ concern during multiple
             conversations, including during the February 22, 2012 walk through meeting with the
             auditors. Change Order Proposals 1, 6, and 7, were three of the proposals that combined
             to make up Change Order One (1) to the Canopy and Lobby Renovation Project, and can
             be found in their entirety as part of Appendix D. Change Order Number One (1) for the
             Asphalt Replacement Contract, was thought by the auditors to be part of duplicative work,
             and can be found in its entirety in Appendix F. Please review the Spreadsheet below and
             the HHC’s responses to the auditors’ concern.




                                                31
Ref to OIG Evaluation                         Auditee Comments


                       In response to letter A above, for $ 907.58 expended, in which the auditors
Comment 17   classified the work as, “Effort related to concrete removal for electrical trench”. The
             contractor had to cut the concrete to run the conduit. The sidewalk was not part of the
             original tear out, and upon arrival Maryland Electric indicated that the sidewalk would
             have to be saw-cut so the conduit could be installed. Maryland Electric had been told all
             concrete and asphalt would be removed, and upon arrival observed that the sidewalk was
             not removed. Sidewalk removal was not part of Maryland Electric’s original bid.
             Considering sidewalk removal was not part of Maryland Electric’s original scope of work,
             National Maintenance contracted with a sub-contractor Aielli Construction to saw-cut the
             concrete and remove it so it that Maryland Electric could complete the electrical conduit
             run as planned. (See Appendix P3 and P4) This was for the east parking lot lights. This
             additional concrete work was not part of the original contract, was unforeseen, and as such
             needed to be added as a modification. This work was not billed in any of the other items
             of any modifications or original contracts.
                       In response to letter B above, for $1,043.40 expended, in which the auditors
             classified the work again as, “Effort related to concrete removal for electrical trench”.
             This work was in regards to the trench from the entrance to the building to the east side of
             the island so that the electrical conduit for lighting could be run. Upon digging the
             necessary depths, additional buried concrete spoils were found and had to be removed.
             (See Appendix P31 and P32) The original contract did not scope for depths of concrete as
             deep as what was found on the east side of the island. This additional concrete found was
             additional work which extended hours and disposal of more material beyond the scope of
             the contract. This work was unforeseen, and as such needed to be added as a modification
             to the original contract. This work was not billed in any of the other items of any
             modifications or original contracts.
                       In response to letter C above, for $1,254.44 expended, in which the auditors
             classified the work as, “Excavation for footing”. This work was for extra footing work at
             the building for depth required by the inspector. The Hamtramck City Inspector required
             deeper than standard or normal footings because of standing water. He required that the
             contractors dig to a point of “undisturbed” soil. (See P1 and P1a) The contractors dug the
             hole to normal depths, hit water and were required to stop work. The hole had to be
             refilled for obvious safety reasons until the inspector could return to inspect the work two
             days later. The additional depth required by the Inspector as a result of the soil being
             disturbed at normal depths, was unforeseen and unpredictable, and as such needed to be
             added as a modification to the original contract. This work was not billed in any of the
             other items of any modifications or original contracts.




                                                 32
Ref to OIG Evaluation                         Auditee Comments


                      In response to letter D above, for $2,772.96 expended, in which the auditors
             classified the work again as, “Excavating for footing”. This work was relative to the
             contractors returning two days later to accompany the inspector for his final approval.
             Please refer to the Appendix P1 for a picture of the disturbed soil which made the City
             Inspector require deeper excavation. The crew returned to work on 05/24/2010 and began
             re-excavating the hole. They reached previous depths and again did not clear to
             undisturbed soils as required by the city inspector. Crews continued excavating to a depth
             of 6’6”, contractors at this depth found the spread footing, and contacted the inspector.
             (See Appendix P1 and P1a) Inspector cleared the crew to proceed. Crew constructed the
             new frame, which was larger than originally specified due to the unforeseen depth. The 7
             yards of additional concrete was billed. Now the 42” frame originally scoped had to now
             be 84” (7 foot). Extra material was required. The contractors poured the footing. The
             footing was billed, and we were billed for the building of the larger fame. The
             aforementioned additions were a result of unforeseen circumstances and requirements by
             the City Inspector. The additional hours, supervisory hours, material, and re-excavation
             was all billed as a result. This work was not billed in any of the other items of any
             modifications or original contracts.
                      In response to letter E above, for $1,007.79 expended, in which the auditors
             classified the work again as, “Excavation for footing”. This work was related to digging
             the footings for the bike rack. In the compacted gravel, contractor encountered buried
             concrete, requiring additional four hours of additional excavating with heavy equipment.
             Considering that the concrete was buried and the additional depths were not included in
             the price of removal in the original contract. (See Appendix P28 and P29) The additional
             excavation and removal required a modification to the original contract. This work was
             unforeseen and was not billed in any of the other items of any modifications or original
             contracts.
                      In response to letter F above, for $505.05 expended, in which the auditors
             classified work again as, “Excavating for footing”. The HHC requested that a security
             camera be relocated because it was no longer functional due to the new construction of the
             canopy. As a result of the relocation, additional conduit had to be run, this time from the
             west side of the island to the building. Upon digging at the west side of the island, buried
             concrete at unforeseen depths was found. This addition was required because the hand
             trenching originally quoted in proposed change order 6 was not a sufficient method to get
             through the depths of concrete found at the west side of the island. Heavy equipment had
             to be brought in to remove the additional depths. This work was unforeseen and was not
             billed in any of the other items of any modifications or original contracts.




                                                 33
Ref to OIG Evaluation                           Auditee Comments


                       In response to letter G above, for Change Order Proposal No 6, the $32,956.00
             expended is for the cost of installing new additional lighting on the island. The lighting
Comment 18   was not part of the original contract and as such was added as a modification to the
             original contract. Price was based on the contractor’s assumption that the base would be
             loose filled gravel. Please note that letters A and B for additional work addressed above,
             specifically Aielli’s invoices 1025101x1 and 1025101x2 are changes to this change as
             discussed under their descriptions. The additional buried concrete drove modifications A
             and B above and the additional unforeseen depths of concrete needed to be removed. This
             removal was not part of the $32,956.00 billed under Change Order Proposal Number 6.
             (See Appendix P3 and P4) The work under Change order Proposal 6 came as a result of
             the tenants’ for better lighting in the parking lot and due to the fact that our tenants at this
             location are elderly, their eyesight is not the best and so they were hindered by the
             existing lighting which was poor. Upon the request, and in knowing the ease of upgrading
             the lighting with the asphalt already removed, the Commission decided to act on the
             reasonable and logical request and upgrade the lighting. This work was not billed in any
             other items of any modifications on the original contracts.
                       In response to letter H above, for the 24 Hours of supervision for NMS @ $81.50
             per hour for a total of $1,956.00 expended. The auditors questioned the need for the
Comment 19   supervision and stated that he felt it was excessive. HUD Form, HUD-5370 General
             Conditions for Construction Contracts, requires the foreman of the general contractor and
             all subs (sub contractors) be present on the job site at all times. (See appendix W, to
             review form, HUD-5370 Section 2(c). Thus, the supervision was mandated by contract.
                       In response to letter I above, for the 9 Hours of supervision for NMS for a total of
             $716.00 expended. The auditors questioned the need for the supervision and stated that he
             felt it was excessive. Again HUD-5370 General Conditions of Contractors, requires the
             foreman of the general contractor and all subs be present on the job site at all times, again
             per contract. The subcontractors work took additional days to perform and thus required
             additional hours of supervision from our General Contractor per HUD-5370, work that
             was not part of the original contract.




                                                   34
Ref to OIG Evaluation                         Auditee Comments


                      In response to letter J above, in which the auditors claim work under Change
             Order 1 of the Asphalt Replacement job is duplicative to the aforementioned work in
Comments     items A through I. Please refer to Appendix F for Change Order 1 to the Asphalt
             Replacement Contract in its entirety. Line items 2 and 4 from Change Order 1 of the
3 and 20
             Asphalt Replacement Contract are invoices for work that had to be redone as a result of
             some of the other changes. Asphalt Specialists Incorporated (ASI), the asphalt Contractor
             had previously prepared and finished an undisturbed surface with which they could begin
             their asphalt application. (See appendix P30) When they arrived on the job site, ready to
             apply, the asphalt base previously undisturbed was now disturbed. This created an
             unstable surface not conducive for an asphalt finish. ASI had to again, perform the work
             required to prep the trench area for asphalt finish. This included removal of the material
             and additional hard pack being brought in. The original contract did not require them to
             prep the surface twice, and being that they had to for an effective application, required
             additional labor hours, supervisory hours and materials not included in the original
             contract. Doing this work twice was not part of the original contract and was not billed
             under any other modifications.
                      The Commission ensured the contract modification for its parking lot was
             reasonably priced. Our architects prepared a cost analysis for the contract modification for
             its parking lot resurfacing project at the Senior Plaza, all of which was presented to and
             acknowledge by the auditors. The claim of the auditors that, “the trenching and backfilling
             for electrical utilities were already included in Change Order proposal 1 and 6, of Change
             Order 1, of the Canopy and Lobby Renovation Project” is false and inaccurate. As
             discussed above. The allegation that $5,516.00 was paid for duplicative work is likewise
             false and inaccurate. Change order proposal # 6 of modification 1 of the Canopy and
             Lobby Renovation Project was strictly for installation of the Security Lighting in the
             Parking Lot of the Senior Plaza as provide by Maryland Electric. See the aforementioned
             spreadsheet provided by the auditors, also attached as Appendix V. Change Order
             Proposal #1 of Change Order #1 to the Canopy and Lobby Renovation Project was for
             excavation for conduit, removal of concrete spoils, excavation of concrete sidewalks, and
             excavation for concrete footings which was additional work as previously described and
             attached in Appendix I and V. (See Appendix P9) The work performed under Change
             Order 1 of the Asphalt Contract, specifically items number 2 and 4, as seen in Appendix
             F, was the backfilling and compaction to prep the previous undisturbed base for asphalt
             application. (See Appendix P27) The utility pole trenching and the excavation necessary
             for relocating the security camera




                                                 35
Ref to OIG Evaluation                         Auditee Comments


                       CAT 5 Communication Cable that had been required to be repositioned as a
Comment 20   result of the canopy configuration, was what resulted in ASI having to prep the surface a
             second time. The $5,516.00 billed by ASI for additional work under Change Order 1 of
             the Asphalt Resurfacing Contract items 2 and 4 were not under any circumstance billed as
             part of Modification 1 Change Order Proposals #’s 1 and 6 of the Canopy and Lobby
             Renovations project, as billed by National Maintenance, Aielli, and Maryland Electric.
             See Appendix F, Change Oder # 1 of Asphalt Contract, and Appendix V description of
             additional work under Modification 1 of Canopy and Lobby Renovation Project.
                       Had the auditors possessed any experience from conducting audits on Public
Comment 21   Housing Agencies they would have known that the Department of Housing and Urban
             Development mandates and encourages housing agencies to use professional services such
             as Architects when applicable. To this date the HHC believes that the Architect involved
             in this project James Childs Architects with their 35 years of experience in Public
             Housing, trumps the admittedly limited knowledge of Public Housing construction
             possessed by the auditors. As such, the HHC believes that concomitant with a project of
             this size, coupled with the task of managing concurrent staging of multi-facetted projects
             requires, and further would be irresponsible not to, depend heavily on professional
             services. Because the HHC does not concern or believe that there was any duplicative
             work performed, further analysis of the architect’s actions are moot.
                       This body of work speaks for itself. All construction after being vetted by HHC
             architects was found to be reasonable. The Commission felt completely comfortable with
             the work of its architects as evidence by the Cost Analysis performed in accordance with
Comments 3   24 CFR 85.36(d)(4), and the Procurement Handbook 7460.8 REV 2, chapters 10.3,
21, and 22   11.4(a)(2), and 11.4(b)(4). Professionals in housing will recognize these analyses as
             standards of the industry, and historically accepted as meeting HUD requirements.
             Further, in referring to the allegation of duplicative work performed and billed, the
             auditors’ claim that $18,386.00 is ineligible because it is a duplicate payment for the same
             work performed is unfounded, and misleading. This is evidenced by ample and irrefutable
             documentation that these change order items were distinct and independent modifications,
             each one performed and billed by a different contractor.
                       The Commission did ensure that the contract modifications for its kitchen cabinet
             replacement project were reasonably priced. The Commission entered into two contract
             modifications for $33,347.00 and $159,954.00 upon the recommendations of our
             Architect




                                                 36
Ref to OIG Evaluation                          Auditee Comments


             Siegel Toumaala and associates who has 48 years of professional experience in the
             industry who felt the prices proposed were reasonable.
                       The formal analysis of our contract modifications by our architect for the Kitchen
             Cabinet/Countertop Replacement Project, Siegel Toumaala and Associates, indicated that
Comment
             after the execution of the contract for 285 living units as originally specified in the
3 and 23     Construction Documents, the HHC authorized NMS, the Contractor, to add 15 barrier free
             units for an agreed upon sum of $33,347.00, inclusive of profit and overhead. The per unit
             cost for the 285 standard unit was $1,701.75 per unit. The per unit cost for the 15 barrier
             free units was $2,223.13 per unit. The per unit difference of $517.38 is attributable to
             several factors related to barrier free requirements. For the standard units, the sinks and
             faucets were supplied by the HHC. The type of sink required for the barrier free units
             required that NMS supply them. As a result of barrier free requirements, light switches
             and range hood switches were relocated for accessibility. The wheelchair access at the
             sink necessitated the fabrication and installation of an apron to support the sink counter.
             The wheelchair recess created by the removal of the former sink cabinet resulted in the
             need to extend the floor tile into the recess. It also added additional base and required the
             painting and finishing of the back wall of the recess. The base cabinets were non-standard
             in terms of overall height and the toe kick. The barrier free sinks caused the drain and the
             domestic water lines to need adjusting. The exposed sink drains required non-scald
             protection. The additional demolition work for the 15 added units resulted in more debris
             removal and disposal. All of the above conditions which are unique to barrier free units
             contributed to a cost increase of $517.38 per unit which in the professional opinion of our
             Architect was both reasonable and justified. Without any further information,
             professionals in the industry will recognize:
                       a.) that $1,701.75 and $2,223.13 respectively for the tear out and replacement of
             “Armstrong HUD Severe Use Cabinets” in a standard and handicapped kitchen, are
             plausibly reasonable amounts.
                       b.) that the cost difference of $ 517.38 is an absolutely reasonable amount for
             retrofitting and ADA unit kitchen.
                       In regards to Change Order Number 2, at the Pre-Construction meeting on
             September 15, 2009, it was mutually agreed by the HHC, NMS (Contractor) and Siegel
             Toumaala Architect that in order to expedite construction progress, the Operations
             Director of the HHC would evaluate, review, and approve all field changes and orders for
             additional work and that if he had any questions regarding such work he would contact the
             architect. Otherwise, it was felt that whenever a field condition arose, the Architect would
             have to be notified and the work would be halted until he had the opportunity to visit the
             site to make a determination. Therefore, the Operations Director, with his knowledge and
             experience of the buildings, would evaluate and approve all work orders. The Contractor
             periodically transmitted the work orders to the Architect to be incorporated in a final
             change order which became Change Order Number 2. The total sum of the work orders
             was $159,954.29, inclusive of overhead and profit. This amounted to $533.18 per unit.




                                                  37
Ref to OIG Evaluation                          Auditee Comments


                       A large portion of the additional cost was attributable to the addition of plumbing
Comment 24   yokes and additional fillers which were ordered by the HHC. (See Appendix P25, P26,
             P18, P18a, P19, and P20) The cost of the plumbing yokes was $23,675.91 and the cost of
             the fillers was $ 26,973.00 for a combined total of $50,648.91 or $168.30 per unit. The
             remainder of the work orders amounted to $364.88 per unit. They consisted of a number
Comment 25   of items such as wall and soffit repairs which became apparent when the existing cabinets
             were removed, repair of leaking plumbing, replacement of defective or missing valves,
             replacement of defective electrical outlets and/or switches, additional painting and
             finishing of repaired walls and soffits, correction of code deficiencies and other items
             often encountered in the renovation of buildings which are 76 years old and which have
             undergone various degrees of maintenance and repairs over the years. Based on the
             familiarity with the existing conditions of the buildings and the Architects 48 years of
             professional experience, the architect felt that the additional cost of the work was
             reasonable for this project.
                       Again, due deference must be given to an architect with 48 years of experience in
             the industry when he is the sole arbiter of determining whether the cost HHC paid for a
             given task was reasonable. Further, there is a distinct advantage to a professional who was
Comment 21   on-site and observed the degree of work required in conjunction with the age of these
             units versus the opinion of auditors who admittedly have no experience with Public
             Housing and were unable to observe firsthand how 76 years of maintenance and repairs
             will affect individual units with individual requirements. The experience of the Architect
             indicated that labor rates were reasonable as an industry standard for work performed in
             Detroit, Michigan.
                       The 594 dated and signed work orders each contain an adequate description of
             work performed, labor hours and rates, and material used. Please refer to Appendix X to
             review the work orders submitted. Please note that the number of work orders (500+) is a
             more than reasonable amount when considering that 300 apartments were modernized
             with this project. Further is the fact that the apartments are 76 years old. A fact which an
Comment 26
             experience professional in the Public Housing industry would recognize as a fertile
             scenario necessitating additional modifications due to code deficiencies that could not be
             grandfathered and had to be brought up to current State of Michigan code.




                                                  38
Ref to OIG Evaluation                          Auditee Comments


                      The labor and trucking rate provided during the audit is adequate to support the
             reasonableness of the trucking rates billed and expended. In the professional opinion of
Comment 15   our Architects after performing a cost reasonableness test determined the rate of $175.00
             was reasonable and commensurate with comparable trucking rates in the area. HHC
             obtained three (3) independent additional quotes for trucking fees and found that the
             $175.00 per hour rate was certainly reasonable as compared to other rates obtained for
             similar work in the area. The use of apprentices as truck drivers was never stated in any
             invoices and therefore makes the accounting of apprentice wages inapplicable. (See
             appendix U)
                      The auditors’ claim that work done under the Work Orders as found in Appendix
             X was duplicative in nature is false and inaccurate. The Hamtramck Housing Commission
             did not approve work that was unnecessary, and as such did not approve work that was
             duplicative. The work found on these work orders, may have appeared to the untrained
             eye, as duplicative. However the situation such as it was on this project required multiple
Comments 3   entries into units and follow up visits to complete tasks after the prior work had time to set
and 27       “set up” or cure. In many instances the work required to properly fix the cabinets and to
             leave functional piping in place required plumbing work and soffit repairs that could not
             be foreseen.
                      The simple fact that until the demolition of each cabinet took place, the
             idiosyncrasies could not be forecasted or included in an original contract. These served as
             the primary reason for the additional work orders that made up Change Order Number 2
             for the Kitchen Cabinet/Countertop Replacement contract. Some of the tasks questioned
             by the auditors specifically were the range cabinet (filler over cabinet), toe kick
             modification, replaced plumbing, repair of soffit, fixing the washer drain, and replacement
             of the power lead to the hood range, all explained individually below.

                        In the instances in which the “Range Cabinet, Filler over the cabinet” (See
             Appendix P18, P18a, P19, and P20) and the “toe kick modification”, was billed on work
             orders, the work completed on the work orders is a result of the existing kitchen wall
Comment 28   cabinets not being a standard width. As specified, the filler pieces were required to be
             custom cut after new cabinet installation, to fit the width of the oddly sized kitchen layout.
             Kitchen cabinetry has standard widths as set by the Kitchen Cabinet Manufacturers
             Associations (KCMA) and increased by increments of 3”. Standard practices dictate that
             filler pieces run vertically, however after seeing complete installations HHC recognized
             potential safety and sanitation issues.
                        In an effort to provide uniformity and reduced future maintenance and repairs the
             HHC decided to add filler pieces on a horizontal plane. The decision added a horizontal
             filler in two locations, one at the bottom near the range cabinet and one at the bottom of
             the cabinet above the refrigerator/washing machine space. (See Appendix P18a) This
             additional filler piece was not in the original scope of work thus requiring a modification
             to the original contract. This modification increased labor hours, supervisory hours, and
             materials, and necessitated 300 work orders alone.




                                                  39
Ref to OIG Evaluation                          Auditee Comments


                       In the instances where the contractors replaced plumbing, the original contract
             did not include the replacement of the supply lines or drain lines from the kitchen sink.
             (See Appendix P26) Upon construction commencing it was discovered in multiple
             locations that existing plumbing was deteriorating to the extent that replacement was
Comment 29
             required, again unforeseen and unpredictable.
                       In the instances where the contractors replaced sink/sink strainers, the original
             contract did not include the replacement of a new sink, strainer, and faucets. (See
             appendix P23) Upon construction commencing it was discovered that in multiple
             locations that the existing sinks, strainer, and faucets were deteriorating or not properly
             functioning to the extent that replacement was required.
                       In the instances where the contractors repaired soffit, in very limited
             circumstances upon pre-demolition inspection it was discovered that limited amounts of
Comment 30
             soffit plaster had separated from the lath necessitating its replacement.
                       In the instances where the contractors fixed the washer drain, the original contract
             did not include the replacement of the washer drain piping. (See appendix P24) In very
             limited circumstances it was discovered that the existing washer drains were either
Comment 31   deteriorating or not functioning to the extent that replacement was required.
             In regards to the work orders in which the extension of wiring for under cabinet light
             fixture was required, it was discovered upon demolition that existing wiring was not
             installed to current code, and per current Michigan electrical code, and the National Fire
             Prevention Agency (NFPA) Code it is required that installation of a serviceable junction
             box, referred to in job work orders as a “J-box”, be installed. (See appendices P21& P22)

                       The additional wiring was required when existing wire was insufficient to
             complete the code compliance of the junction box, referred to in job work orders as “wire
             to (sic) short to feed light”.
                       The Commission felt that the prices paid for the additional work was reasonable
             and necessary, as evidenced by the cost estimate of our respective architects. HHC did not
Comments 3
             feel that any of the additional work invoiced was at all duplicative as evidenced by
and 5        architects’ clearance to release funds and the Commission’s expenditure of said monies. If
             at any time the HHC was concerned about unreasonable prices, we would not have
             proceeded with the additional work as quoted. Due to our determination of
             reasonableness, and in determining the necessity of the work to be performed, we
             approved the contractors to proceed with additional work as agreed upon.




                                                  40
Ref to OIG Evaluation                          Auditee Comments

             FINDING 2:

                       The Commission made every effort to administer the Davis-Bacon requirements
Comment 32   for all of its Recovery Act Grant Projects. While there was $702 of underpayments to
             employees who performed work under this funding, letters have been sent to the General
             Contractors in an effort to rectify this underpayment and satisfy the Davis Bacon
             requirement. This applies to the Canopy and Lobby Renovation Project, regarding the
             $326.64 under payment of two employees of one the General Contractors. The General
             Contractor has received a letter outlining the course of action needed to be taken to rectify
             the situation. They have been notified of the implications if they fail to rectify these
Comment 33   underpayments in accordance with the Davis-Bacon Act. The HHC’s letter to the General
             Contractor on the Canopy Renovation is contained in Appendix Y. In regards to the
             HVAC Project, regarding the $375.36 underpayment of one employee, the General
             Contractor has received a letter outlining the course of action needed to be taken to rectify
             the situation. The General Contractor has been notified of the implications if they fail to
             rectify these underpayments in accordance with the Davis-Bacon Act. (See appendix Z)
             The General Contractor for the HVAC Replacement Project submitted to the HHC an
             amended wage and hour division form WD-347 in which he certifies he paid the
             employee the gross amount of $375.36, you will also find a copy of the check that he
             issued to the under paid employee. This submittal satisfies and puts into full compliance
             the HVAC Replacement Contract with the Davis Bacon Act. (See Appendix LL)
                       In regards to the eleven apprentices who were paid apprentices wages, a letter has
             been sent to the General Contractor asking him to provide sufficient documentation to
Comment 34   show their enrollment in the apprenticeship program. (See appendix AA for a copy of this
             letter) Appendix BB is the apprentice certificates that the General Contractor supplied in
             response to the HHC’s letter demanding compliance.
                       The Hamtramck Housing Commission will take the appropriate administrative
Comment 35   actions as outlined in the requirements for contractors who do not comply with their
             obligations should the General Contractor fail to supply adequate documentation that the
             individuals who received apprentice wages were enrolled in an apprenticeship program.




                                                  41
Ref to OIG Evaluation                          Auditee Comments

             FINDING 3:

                      The Commission, throughout the term of the contract, took an active role to
             ensure contractor compliance with Section 3 requirements, in accordance with CFR 24
             Part 135.30 (specifically Numerical goals for meeting the greatest extent feasible
             requirement). The HHC demonstrated compliance with the Section 3 requirement by
Comment 36   doing everything it could to the greatest extent feasible, to provide training, employment,
             and contracting opportunities to Section 3 residents. The definition given by HUD in the
             Frequently Asked Questions (FAQ), Section 3 of the Housing & Urban Development Act
             of 1968 describes the “Greatest Extent Feasible” as, “that every effort must be made to
             comply with the regulatory requirements of Section 3. (See attachment CC) By this, the
             department means that recipients of Section 3 covered financial assistance should make
             every effort within their disposal to meet the regulatory requirements.” The Hamtramck
             Housing Commission through its efforts felt that it did, by definition, attempt to the
             Greatest Extent Feasible meet the training, employment, and contracting goals of Section
             3.
                      The Commission included in all of the Executed Contracts that were paid for
             through the Expenditure of American Reinvestment and Recovery (ARRA) Funds, a
Comment 37   clause that states “Contractor warrants that the contracted services and all materials, parts,
             and products thereto, shall meet and comply with all applicable laws, ordinances and
             regulations…. contractor shall comply with all applicable regulations of HUD pertaining
             to the contracted services and materials as set forth in 24 CFR this includes Section 3
             compliance”. The specifications and the Invitation for Bid included the Section 3
             language. (See appendix EE) The contractors signed acknowledgement to comply with all
             specifications set forth in the bid specifications is also executed with every contract. (See
             appendix FF) Evidence of the notice to contractors regarding Section 3 Compliance can
Comments     be seen in letters from the contractors. (See appendix GG) The Housing Commission
37and 38     encouraged, in the situations where hiring was determined necessary, the hiring of
             individuals who met the Section 3 resident classifications. By definition, a Section 3
             resident is “1.) a public housing resident; or 2.) a low- or very low-income person residing
             in the metropolitan area or Non-metropolitan County where Section 3 covered assistance
             is expended.” (See appendix CC) In the cases where contractors hired employees, you will
             find that the individuals hired met Section 3 resident definition by being unemployed or
             underemployed prior to our contract execution and as such being either low or very low
             income persons, and thus meeting the definition of a Section 3 Resident.




                                                  42
Ref to OIG Evaluation                           Auditee Comments


                       The Commission also made every effort to have Public Housing Residents hired
              through the contracting process. The HHC solicited residents to submit applications for
              potential job opportunities. (See appendix II for copies of the actual resident applications
              submitted) The HHC collected applications from residents who were interested in work,
              and in our pre-construction meetings with every contractor gave the applications that were
              submitted to us by our residents to the contractors. The Housing Commission through its
              policies also allows for preferences to Section 3 Residents and Section 3 Businesses,
              however, none of the bidders that submitted bids met these criteria. Our understanding of
Comment 39    Section 3 was that the requirement of Section 3 only applied if the
              contractor/subcontractor had the need to hire new persons to complete the Section 3
              covered contract or had the need to subcontract portions of the work to another business,
              then and only then are they required to direct the newly created employment and/or
              subcontracting opportunities to Section 3 residents and business concerns. In some
              scenarios, there was not a need for a new hire, and thus the Requirements of Section 3 did
              not pertain to that contract. In appendix GG, it is noted that three (3) of the contractors did
Comment 40    not require hiring new employees for their work. The remaining four (4) contractors all
              hired individuals that were either unemployed or under employed and as such were low or
              very low income individuals. The HHC’s understanding was the recipient agencies are not
              required to create jobs or contracts for “Section 3 residents and business concerns simply
              for the sake of creating them.” (See appendix CC) Further, that “Section 3 requires that
              when employment or contracting opportunities are generated because a project or activity
              undertaken by a recipient of covered HUD financial assistance necessitates the
              employment of additional personnel through individual hiring or the awarding of
              contracts, the recipient must give preference in hiring to low- and very low-income
              persons and/or business that are owned by these persons or that substantially employ
              them.”
                       The Hamtramck Housing Commission made it very clear that we required a
              minimum of 30% of the contractors new hires meet the definition of a Section 3 resident
Comments
              in the event that hiring was going to occur. Please refer to the Letters from the General
38, 39, and   Contractors, on the job, (See appendix GG) self-certifying that the new hires that they had
40            on their job, if there were new hires, met the Section 3 resident definition.
                       In an effort to further comply with Section 3 numerical goals, since 2006 ninety
              percent (90 %) of the new hires as permanent staff at the HHC have been individuals who
              have met the standard definition of Section 3 resident. The HHC also employed a resident
              from one of our developments in a temporary position that was available at the Senior
              High Rise.




                                                   43
Ref to OIG Evaluation                         Auditee Comments


                                 In looking for guidance for certifying that individuals meet the
Comment 41    regulatory definitions under Section 3, we found that, “the regulation allows agencies to
              use their discretion for developing specific procedures to meet the requirements of Section
              3. This includes establishing our own standards/processes for verifying eligibility of
              Section 3 residents and businesses. Each recipient is also free to accept or reject the
              standards/process used by other recipients…” We felt that our processes throughout the
              expenditure of the ARRA funds were sufficient in encouraging compliance with Section 3
              by encouraging the training, employment, and contracting with low- and very low income
              individuals and the companies that employed them. In further support of allowing
              recipient agencies to allow residents or businesses to “self-certify” that they meet the
              Section 3 eligibility requirements, we found that, “the regulation allows recipient agencies
              to use their own discretion to meet the Section 3 resident’s eligibility, and that many
              recipient agencies choose to allow prospective Section 3 residents or businesses to self-
              certify their eligibility.” (See appendix CC)
                        In regards to the auditors’ statement regarding Section 3 Business Concerns, the
              Commission did allow for preferences to be given to any bidder who claimed to be a
Comment 42    Section 3 business concern. However, none of the bidders for any of the contracts even
              the unsuccessful bidders made the assertion that that they were a Section 3 business
              concern, and the Section 3 Business Registry will not have been started for another two
              years in 2011. Therefore, despite our greatest effort, we were forced to choose successful
              bidders, without considering the allowable preference. Despite the fact that none of the
              contractors who were awarded contracts were self proclaimed Section 3 Business
              Concerns, all hiring done as a result of their contract reward, as previously stated, was
              encouraged to be of individuals who met Section 3 resident criteria. Further, at a
              minimum the HHC required contractors who were hiring new personnel,




                                                 44
Ref to OIG Evaluation                            Auditee Comments


             hire individuals who met the definition of a section 3 resident and the total number of new
             personnel be comprised of at least 30% Section 3 qualified individuals. We would like to
             reiterate that although we did receive applications from residents of our Public Housing
             development, either their skill set or the work being offered was not mutually agreeable,
             and the contractors were forced to look outside of our development for workers with skills
             that were needed.(see appendix HH & II)
                       In the execution of HUD-5370 the contractors agreed to adhere to all Section 3
Comment 43 requirements. The HHC further did its due diligence to ensure training, employment, and
             contracting opportunities to Section3 qualified individuals by ensuring HUD 5370 was
             executed and made part of every contract the HHC entered into. As HUD 5370 states, “As
             evidenced by their execution of this contract . . . the parties of this contract. The
             Contractor will certify that any vacant employment positions, including training positions,
             that are filled,
                       (1) After the contractor is selected but before the contract is executed,
                       (2) With persons other than those, to whom the regulations of 24 CFR 135
                            require employment opportunities to be directed, were not filled to
                            circumvent the contractors obligation under 24 CFR part135.”
             HUD- 5370 further states that contractors by signing this form understand the following,
             “Non compliance with HUD regulations in 24 CFR Part 135 may result in sanctions,
             termination of the contract for default, and debarment or suspension from future HUD
             contracts”. (See appendix W)
             The inclusion of HUD 5370 in all of our contracts with this language amplifies the HHC’s
             dedication to the greatest extent feasible compliance with all Section 3 requirements.
                       The HHC at its February 15, 2012 regular meeting passed a resolution,
Comment 44 specifically resolution 2012-21 to amend the procurement policy to omit all language
             establishing the threshold and to approve the contracting officer to provide for preferences
             for Section3 business concerns and to ensure Section 3 compliance. (See attachment JJ)
                       With the aforementioned evidence of the HHC’s efforts to comply with Section
Comments 37,
             3, we feel that HUD can be assured that the Commission, its contractors, and its
38, and 41   subcontractors complied with Section 3 requirements to the greatest extent feasible and
             low-income persons, very low-income persons, and Section 3 business concerns were
             afforded adequate opportunities to receive Recovery Act Grant Awards.




                                                    45
Ref to OIG Evaluation                        Auditee Comments


Comment 45              In order to better equip the staff that directly handles Section 3 and the
              Procurement of Goods and Services the HHC has scheduled and intends to train all staff
              members that are responsible for contract administration, despite our belief, and in our
              own discretion, as allowable, met the Section 3 Requirement to the greatest extent
              feasible.

              FINDING 4:

                       The Commission, upon calculating the number of jobs determined that 12 jobs
Comment 46    had been either maintained or created by the expenditure of the funds we received. HHC
              inadvertently, upon utilizing the “copy forward” option on the FederalReporting.gov
              website, copied the quantity of 12 forward without realizing, and failed to erase the
              quantity.

              CONCLUSION:

                       As noted, described, and supported above, the Hamtramck Housing Commission
Comment 3     believes that with stringent HUD oversight throughout the entire process, it obligated and
              expended every penny of the $1,393,865.00 in American Recovery and Reinvestment Act
              funds received in accordance with the regulations that govern it. As such, we feel that
              100% of the funds were eligible, supported, and put to the best use possible.




              Submitted By:Kevin Kondrat, M.A., J.D., PHM
                          Executive Director
                          Hamtramck Housing Commission




                                                46
                         OIG Evaluation of Auditee Comments

Comment 1   As mentioned in the audit report, the Detroit Office of Public and Indian
            Housing’s monitoring reports for the Commission’s Recovery Act grants
            identified significant deficiencies in the quality of the documentation maintained
            in the procurement files. As part of HUD’s proposed corrective actions,
            documentation was required of the Commission; however, the Commission could
            not provide support that the issues related to cost estimates, cost analyses, and
            documentation supporting that costs were reasonable were addressed. We also
            inquired with the Commission regarding the outstanding issues and requested the
            support documentation; however, the documentation was not provided.

Comment 2   The Commission asserts that the audit was performed by two OIG auditors who
            worked full time during the entire six month audit procedure. During this time
            the two auditors were presented with all requested information several times in
            different formats. The audit team’s requests for information or documentation
            and following up on the requested items is part of the audit process. Also (1)
            performing site inspections of the products purchased and work performed using
            Recovery Act funds, (2) obtaining an understanding of the cabinet installation
            process, and (3) meeting with Commission’s staff and hired architects were
            necessary audit procedures to ensure that the audit team gained knowledge of the
            Commission’s procedures and controls to ensure accountability for Recovery Act
            funds.

Comment 3   The audit report acknowledges that the Commission’s architects prepared
            independent cost estimates for the initial contracts for its Recovery Act-funded
            projects. For the kitchen cabinet and canopy and lobby projects, the independent
            estimates were either more or less than the winning bids. The Commission
            provided cost estimates again in connection with its response to the discussion
            draft audit report; however, the estimates were for the initial contracts that the
            audit team reviewed in performing the audit, not the modifications. According to
            HUD Handbook 74.60.8, REV-2, paragraph 3.2(A), an independent cost estimate
            is the cost of goods or services to be provided under a contract or modification.

            Further, the Commission did not prepare and maintain cost analyses for two
            modifications to its kitchen cabinet replacement contract and the one modification
            to its parking lot resurfacing contract. For the Commission’s canopy and lobby
            renovation project, it did not ensure that the cost analysis prepared for the two
            modifications was adequate. Therefore, without preparing or ensuring that the
            analyses were adequate, the Commission could not be assured that the price it
            paid for these contract modifications were reasonable. HUD requirements at 24
            CFR 85.36(f) state that grantees and subgrantees must perform a cost or price
            analysis in connection with every procurement action, including contract
            modifications.




                                            47
Comment 4   The Commission asserts that justifications for the modifications were maintained
            and given in multiple discussions with the auditors during the six months that they
            were on site. The report did not state that the Commission did not maintain
            justifications for contract modifications. It stated that the Commission did not
            maintain written documentation to justify its use of the noncompetitive
            procurement method for its canopy and lobby renovation project in accordance
            with HUD’s requirements. However, since the Commission provided adequate
            documentation with its comments to the discussion draft report, we removed this
            statement from the audit report.

Comment 5   The Commission stated that no duplicate costs were paid to contractors and
            provided documentation such as independent cost estimates and an inadequate
            cost analysis. However, as discussed in the report, we used the contractors’
            supporting summary schedules and job work orders to determine the actual costs
            for the Commission’s kitchen cabinet replacement and canopy and lobby
            renovation projects. Based on our review of the provided documentation, the
            amount of profit to its contractors was charged twice. Further, as mentioned in
            comment 3, the Commission did not prepare and maintain cost analyses for two
            modifications to its kitchen cabinet replacement contract and the one modification
            to its parking lot resurfacing contract. For the Commission’s canopy and lobby
            renovation project, the Commission did not ensure that the required cost analyses
            for the two contract modifications were adequate. Therefore, without this
            required documentation, the Commission could not be assured that the price it
            paid for these modifications was reasonable.

Comment 6   According to the Commission, it ensured that contract modifications for its
            canopy and lobby renovation project were reasonably priced. We disagree.
            Appendix D related to contract modification 1, dated November 12, 2010. The
            provided documentation did not contain a cost analysis in accordance with HUD
            requirements. Instead, it was the contract modification and a summary list of the
            changes, followed by each job work order submitted by the subcontractor. The
            documentation showed that the architect approved each change order, but it did
            not include an analysis of the separate elements of costs or a cost comparison with
            the independent cost estimate, etc., as required.

            Appendix E related to contract modification 2, dated June 8, 2011, but it also did
            not contain a cost analysis in accordance with HUD requirements. Instead, it
            consisted of the approved contract modification, a summary list of the changes,
            and an assessment performed by the architect, dated February 24, 2011, which
            included findings of the work orders submitted by the subcontractor, a copy of
            each job work order submitted by the subcontractor, and commercial catalog
            prices. However, the documentation for this contract modification did not include
            an analysis of the separate elements of costs, a comparison to an independent cost
            estimate, incurred costs, or an analysis of labor rates. Therefore, the analysis by
            the architect was not adequate. Further in reviewing the analysis, we identified
            work that had been previously paid for under modification 1, along with other

                                            48
            issues. The analysis also resulted in a reduction of more than 62 percent of the
            contractor’s proposal. However, the cost of the modification was not paid with
            Recovery Act funds as discussed in the report.

Comment 7   The report does not question the need for the modifications; however, it does
            question the reasonableness of the price that was paid for the modifications since
            the required cost analysis was not performed. The Commission states that all
            modifications made to the canopy and lobby renovations were based on
            requirements under Section 504. HUD Notice 2009-12, section V, states that by
            signing the annual contributions contract amendment, the Commission agreed that
            capital and management activities would be carried out in accordance with all
            HUD regulations, including 24 CFR Parts 905, 941, and 968. HUD’s regulations
            at 24 CFR Part 968.110 state that the Commission must comply with Title II of
            the Americans with Disabilities Act, among other nondiscriminatory
            requirements. Based upon these requirements, the Commission’s statement that
            the canopy and lobby renovation project modifications were driven by compliance
            with Section 504 was not adequate justification for the contract modification since
            the project was already required to comply with the Americans with Disabilities
            Act.

            Further, regarding appendix N, it is unclear whether the tenant’s complaint was
            due to (1) a need for additional work or (2) poor workmanship and a lack of
            compliance with the Act regarding the contractor’s tile installation. Regarding
            appendix O, the letter from the Hamtramck Fire Marshall was dated August 13,
            2010, not August 13, 2012. Regarding appendix I, not all of the additional work
            was nondiscretionary. According to the Commission’s architect for the project in
            a letter, dated October 12, 2010, there were some change orders due to unforeseen
            existing conditions during design, but the majority of the cause for change order 1
            was derived from an increased scope of work decided upon during construction.
            The Commission did not provide documentation to support its assertions that all
            of the changes were to address imperative health or safety issues.

Comment 8   The report has been revised to reflect that the Commission maintained adequate
            documentation to justify its use of the noncompetitive procurement method to add
            additional work items for its canopy and lobby renovation project based upon (1)
            the criteria found in section 29 of HUD form 5370, section 11.4 of HUD
            Handbook 7460.8 REV-2, and Notice 2009-12; (2) the specification work
            identified in the original contract and independent cost estimates; and (3) the
            documentation the Commission maintained regarding its increased scope of work
            and the timing aspect in its procurement files.

Comment 9   HUD requirements at 24 CFR 85.36(f) state that grantees and subgrantees must
            perform a cost or price analysis in connection with every procurement action
            including contract modifications. Paragraph 10.3.A of HUD Handbook 7460.8,
            REV-2, states that for every procurement, public housing agencies are required to
            perform a cost or price analysis to determine that the price is reasonable. A cost

                                            49
              analysis is an evaluation of the separate elements that make up a contractor’s total
              cost proposal or price (for example, labor, materials, overhead, profit, etc.) to
              determine whether they are allowable, directly related to the requirement, and
              reasonable.

              As mentioned in comment 3, the Commission did not prepare and maintain cost
              analyses for two modifications to its kitchen cabinet replacement contract and one
              modification to its parking lot resurfacing contract. For its canopy and lobby
              renovation project, the Commission did not ensure that the required cost analysis
              was prepared for contract modification 1 or that the cost analysis for modification
              2 was adequate. Therefore, the Commission did not follow the appropriate steps
              in modifying the original contracts for its Recovery Act-funded projects.

Comment 10 For the Commission’s canopy and lobby renovation project, the report stated that
           the Commission also did not ensure that the required cost analysis was prepared
           for contract modification 1 or that the cost analysis for modification 2 was
           adequate. The Commission provided documentation in appendix D, related to
           contract modification 1, dated November 12, 2010. However, the documentation
           did not contain a cost analysis in accordance with HUD’s requirements. Instead it
           included (1) a copy of the contract modification, (2) a summary list of the
           changes, and (3) supporting job work orders that were submitted to the
           Commission by the subcontractor. Although the documentation showed that the
           architect approved each change order, it did not include an analysis of the separate
           elements of costs or a cost comparison with the independent cost estimate, etc., as
           required.

              The Commission provided documentation in appendix E, related to contract
              modification 2, dated June 8, 2011. However, the documentation did not contain
              a cost analysis in accordance with HUD’s requirements. Instead it consisted of
              (1) the approved contract modification; (2) a summary list of the changes; (3) an
              assessment performed by the architect, dated February 24, 2011, which included
              findings of the work orders submitted by the subcontractor; (4) a copy of each job
              work order submitted by the subcontractor; and (5) commercial catalog prices.

              The documentation for this contract modification did not include an analysis of
              the separate elements of costs, a comparison to an independent cost estimate,
              incurred costs or an analysis of labor rates, or an assessment of how the
              commercial catalog prices were used to support the reasonableness of the cost.
              Further, the provided documentation identified costs that were supposedly paid
              under the first modification, among other discrepancies.

Comment 11 Contrary to HUD requirements and the Commission’s procedures, the
           Commission, after the task was completed, executed a contract modification and
           established a price for service. The Commission and its contractor did not agree
           upon a price and execute the contract modification until all of the work was
           completed. Therefore, the Commission did not evaluate the cost of the

                                               50
              modifications to assess reasonableness. It is against Federal procurement
              requirements to apply a percentage of cost for profit (that is, cost plus percentage
              of cost) to procurements. HUD’s regulations at 24 CFR 85.36(f)(4) state that the
              cost-plus-a-percentage-of-cost and percentage-of-construction-cost methods of
              contracting must not be used. Further, paragraph 10.1.A.5 of HUD Handbook
              7460.8, REV-2, states that the cost-plus-percentage-of-cost and the cost-plus-
              percentage-of-construction-cost types of contracts are prohibited.

Comment 12 As mentioned in comment 11, the construction work had been completed before
           the modification was priced. Therefore, HUD Handbook 7460.8, REV-2,
           paragraph 11.4(b)(4) no longer applies. The handbook refers to proposed
           changes, estimates of time, etc., which were not applicable because at the time the
           Commission entered into the contract modification, construction costs had already
           been incurred. HUD Handbook 2210.18, paragraph 1-3(b), requires that incurred
           costs be included in the contractor’s change proposal and evaluated in the
           Commission’s cost analysis.

Comment 13 We acknowledge that the Commission provided documentation, such as change
           order proposals, job work orders, and price quotes, with its response to the draft
           report. The job work orders totaled $125,955, which was the price of its first
           modification for its canopy and lobby renovation project. Therefore, the report
           had been modified.

Comment 14 The Commission did not provide evidence that it performed a cost analysis of the
           contractors’ proposals. HUD’s requirements at 24 CFR 85.36(f)(1) state that a
           cost analysis must be performed when the contractor is required to submit the
           elements of the estimated cost. Therefore, providing the contractor’s
           documentation of its proposed rates does not substantiate the reasonableness of
           incurred costs. Additionally, HUD Handbook 2210.18, section 1-3, states that the
           following techniques, as appropriate, should be used to perform a costs analysis:
           (1) actual costs previously incurred by the same contractor, (2) previous cost
           estimates from the contractor or other contractors for the same or similar items,
           (3) the methodology to be used by the contractor with the requirements of the
           solicitation, and (4) the independent cost estimate. Appendix 1, part 31.201-3, of
           the handbook states that for determining reasonableness, no presumption of
           reasonableness should be attached to the incurrence of costs by a contractor.

Comment 15 The Commission provided the contractor’s proposed labor and trucking rates to
           support the reasonableness of the costs. As mentioned in comment 14, the
           contractors’ cost proposals were not sufficient to determine cost reasonableness.
           The three additional quotes, obtained 2 years after the project was completed, do
           not substitute for the required analysis that should have been performed. Further,
           the quotes did not contain a breakdown of cost. The Commission did not provide
           documentation of the architect’s cost reasonableness test. Further, the architect’s
           experience does not substitute for available documentation or required estimates
           or analyses that should have been done to verify the reasonableness of the

                                               51
              contractors’ rates. The report stated that supporting documentation for the labor
              rates was based only on foreman and journeyman wages and did not account for
              the use of apprentices, who were paid less. It did not state that the truck drivers
              were apprentices.

Comment 16 The contractor’s fringe benefits of 108 percent were determined by using the
           direct labor base of approximately $31per hour in comparison to the total of
           fringe benefits categories of nearly $34 as included in the 2010 and 2011
           corporate labor rates documentation provided by the Commission and included in
           appendix T of its response. Also, the labor burden rate of 36 percent (35.970
           percent) was identified on the same document. The Commission would need to
           perform a detailed analysis to determine what specific costs and cost elements
           were used to determine the labor burden rate. Further, as mentioned in the audit
           report, the work orders were signed but not dated. Therefore, we were not able to
           determine when the Commission reviewed them.

Comment 17 The spreadsheet mentioned in the Commission’s response and referenced as A
           through F was provided during the audit. In working with the Commission, we
           either adjusted or removed the costs that were initially questioned before the
           report was issued for comment. The report questioned the costs for hand
           trenching (change order proposal 6) and supervision (change order proposal 7)
           because the work was not performed or the charges were included as part of
           change order proposal 1, respectively. Both of these costs were associated with
           the Commission’s canopy and lobby renovation project.

Comment 18 We acknowledge that change order proposal 6 was the cost of installing additional
           lighting; however, included in the proposal was the cost for hand trenching. The
           Commission also acknowledged that hand trenching, which was originally quoted
           in the proposal, was not a sufficient method to get through the depths of concrete.
           However, the Commission paid the proposed amount, without adjusting for the
           work that was not performed using that method, and then incurred additional
           charges to remove the concrete.

Comment 19 As mentioned in comment 17, the spreadsheet mentioned in the Commission’s
           response was provided during the audit. In working with the Commission, we
           either adjusted or removed the costs that were initially questioned before the
           report was issued. The report does not address whether the costs incurred for
           supervision were excessive or question the need for supervision. Instead, it
           reports that the Commission paid duplicative costs under multiple change orders
           for supervision that occurred on the same dates.

Comments 20 As stated in the report, the contract modification for the Commission’s parking
            lot resurfacing project contained work items that were included as part of its
            canopy project (change orders 1 and 6). Specifically, line item 2 of the
            modification included a cost of $2,816 to furnish and install all labor and material
            to trench for electric utilities, replace trench spoils with aggregate base, and

                                               52
              compact in place. Line item 4 included a cost of $2,700 to provide labor and
              material to excavate and backfill electrical utility trenches at the Commission’s
              north parking lot. This was essentially the same description, including location,
              provided by the concrete and electrical subcontractors for work provided under
              proposed change orders 1 and 6 associated with the Commission’s canopy project.
              The Commission did not provide documentation showing that the work was not
              duplicative. Therefore, without the adequate support, we determined that the
              Commission paid $5,516 in duplicate costs. Further, the Commission did not
              prepare a cost estimate or cost analysis for the contract modification. Instead, it
              relied on the contractors’ summaries of their cost proposals, which included
              duplicate costs.

Comment 21 The audit involved a review (1) of the expenditure of grant funds and (2) for
           compliance with Federal requirements such as contracting and procurement.
           Therefore, the auditors were well equipped to perform the audit assignment.
           Further, the architect’s opinion and experience do not substitute for required
           detailed cost estimates, required cost analyses, or the fact that the Commission’s
           architect had access to information regarding previously incurred costs at the time
           the contract modification was negotiated. We recognize that HUD encourages
           public housing agencies to use professional services such as those of architects.
           However, the use of professionals does not negate the Commission’s
           responsibility to ensure that it administers its Recovery Act grant funds and other
           Federal programs in accordance with requirements.

Comment 22 The discussion draft audit report identified that the Commission paid $18,386 in
           ineligible costs. In response to the report, the Commission provided
           documentation to show that this amount was not for duplicate costs. However,
           based on the documentation provided, we reduced the amount of unsupported
           costs and increased the amount of ineligible costs.

Comment 23 The discussion draft report did not question the need for additional work required
           to replace kitchen cabinets in accessible units. Instead, it reported that the
           Commission lacked adequate documentation to support that the price paid with
           Recovery Act funds were reasonable. The ad hoc report analysis provided by the
           Commission’s architect was dated more than 2 years after the fact and did not
           substitute for the required analysis because it did not contain all of the necessary
           elements. As discussed in comment 3, a cost analysis is an evaluation of the
           separate elements that make up a contractor’s total cost proposal or price (for
           example, labor, materials, overhead, profit, etc.) to determine whether they are
           allowable, directly related to the requirement, and reasonable. Further, as
           mentioned in the Commission’s response, the agreed-upon cost for the additional
           work for its kitchen cabinet replacement project included profit and overhead.

              Although the work orders totaled nearly $160,000, the total cost for the work was
              considerably more due to the Commission’s supplying nearly all materials
              required outside of the contract. The average amount per unit would likewise be

                                              53
              substantially more than the Commission suggested because based on the work
              orders, the Commission provided nearly all of the plumbing, electrical, and trim
              materials required for installation that were included in the cost estimate, the
              written specifications, and the contract. However, Recovery Act funds were not
              used for these purchases.

Comment 24 The Commission paid nearly $24,000 for yokes as mentioned in its response;
           however, this amount included labor costs for the installation of the plumbing
           yokes and nearly $2,300 for the materials used for the installation such as
           paneling and silicone. The amount did not include the actual cost for the yokes.
           The Commission has not yet provided an adequate description of what work was
           performed in relation to the yokes, the purpose of the yokes, or why the
           installation was necessary and unforeseen, despite many inquiries during the
           course of the audit. Regarding the fillers, again the amount cited in the
           Commission’s comments was for labor only and did not include the actual cost of
           the fillers. Further, as mentioned in the report, the Commission did not perform a
           cost analysis of its contract modifications as required by HUD.

Comment 25 All of the described repairs and replacements were included in the bid
           specifications and the base contract, which was competitively bid. Therefore, the
           cost for these items should not have been included in modifications to the
           contract. Further, as mentioned in the audit report, the Commission’s architect
           prepared an independent cost estimate that estimated the project to cost more than
           the winning bid. The estimate included a 5 percent contingency for unforeseen
           issues. The Commission had yet to show the difference between the work that
           was performed under the initial contract, which included repairs to the walls and
           soffits, replacement of missing valves, etc., and the repairs made under the
           modification that contained the same work description.

Comment 26 We acknowledge that the 594 work orders described the work performed, labor
           hours and rates, and material used. However, the work orders’ descriptions stated
           precisely the work that was required under the base contract (for example,
           installed sink and sink basin). However, neither the Commission or its architect
           prepared documentation for the procurement files that explained why the work
           stated on the work orders was unforeseen and how it differed from the work
           specifications that were included as part of the base contract. In many cases, the
           work orders contained work items for multiple units without breaking out the cost
           for each category of work (such as plumbing, electrical, etc.). However, the
           Commission’s procurement policy and Federal regulations require that only
           unforeseen costs be included in change proposals. The report does not question
           the reasonableness of the number of work orders.

Comment 27 The work described in the Commission’s response was exactly the work
           described in the work specifications and included in the architect’s cost estimate
           for the initial contract. Therefore, the Commission paid for the same service in its
           base contract and again in its change order. The architect’s cost estimate also

                                              54
              included 24 hours of labor for the carpenter foreman, carpenter helper, and laborer
              for the demolition and reinstallation of kitchen cabinets and an additional $50 per
              unit for miscellaneous cabinetry supplies. The specifications state that all
              (matching) trim, filler strips, etc., required for a finished installation must be
              included in the contractor’s bid. The Commission paid $24,300 for labor through
              work order 4823 to install cabinet fillers for all 300 housing units. The
              Commission also paid $11,178 for 276 modifications to toe kicks and 276
              modifications to range cabinets in 266 and 274 housing units, respectively.
              Contrary to the estimate, specifications, and contract, the Commission provided
              the materials for the changes; however, Recovery Act funds were not used. The
              labor cost included in the work orders should not have been paid because the
              labor cost was included in the base contract and the Commission was unable to
              differentiate between the work that was done under the contract and the
              modifications.

              Further, the work specification documentation provided by the Commission
              during the audit was not complete. HUD’s records included an additional page
              that contained the architect’s drawing of the kitchen cabinets, specified the need
              for field measurements, and included the required fillers and washer drain
              replacements that should not have been included as contract changes. The
              Commission did not provide two important pages of the cost estimate, which
              showed in detail the work that was estimated as part of the initial contract.

Comment 28 The details regarding questioned costs for range cabinet filler, over-the-cabinet
           (described on work orders as range cabinet modification), and toe kick
           modifications as part of the base contract were discussed in finding 1. The filler
           pieces were all included on one work order as discussed in finding 1. The
           specifications called for all cabinet filler pieces to be provided under the base
           contract; therefore, filler pieces were not unforeseen. Further, the architect’s
           drawing as part of the specifications showed an example of the required fillers
           and the standard widths of the cabinets. The specifications leave no doubt that the
           standard widths requiring fillers were not unforeseen; they were contemplated and
           included in the base contract.

Comment 29 The architect’s cost estimate included 3 hours of labor for the plumber and $150
           per unit for plumbing supplies to complete the reinstallation of the water supply
           lines and drain for the kitchen sink and laundry. The contract specifications
           indicated that only the kitchen sinks and faucets were to be provided by the
           Commission and the contractor was responsible for all other labor and materials
           related to the reinstallation of the sink and washer drain plumbing. However, the
           Commission paid at least $27,400 in labor costs for 343 sink replacements and
           repairs to plumbing (for example, water supply lines, strainers, faucets, tee setups,
           waste extensions, waste arms, p traps, and washer drains) in 293 housing units.
           Contrary to the estimate, specifications, and contract, the Commission provided
           the materials for the changes; however, Recovery Act funds were not used. The
           cost for the plumbing changes also included labor for 299 sink and sink basin

                                               55
               installations in 289 housing units and 24 washer drain modifications in 24 units.
               Therefore, the labor cost, included on the work orders for any plumbing labor
               related to reinstalling or repairing plumbing and sinks, should not have been paid
               with Recovery Act funds because the labor cost and work were included in the
               base contract.

Comment 30 We do not agree that the soffit work was limited to a few instances. The
           Commission paid for 260 soffit repairs to 252 units. Since Hamtramck Homes
           consists of 300 units, the repairs were not required in just a limited number of
           circumstances. The original specifications for the kitchen cabinet replacement
           project stated that the contractor was to patch, fill, prime, paint, and apply finish
           paint to any disturbed areas of drywall. The Commission paid $27,135 for labor
           for 260 modifications to repair soffits for 252 housing units. The amount paid
           also included labor for 286 modifications to paint soffits in 272 housing units.
           Therefore, the labor costs included on the work orders were included in the base
           contract.

Comment 31 As discussed in the report, either the Commission did not prepare the required
           cost analyses, or the analyses were inadequate for its contract modifications. If it
           had prepared the required analyses and properly reviewed the specific work
           descriptions included on each work order, it could have detected the issues
           identified in this audit report. Because of the large number of changes, without a
           detailed analysis, it could not be known whether duplications were included.
           Also, if the Commission had compared the work included on the work orders to
           the architect’s cost estimate and bid specifications, it would have detected that the
           work orders duplicated work included in the contract.

Comment 32 The Commission acknowledged that it underpaid wages to two of its
           subcontractors’ employees and sent letters to the general contractors to rectify the
           underpayments. We commend the Commission’s efforts to ensure compliance
           with Davis-Bacon.

Comment 33 The report has been adjusted to reflect the payment by the contractor.

Comment 34 The Commission provided, for some of the workers, apprenticeship agreements
           that would have been created and signed at the workers’ enrollment in an
           apprenticeship program. However, many of the documents did not contain
           signatures of any of the involved parties, including the enrollee, the sponsors, or a
           representative of the registering agency, as required by the agreement. Further,
           several of the documents were not in existence as of the date of the agreements
           they were supposed to represent. We adjusted the report based on our evaluation
           of the provided documentation. Further, the Commission did not provide
           documentation or support to show that it identified the apprentices who received
           less than the prevailing wage or took actions to ensure their enrollment in an
           approved program was in compliance with the regulations at 29 CFR 5.5(a)(3)(i)
           as required by HUD’s Labor Relations Desk Guide, Making Davis-Bacon Work.

                                               56
Comment 35 We commend the Commission for its decision to take appropriate administrative
           actions for contractors that do not comply with their obligations as required under
           Davis-Bacon.

Comment 36 Regulations at 24 CFR 135.30 describe compliance to the greatest extent feasible
           for Section 3 as meeting the numerical goals. As discussed in the report, the
           Commission did not meet its Section 3 numerical goals for contracting as set forth
           at 24 CFR 135.50. Further, the Commission did not provide justification
           demonstrating why it was not feasible to meet its goals, as required by 24 CFR
           135.50, despite multiple requests. Further, by directly soliciting bids and not
           publicly advertising the bidding opportunities for some of the projects, the
           Commission did not afford Section 3 business concerns an opportunity for
           contracting because it did not inform them of the existence of the work generated
           by the grant funds. Therefore, the Commission did not ensure to the “greatest
           extent feasible” opportunities for companies that engage in Section 3 concerns to
           be awarded contracts as required by the Recovery Act.

Comment 37 As discussed in the report, the Commission did not ensure that its contractors
           complied with Section 3 requirements. It also failed to submit the required form
           HUD-60002 for 2009 and 2010. Additionally, although its contracts contained
           verbiage regarding Section 3, instead of advertising invitations to bid, the
           Commission used a modified procurement method by directly soliciting bids from
           contractors. Therefore, Section 3 business concerns may have been deprived of
           the opportunity to compete for the contracts.

Comment 38 As discussed in the report, several of the letters were inadequate to determine
           compliance with Section 3 because they did not discuss (1) whether the low-
           income workers were new hires or (2) the actions taken by contractors to provide
           subcontracting opportunities to Section 3 businesses as required by the Section 3
           contract clauses and the Section 3 requirements, despite the use of nine
           subcontractors throughout the grant projects. This is contrary to HUD’s
           regulations at 24 CFR 135.32.

Comment 39 The audit report did not contain information related to contractors that did not
           need to hire workers but, rather, referenced an employer who asserted to hiring a
           Section 3 resident. Neither the Commission or architect was able to provide
           supporting documentation as required by the Commission’s Section 3 plan.

Comment 40 Only one contractor letter claimed the hiring of a new worker. The remaining
           letters indicated that certain employees met Section 3 requirements; however,
           adequate documentation was not provided to support these claims.

Comment 41 According to the document provided by the Commission in its appendix CC,
           Frequently Asked Questions, Section 3 of the Act, number 33, recipients are
           required to ensure their own compliance and the compliance of their contractors

                                              57
              or subcontractors with the Section 3 requirements as outlined at 24 CFR 135.32.
              These responsibilities include designing and implementing procedures to comply
              with the requirements of Section 3. To comply with Section 3, recipient agencies
              must take an active role in ensuring Section 3 compliance. The first step is
              designing or planning and implementing procedures to ensure that all parties,
              including residents, businesses, contractors, and subcontractors, comply with
              Section 3. Additionally HUD’s regulations at 24 CFR 135.32 state that this
              responsibility includes but is not limited to “(d) assisting and actively cooperating
              with the Assistant Secretary in obtaining the compliance of contractors and
              subcontractors with the requirements of this part.” Further, frequently asked
              question number 43 refers to acceptable evidence to determine eligibility of a
              Section 3 resident. Lastly, the Commission’s Section 3 plan included “eligibility
              criteria to be used for certifying Section 3 residents.” The Commission has not
              provided support that it used its criteria to certify the eligibility of the Section 3
              residents to ensure the contractor’s compliance with Section 3 as required by the
              regulations.

Comment 42 As discussed in the report, the written policies and procedures in place at the
           Commission did not include a method of identifying businesses as Section 3
           business concerns, such as asking potential businesses to disclose whether they
           are a Section 3 business concern or an inclusion or mention of the preference for
           those businesses in contracting. Thus, the Commission did not have the policies
           and procedures in place to ensure that it complied with 24 CFR 135.36.

Comment 43 As discussed in the report, the Commission did not ensure that its contractors
           complied with Section 3. Further, the inclusion of the language of HUD Form
           5370 is a required addition for construction contracts awarded by public housing
           agencies.

Comment 44 The report has been updated to show that the Commission has taken actions to
           address deficiencies in its policies, determined during the audit and detailed in the
           report, to ensure compliance with 24 CFR 135.3, which prohibits Section 3
           thresholds, and 24 CFR 135.36, which describes Section 3 business preferences to
           be used in contracting.

Comment 45 As discussed in the report, the Commission’s executive assistant said that the
           Commission lacked an adequate understanding of Section 3 and did not have
           sufficient training pertaining to Section 3. We commend the Commission’s
           efforts to implement recommendation 3A by seeking training related to Section 3
           requirements.

Comment 46 The Commission agreed with finding 4 that it incorrectly reported the number of
           jobs created or retained in FederalReporting.gov.




                                                58
Appendix C

     FEDERAL AND THE COMMISSION’S REQUIREMENTS

Finding 1
Regulations at 2 CFR 225, appendix A, paragraph (c)(1), state that to be allowable under Federal
awards, costs must meet the following general criteria:

       a. Be necessary and reasonable for proper and efficient performance and administration
          of Federal awards.
       b. Be allocable to Federal awards under the provisions of this circular.
       g. Except as otherwise provided for in this circular, be determined in accordance with
           generally accepted accounting principles.
       j. Be adequately documented.

Regulations at 2 CFR 225, appendix A, paragraph (c)(2), state that a cost is reasonable if, in its
nature and amount, it does not exceed that which would be incurred by a prudent person under
the circumstances prevailing at the time the decision was made to incur the cost. The question of
reasonableness is particularly important when governmental units or components are
predominately federally funded.

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

Regulations at 24 CFR 85.36(f)(1) state that 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 an independent cost analysis
before receiving bids or proposal. 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 regulations.



                                               59
Regulations at 24 CFR 85.36(f)(2) state that grantees will negotiate profit as a separate element
of the price for each contract in which there is no price competition and in all cases in which cost
analysis is performed.

HUD Handbook 7460.8, REV-2, paragraph 3-2(d), states that the contracting officer should
prepare or have prepared an independent cost estimate reflecting the purchase requirement. The
level of detail will depend upon the dollar value of the proposed contract and the nature of the
goods or services to be acquired. The independent cost estimate must be prepared before the
solicitation for offers. Paragraph (d)(3) states that for purchases above the small purchase
threshold, the level of detail will vary but should reflect the dollar value, complexity, and
commercial nature of the requirement. Independent costs estimates are normally broken out into
major categories of cost (for example, labor, materials, and other direct costs such as travel,
overhead, and profit). Noncommercial type requirements and work designed specifically for the
Commission will require much more extensive estimation and a detailed independent cost
estimate.

HUD Handbook 2210.18, section 1-2, states, as specified in 24 CFR 85.36(f), that a cost analysis
or price analysis must be performed for every procurement action, including contract
modifications (for example, “change orders”). Paragraph b(4) states that when negotiating a
modification (including change orders) to any contract, which changes the work previously
authorized and impacts the price or estimated cost upward or downward, a cost breakdown of the
contractor’s proposed cost must be requested. Note: Modifications that change the work beyond
the scope of the contract must be justified as a noncompetitive action according to 24 CFR
85.36(d)(4). If none of those conditions apply, the work must be procured competitively.

Paragraph 1-2(b) of the handbook states that cost analysis is a review and evaluation of the
separate elements of cost, which make up a contractor’s cost proposal. It requires that the cost
principles in appendix 1 be used to determine the allowability and reasonability of costs. A cost
analysis is required when negotiating a contract with a sole source as justified under 24 CFR
84.36(d)(4); a complete cost breakdown must be provided and used to establish a fair and
reasonable price or established cost.

Paragraph 1-2(c) of the handbook states that costs analysis also requires that profit be negotiated
as a separate element of the prices (see 24 CFR 85.36(f)(2)). Cost-plus-a-percentage-of-cost and
percentage-of-construction-cost type contracts are prohibited (see 24 CFR 85.36(f)(4)).

Paragraph 1-2(d) of the handbook states that when negotiating a modification (including change
orders) to any contract (even if the basic contract was awarded competitively), which changes
the scope of work previously and impacts the price or estimated cost, cost analysis and the
principles in appendix 1 must be used to arrive at a reasonable cost. The only exception to this
rule is contract modifications, which are based on pricing terms established in the contract
document. Changes in scope do not always result in increased costs. A reduction in the work
requirements may result in a decrease in the contract price. Regardless of the direction of the
price change, such modifications require the use of cost analysis and the cost principles in
appendix 1.



                                                60
Paragraph 1-3(B) of the handbook states that, as appropriate, the techniques discussed below
should be used to perform cost analysis:

   1. Verify cost and pricing data and evaluate cost estimates, including:
      a. Necessity for and reasonableness of proposed costs, including allowances for
      contingencies;
      b. Projection of offeror’s cost trends;
      c. Technical appraisal (e.g., by an engineer) of proposed direct cost elements; and,
      d. Application of audited or pre-negotiated (e.g., by the Federal Government) indirect cost
      rates, labor rates, or other factors.
   2. Evaluate the effect of the offeror's current practices on future costs.
   3. Compare costs proposed by the offeror with:
      a. Actual costs previously incurred by the same offeror;
      b. Previous cost estimates from the offeror or other offerors for the same or similar items;
      c. The methodology to be used by the offeror with the requirements of the solicitation (i.e.,
      do the costs reflect the technical approach proposed); and,
      d. Your independent cost estimate (or that of an independent architect, engineer, appraiser,
      etc.).
   4. Verify that the offeror’s cost submissions comply with the cost principles in Appendix 1
   (FAR Part 31).

Appendix 1, part 31.201-1, of the handbook states that the total cost of a contract is the sum of
the allowable direct and indirect costs allocable to the contract, incurred or to be incurred, less
any allocable credits, plus any allocable cost of money under 31.205-10. In determining what
constitutes a cost, any generally accepted method of determining or estimating costs that is
equitable and is consistently applied may be used, including standard costs properly adjusted for
applicable variances.

Appendix 1, part 31.201-3(a), of the handbook states that a cost is reasonable if, in its nature and
amount, it does not exceed that which would be incurred by a prudent person in the conduct of
competitive business. Reasonableness of specific costs must be examined with particular care in
connection with firms or their separate divisions that may not be subject to effective competitive
restraints. No presumption of reasonableness may be attached to the incurrence of costs by a
contractor. If an initial review of the facts results in a challenge of a specific cost by the
contracting officer or the contracting officer’s representative, the burden of proof must be upon
the contractor to establish that such cost is reasonable.

Appendix 1, part 31.201-4(a), of the handbook states that a cost is allocable if it is assignable or
chargeable to one or more cost objectives on the basis of relative benefits received or other
equitable relationship. Subject to the foregoing, a cost is allocable to a Government contract if it
is incurred specifically for the contract.

Appendix 1, part 31.202(a), of the handbook states that a direct cost is any cost that can be
identified specifically with a particular final cost objective. No final cost objective should have
allocated to it as a direct cost any cost if other costs incurred for the same purpose in like
circumstances have been included in any indirect cost pool to be allocated to that or any other
final cost objective. Costs identified specifically with the contract are direct costs of the contract

                                                  61
and are to be charged directly to the contract. All costs specifically identified with other final
cost objectives of the contractor are direct costs of those cost objectives and are not to be charged
to the contract directly or indirectly.

Appendix 1, part 31.203(a), of the handbook states that an indirect cost is any cost not directly
identified with a single, final cost objective but identified with two or more final cost objectives
or an intermediate cost objective. It is not subject to treatment as a direct cost. After direct costs
have been determined and charged directly to the contract or other work, indirect costs are those
remaining to be allocated to the cost objectives. An indirect cost may not be allocated to a final
cost objective if other costs incurred for the same purpose in like circumstances have been
included as a direct cost of that or any other final cost objective. Paragraph (b) states that
indirect costs may be accumulated by logical cost groupings with due consideration of the
reasons for incurring such costs. Each grouping should be determined so as to permit
distribution of the grouping on the basis of the benefits accruing to the cost objectives.
Commonly, manufacturing overhead, selling expenses, and general and administrative expenses
are separately grouped. Similarly, the particular case may require subdivision of these
groupings; for example, building occupancy costs might be separable from those of personnel
administration within the manufacturing overhead group. This necessitates selecting a
distribution base common to all cost objectives to which the grouping is to be allocated. The
base should be selected so as to permit allocation of the grouping on the basis of the benefits
accruing to the several cost objectives. When substantially the same results can be achieved
through less precise methods, the number and composition of cost groupings should be governed
by practical considerations and should not unduly complicate the allocation.

Appendix 1, part 31.205-26(d), states that when materials are purchased specifically for and are
identifiable solely with performance under a contract, the actual purchase cost of those materials
should be charged to the contract.

HUD Handbook 7460.8, REV-2, paragraph 10-3(E), states that documentation is required to
demonstrate price reasonableness whenever the price obtained varied significantly from the
independent cost estimate, in which case the contracting officer should note and explain the
reasons for the differences; for example, poor estimate, etc.

The specifications for the kitchen cabinet replacement contract, dated April 16, 2009, section D,
part I, paragraph C, states that for the cabinets, the contractor is solely responsible for field
measuring and determining the material quantities and labor required to fully execute the intent
of the project to the submittal of the bid. No contract adjustment will be made as a result of the
contractor’s failure to adequately determine material and labor amounts to complete the work.
Paragraph E states that the contractor is to remove and install kitchen sinks, water supply lines,
strainers, faucets, traps, stoppers, laundry drains or sumps, laundry supplies, valves, and shutoffs.
The Commission will supply sinks and faucets. All materials must operate without leakage and
as intended. Paragraph T states that all electrical work must be performed by a licensed
electrician except for minor repairs such as (but not limited to) replacement of switches, lighting
fixtures, and hood range reinstallation.




                                                 62
The specifications for the kitchen cabinet replacement contract, dated April 16, 2009, section
IIA, state that all (matching) trim, filler strips, etc., required for a finished installation must be
included.

The specifications for the kitchen cabinet replacement contract, dated April 16, 2009, section III,
state that the following materials are to be supplied by the owner and installed by the contractor:
refrigerators, ranges, range hoods, sinks, faucets, over-sink light fixtures, and floor tile.

HUD’s Quick Guide to Cost and Price Analysis for HUD Grantees and Funding Recipients states
that modifications that change the scope of the contract must be justified in accordance with the
conditions set forth in 24 CFR 86(d)(4). If the out-of-scope change cannot be justified, the work
must be procured competitively.

The Commission’s procurement policy, dated May 19, 2006, states that for all purchases above
the micropurchase level, the Commission must prepare an independent cost estimate before
solicitation. The level of detail should reflect the cost and complexity of the item to be
purchased.

The Commission’s procurement policy states that a cost analysis, consistent with Federal
guidelines, should be conducted for all contract modifications for procurements that were
procured through sealed bids, competitive proposals, or noncompetitive proposals or for projects
originally procured through small purchase procedures and the amount of the contract
modification will result in a total contract price in excess of $100,000.

Finding 2
The United States Housing Act of 1937, as amended, section 12(a), states that any contract for
loans, contributions, sale, or lease under this Act must contain a provision requiring that not less
than the wages prevailing in the locality, as determined or adopted (after a determination under
applicable State or local law) by the HUD Secretary, should be paid to all architects, technical
engineers, draftsmen, and technicians employed in the development and all maintenance laborers
and mechanics employed in the operation of the low-income housing project involved and
should also contain a provision that not less than the wages prevailing in the locality, as
predetermined by the Secretary of Labor under the Davis-Bacon Act, must be paid to all laborers
and mechanics employed in the development of the project involved (including a project with
nine or more units assisted under Section 8 of this Act, when the public housing agency or the
Secretary and the builder or sponsor enter into an agreement for such use before construction or
rehabilitation is commenced), and the Secretary should require certification as to compliance
with the provisions of this section before making any payment under such contract.

Section 1606 of the Recovery Act requires that all laborers and mechanics of contractors and
subcontractors working on projects funded by the Recovery Act be paid at least prevailing wages
in accordance with subchapter IV of chapter 31 of Title 40 of the United States Code (40 U.S.C.
3141), which requires that prevailing wages be paid to laborers and mechanics working on
contracts in excess of $2,000 that specify the construction, alteration, or repair, including
painting and decorating, of public buildings.

                                                   63
Regulations at 29 CFR 3.3(b) state that each contractor or subcontractor engaged in the
construction, prosecution, completion, or repair of any public building or public work or building
or work financed in whole or in part by loans or grants from the United States should furnish
each week a statement with respect to the wages paid each of its employees engaged on work
covered by part 3 and part 5 of this title during the preceding weekly payroll period. This
statement should be executed by the contractor or subcontractor or by an authorized officer or
employee of the contractor or subcontractor who supervises the payment of wages and should be
on the back of Form WH 347, “Payroll (For Contractors Optional Use),” or on any form with
identical wording. Copies of Form WH 347 may be obtained from the Government contracting
or sponsoring agency or from the Wage and Hour Division Web site at
http://www.dol.gov/esa/whd/forms/wh347instr.htm or its successor site.

Regulations at 29 CFR 3.4(a) state that each weekly statement required under 24 CFR 3.3 must
be delivered by the contractor or subcontractor, within 7 days after the regular payment date of
the payroll period, to a representative of a Federal or State agency in charge at the site of the
building or work or if there is no representative of a Federal or State agency at the site of the
building or work, the statement must be mailed by the contractor or subcontractor within such
time to a Federal or State agency contracting for or financing the building or work. After such
examination and check as may be made, such statement or a copy thereof should be kept
available or should be transmitted, together with a report of any violation, in accordance with
applicable procedures prescribed by the U.S. Department of Labor.

Regulations at 29 CFR 5.5(a)(1)(iii) state that whenever the minimum wage rate prescribed in
the contract for a class of laborers or mechanics includes a fringe benefit that is not expressed as
an hourly rate, the contractor should either pay the benefit as stated in the wage determination or
pay another bona fide fringe benefit or an hourly cash equivalent thereof.

Regulations at 29 CFR 5.5(a)(3)(i) state that apprentices will be permitted to work at less than
the predetermined rate for the work they performed when they are employed under and
individually registered in a bona fide apprenticeship program registered with the U.S.
Department of Labor, Employment and Training Administration; Office of Apprenticeship
Training, Employer, and Labor Services; or a State apprenticeship agency recognized by the
Office or if a person is employed in his or her first 90 days of probationary employment as an
apprentice in such an apprenticeship program, who is not individually registered in the program
but who has been certified by the Office of Apprenticeship Training, Employer, and Labor
Services or a State apprenticeship agency (where appropriate) to be eligible for probationary
employment as an apprentice. The allowable ratio of apprentices to journeymen on the job site
in any craft classification must not be greater than the ratio permitted to the contractor as to the
entire work force under the registered program. Any worker listed on a payroll at an apprentice
wage rate, who is not registered or otherwise employed as stated above, should be paid not less
than the applicable wage rate on the wage determination for the classification of work actually
performed.

HUD Handbook 7460.8, REV-2, paragraph10-9(E), states that the public housing authority is
responsible for the administration and enforcement of labor standards requirements as provided



                                                 64
in HUD Handbook 1344.1, REV-1, CHG-1, and as required by U.S. Department of Labor
regulations applicable to Davis-Bacon-covered work (29 CFR Part 5).

HUD Handbook 7460.8, REV-2, paragraph 10-9(E)(2), states that the public housing agency is
responsible for conducting interviews with the laborers and mechanics on the job site to
determine whether the work performed and wages received are consistent with the job
classifications and wage rates contained in the applicable wage determination and the
classifications and wages reported by the employer on certified payrolls.

HUD Handbook 7460.8, REV-2, paragraph10-10(G)(3), states that the public housing authority
must perform contractor compliance monitoring with such frequency and depth as appropriate
(based upon the scope and duration of the contract involved) to ensure that all laborers and
mechanics are paid no less than the HUD prevailing wage rate for the type of work performed.

The U.S. Department of Labor’s Memorandum Number 207 states that Federal contracting or
assistance-administering agencies have the primary responsibility for the enforcement of Davis-
Bacon and related acts to ensure that laborers and mechanics are paid at least the prevailing wage
rates required by covered contracts.

HUD’s Labor Relations Desk Guide LR04.DG, Making Davis-Bacon Work, a guide for public
housing agencies, Key Labor Standards Objectives III, states that the local agency is responsible
to perform reviews of certified payroll submissions and other information to help ensure
contractor compliance with labor standards provisions and the payment of prevailing wages to
workers. Local Agency Responsibilities number 6 states that the local agency is responsible to
review certified payroll reports and related documentation, identify any discrepancies or
violations, and ensure that any needed corrections are made promptly. Local Agency
Responsibilities number 7 states that the local agency is responsible to maintain full
documentation of Federal labor standards administration and enforcement activities. Labor
Standards Enforcement number 3 states that in addition to comparing forms HUD-11 to the
certified payroll reports, the contract administrator reviews the payroll reports generally to
ensure that all laborers and mechanics are being paid no less than the wage rates contained on the
applicable Davis-Bacon wage decision for the type of work they perform. Contract
administrators should be particularly alert for indications of payroll falsification-misinformation
on payrolls to conceal underpayments. Falsification on payroll indicates that an employer
(contractor or subcontractor) is aware of its obligations, is knowingly underpaying its employees,
and is attempting to avoid detection of the violations.

According to HUD’s Streamlining Davis-Bacon publication, HUD recognizes that onsite
interviews are an invaluable tool in Davis-Bacon enforcement and that it is a resource that should
be used to its greatest advantage. Accordingly, we strongly encourage contract administrators to
target onsite interviews to projects, contracts, and employers when violations are suspected and
the interview data can be most useful. Targeting may mean that no interviews are conducted on
certain contracts when remote monitoring (such as payroll reviews) indicates full compliance so
that more interviews may be conducted where problems are indicated. Targeting does not mean
closing our eyes but, rather, focusing our sights on potential violations.



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According to the HUD forms HUD-5370 and HUD-5470-EZ, contractors employing apprentices
or trainees under approved programs must maintain written evidence of the registration of
apprenticeship programs and certification of trainee programs, the registration of apprentices and
trainees, and the ratios and wage rates prescribed in the applicable programs. Additionally, the
contractor or subcontractor should make the records required in paragraph (c)(1) available for
inspection, copying, or transcription by authorized representatives of HUD or its designee, the
contracting officer, or the U.S. Department of Labor.

Finding 3
Regulations at 24 CFR 135.3 state that requirements of this part apply to Section 3-covered
assistance provided to recipients, regardless of the amount of the assistance provided to the
recipient. The requirements of this part apply to all contractors and subcontractors performing
work in connection with projects and activities funded by public and Indian housing assistance
covered by Section 3, regardless of the amount of the contract or subcontract.

Regulations at 24 CFR 135.30 state that recipients and covered contractors may demonstrate
compliance with the “greatest extent feasible” requirement of Section 3 by meeting the
numerical goals set forth in this section for providing training, employment, and contracting
opportunities to Section 3 residents and Section 3 business concerns.

   (1) Numerical goals for Section 3 covered public and Indian housing programs. Recipients
        of Section 3 covered public and Indian housing assistance (as described in §135.5) and
        their contractors and subcontractors may demonstrate compliance with this part by
        committing to employ Section 3 residents as:
         (iii) 30 percent of the aggregate number of new hires for one year period beginning in
              FY [fiscal year] 1997 and continuing thereafter.
               (c) Contracts. Numerical goals set forth in paragraph (c) of this section apply to
                   contracts awarded in connection with all Section 3 covered projects and Section
                   3 covered activities. Each recipient and contractor and subcontractor (unless the
                   contract or subcontract awards do not meet the threshold specified in
                   §135.3(a)(3)) may demonstrate compliance with the requirements of this part by
                   committing to award to Section 3 business concerns:
                   (1) At least 10 percent of the total dollar amount of all Section 3 covered
                       contracts for building trades work for maintenance, repair, modernization or
                       development of public or Indian housing, or for building trades work arising
                       in connection with housing rehabilitation, housing construction and other
                       public construction; and
                   (2) At least three (3) percent of the total dollar amount of all other Section 3
                       covered contracts. (d) Safe harbor and compliance determinations. (1) In
                       the absence of evidence to the contrary, a recipient that meets the minimum
                       numerical goals set forth in this section will be considered to have complied
                       with the Section 3 preference requirements.
                   (2) In evaluating compliance under subpart D of this part, a recipient that has
                       not met the numerical goals set forth in this section has the burden of
                       demonstrating why it was not feasible to meet the numerical goals set forth

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                     in this section. Such justification may include impediments encountered
                     despite actions taken.

Regulations at 24 CFR 135.30 (a)(3) state that for recipients that do not engage in training or
hiring but award contracts to contractors that will engage in training, hiring, and subcontracting,
recipients must ensure that, to the greatest extent feasible, contractors will provide training,
employment, and contracting opportunities to Section 3 residents and Section 3 business
concerns.

Regulations at 24 CFR 135.32 state that each recipient has the responsibility to comply with
Section 3 in its own operations and to ensure compliance in the operations of its contractors and
subcontractors. This responsibility includes but may not be necessarily limited to

   (a) Implementing procedures designed to notify Section 3 residents about training and
       employment opportunities generated by Section 3 covered assistance and Section 3
       business concerns about contracting opportunities generated by Section 3 covered
       assistance;
   (b) Notifying potential contractors for Section 3 covered projects of the requirements of this
       part, and incorporating the Section 3 clause set forth in part 135.38 in all solicitations and
       contracts.
   (c) Facilitating the training and employment of Section 3 residents and the award of contracts
       to Section 3 business concerns by undertaking activities such as described in the
       Appendix to this part, as appropriate, to reach the goals set forth in part135.30.
       Recipients, at their own discretion, may establish reasonable numerical goals for the
       training and employment of Section 3 residents and contract award to Section 3 business
       concerns that exceed those specified in part135.30;
   (d) Assisting and actively cooperating with the Assistant Secretary in obtaining the
       compliance of contractors and subcontractors with the requirements of this part, and
       refraining from entering into any contract with any contractor where the recipient has
       notice or knowledge that the contractor has been found in violation of the regulations in
       24 CFR part 135.
   (e) Documenting actions taken to comply with the requirements of this part, the results of
       actions taken and impediments, if any.
   (f) A State or county which distributes funds for Section 3 covered assistance to units of
       local governments, to the greatest extent feasible, must attempt to reach the numerical
       goals set forth in 135.30 regardless of the number of local governments receiving funds
       from the Section 3 covered assistance which meet the thresholds for applicability set
       forth at 135.3. The State or county must inform units of local government to whom funds
       are distributed of the requirements of this part; assist local governments and their
       contractors in meeting the requirements and objectives of this part; and monitor the
       performance of local governments with respect to the objectives and requirements of this
       part.

   Regulations at 24 CFR 135.36 state the preference for Section 3 business concerns in
   contracting opportunities.



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   (a) Order of providing preference. Recipients, contractors and subcontractors should direct
       their efforts toward Section 3 covered contracts, to the greatest extent feasible, to Section
       3 business concerns in the order of priority provided in paragraph (a) of this section.
       (1) Public and Indian housing programs. In public and Indian housing programs, efforts
           should be directed to award contracts to Section 3 business concerns in the following
           order of priority:
           (i) Business concerns that are 51 percent or more owned by residents of the housing
                 development or developments for which the Section 3 covered assistance is
                 expended, or whose full-time, permanent workforce includes 30 percent of these
                 persons as employees (category 1 businesses);
           (ii) Business concerns that are 51 percent or more owned by residents of other
                 housing developments or developments managed by the HA [housing authority]
                 that is expending the Section 3 covered assistance, or whose full-time, permanent
                 workforce includes 30 percent of these persons as employees (category 2
                 businesses); or
           (iii) HUD Youthbuild programs being carried out in the metropolitan area (or
                 nonmetropolitan county) in which the Section 3 covered assistance is expended
                 (category 3 businesses).
           (iv) Business concerns that are 51 percent or more owned by Section 3 residents, or
                 whose permanent, full-time workforce includes no less than 30 percent Section 3
                 residents (category 4 businesses), or that subcontract in excess of 25 percent of
                 the total amount of subcontracts to business concerns identified in paragraphs
                 (a)(1)(i) and (a)(1)(ii) of this section.

Regulations at 24 CFR 135.90 state that each recipient who receives directly from HUD financial
assistance that is subject to the requirements of this part must submit to the HUD Assistant
Secretary an annual report in such form and with such information as the Assistant Secretary
may request, for the purpose of determining the effectiveness of Section 3. When the program
providing the Section 3-covered assistance requires submission of an annual performance report,
the Section 3 report will be submitted with that annual performance report. If the program
providing the Section 3-covered assistance does not require an annual performance report, the
Section 3 report is to be submitted by January 10 of each year or within 10 days of project
completion, whichever is earlier. All reports submitted to HUD in accordance with the
requirements of this part will be made available to the public.

Regulations at 24 CFR 135.92 state that HUD should have access to all records, reports, and
other documents or items of the recipient that are maintained to demonstrate compliance with the
requirements of this part or that are maintained in accordance with the regulations governing the
specific HUD program under which Section 3-covered assistance is provided or otherwise made
available to the recipient or contractor.

OMB Circular A-133, Compliance Supplement, addendum #1, Public and Indian Housing,
section III(L)(2), states that the prime recipient must submit form HUD-60002.

HUD Handbook 7460.8, REV-2, paragraph 15-2(E), states: “Pursuant to 24 CFR 135.90, public
housing authorities must submit to, the Assistant Secretary for Fair Housing and Equal

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Opportunity, an annual report using the Section 3 Data Reporting System on form HUD-60002-
Economic Opportunities for Low- and Very Low-Income persons.”

HUD’s technical assistance for form 60002 states that absent evidence to the contrary, HUD
considers public housing authorities to be in compliance with Section 3 if they meet the
minimum numerical goals set forth at 24 CFR 135.30:

    a. 30 percent of the aggregate number of new hires should be Section 3 residents;
    b. 10 percent of the total dollar amount of all covered construction contracts should be
       awarded to Section 3 business concerns; and
    c. 3 percent of the total dollar amount of all covered non-construction contracts should be
       awarded to Section 3 business concerns.

Public housing authorities that fail to meet the numerical goals above bear the burden of
demonstrating why it was not possible. Such justifications should describe the efforts that were
taken, barriers encountered, and other relevant information that will enable the Department to
make a compliance determination.

HUD’s economic stimulus funding and the creation of jobs, training, and contracting
opportunities publication states that Section 3 recognizes that the normal expenditure of certain
HUD funds typically results in new jobs, contracts, and other economic opportunities and when
these opportunities are created, low- and very low-income persons residing in the community in
which the funds are spent (regardless of race and gender) and the businesses that substantially
employ them should receive priority consideration.

Finding 4
Section 1512(c) of the Recovery Act requires recipients of funds to comply with the transparency
and accountability requirements of the Recovery Act. Recipients of funds are required to submit
quarterly reports on the Internet (FederalReporting.gov). No later than 10 days after the end of
each calendar quarter, each recipient that received recovery funds from a Federal agency must
submit a report to that agency that contains a detailed list of all projects or activities for which
recovery funds were expended or obligated, including (1) the name of the project or activity, (2)
a description of the project or activity, (3) an evaluation of the completion status of the project or
activity, and (4) an estimate of the number of jobs created and the number of jobs retained by the
project or activity.

OMB Memorandum M-10-08, part 2, section 5.1, number 2, states that recipients of Recovery
Act funds subject to Section 1512 are required to submit estimates of jobs created and jobs
retained for each project or activity in their recipient reports; this updated guidance changes the
job estimate calculation such that the recipient will now report job estimate totals by dividing the
hours worked in the reporting quarter (that is, the most recent quarter) by the hours in a full-time
schedule in that quarter. Recipients will no longer be required to sum across multiple quarters of
data as part of the formula. A second important change is in the definition of a job created or
retained. Previous guidance required recipients to make a subjective judgment on whether a
given job would have existed were it not for the Recovery Act. The updated guidance eliminates

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this subjective assessment and defines jobs created or retained as those funded in the quarter by
the Recovery Act. Jobs funded with non-Recovery Act funds will not be counted unless they
will be reimbursed (see section 5.9). Jobs funded partially with Recovery Act funds will be
counted based only on the proportion funded by the Recovery Act.

OMB Memorandum M-10-08, part 2, section 5.2, number 5, states that prime recipients are
required to report an estimate of jobs directly created or retained by project and activity or
contract and enter this information into a single numeric field in FederalReporting.gov.

OMB Memorandum M-10-08, part 2, section 5.2, number 10, states that this guidance does not
establish specific requirements for documentation or other written proof to support reported
estimates on jobs created or retained; however, recipients should be prepared to justify their
estimates. Recipients must use reasonable judgment in determining how best to estimate the job
impact of Recovery Act dollars, including the appropriate sources of information used to
generate such estimate. When such written evidence exists, it can be an important resource for
validating the job estimates reported.

OMB Memorandum M-10-08, part 2, section 5.3, states that to perform the calculation, a
recipient will need the total number of hours worked by employees in the most recent quarter
(the quarter being reported) in jobs that meet the definition of a job created or a job retained as
defined in section 5.3.2. The recipient will also need the number of hours in a full-time schedule
for the quarter. For instance, if a full-time schedule is 2,080 hours per year, the number of hours
in a full-time schedule for a quarter is 520 (2,080 hours/4 quarters = 520). The formula for
reporting can be represented as the total number of hours worked and funded by the Recovery
Act within the reporting quarter divided by quarterly hours in a full-time schedule equals the
full-time equivalent.




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