oversight

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

Published by the Department of Housing and Urban Development, Office of Inspector General on 2014-04-30.

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 Competitive Grant




2014-CH-1003                                  APRIL 30, 2014
                                                        Issue Date: April 30, 2014

                                                        Audit Report Number: 2014-CH-1003




TO:            Douglas Gordon, Acting Director of Public Housing, 5FPH

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

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


    Attached is the U.S. Department of Housing and Urban Development (HUD), Office of
Inspector General’s (OIG) discussion draft audit report on the Hamtramck Housing
Commission’s American Recovery and Reinvestment Act Public Housing Capital Fund
competitive 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.
                                              Date of Issuance      April 30, 2014
                                              The Hamtramck Housing Commission, Hamtramck, MI,
                                              Did Not Always Administer Its Grant in Accordance
                                              With Recovery Act, HUD’s, or Its Own Requirements



Highlights
Audit Report 2014-CH-1003


    What We Audited and Why                    What We Found

We audited the Hamtramck Housing              The Commission did not comply with Recovery Act,
Commission’s American Recovery and            HUD’s, or its own requirements. Specifically, it (1)
Reinvestment Act of 2009 Public               improperly awarded a noncompetitive Recovery Act-
Housing Capital Fund competitive              funded contract, (2) lacked support for the
grant. We selected the Commission             reasonableness of the price paid for its Recovery Act-
based upon our analysis of the risk           funded activities, and (3) used Recovery Act funds to
factors relating to public housing            pay for work activities that were not included in its
agencies in Region 5’s1 jurisdiction.         approved annual or 5-year action plan. As a result, the
Our objective was to determine whether        Commission subverted full and open competition, and
the Commission administered its grant         both HUD and the Commission lacked assurance that
in accordance with Recovery Act, the          more than $1.1 million in Recovery Act competitive
U.S. Department of Housing and Urban          grant funds was used appropriately.
Development’s (HUD), and its own
requirements. This is the second of twoFurther, the Commission did not (1) support that the
audit reports on the Commission’s      upgrades to its electrical utilities resulted in purported
Recovery Act grants.                   energy savings; (2) issue payments to its contractor in
                                       accordance with HUD’s requirements; (3) ensure that
                                       its contractors complied with the buy American,
  What We Recommend                    Section 3, and Davis-Bacon Act requirements of the
                                       Recovery Act; and (4) file the required declaration of
We recommend that HUD require the      trust. It also did not accurately report its Recovery Act
Commission to (1) support or reimburse grant activities in FederalReporting.gov. As a result,
HUD more than $1.1 million from non- HUD and the Commission lacked assurance that its
Federal funds, for transmission to the Recovery Act competitive grant was administered in
U.S. Treasury, for not complying with accordance with HUD’s requirements.
Federal procurement and Recovery Act
requirements and (2) implement
adequate procedures and controls to
address the issues cited in this audit
report.




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 Recovery Act,
                 HUD’s, or Its Own Procurement Requirements            5

      Finding 2: The Commission Did Not Comply With Recovery Act,
                 HUD’s, or Its Own Grant Administration Requirements   10

Scope and Methodology                                                  17

Internal Controls                                                      20

Appendixes
A.    Schedule of Questioned Costs                                     22
B.    Auditee Comments and OIG’s Evaluation                            23
C.    Federal and the Commission’s Requirements                        38




                                           2
                      BACKGROUND AND OBJECTIVE

The Hamtramck Housing Commission was established in 1936 under the regulations 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. The Commission’s primary funding source is the U.S. Department of
Housing and Urban Development (HUD). A five-member board of commissioners, appointed
by the mayor of Hamtramck, 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 Commission administers the
projects under its annual contributions contract with HUD.

On February 17, 2009, the President signed the American Recovery and Reinvestment Act. The
Recovery Act provided an additional $4 billion to public housing agencies to carry out capital
and management activities, including the modernization and development of public housing.
The Recovery Act required that $3 billion of these funds be distributed as formula grants and
the remaining $1 billion be distributed through a competitive process. The competitive grant
funds could be used to carry out priority capital and management activities at public housing
projects.

On July 19, 2009, the Commission applied for a category 4, option 2, the creation of energy-
efficient, green communities – moderate rehabilitation, grant to replace the windows at its
Colonel Hamtramck Homes project. A grant of more than $1.1 million was awarded to the
Commission by HUD and was effective September 24, 2009, with the Commission’s signing of
an amendment to its annual contributions contract. On May 28, 2010, the Commission
requested permission from HUD to amend its competitive grant activities to upgrade the
electrical utility components at Colonel Hamtramck Homes instead of replacing the windows.
On July 1, 2010, HUD approved the Commission’s request to amend its competitive grant
activity.

According to the Recovery Act, the Commission was required to obligate 100 percent of its
competitive grant funds within 1 year, expend 60 percent of the funds within 2 years, and fully
expend the funds within 3 years. The Commission obligated its funds before the obligation
deadline by signing a contract with its contractor and had expended 100 percent of the funds as
of January 2012, before the 3-year deadline.

On August 5, 2010, the Commission entered into a contractual agreement with its contractor to
upgrade the electrical components at Colonel Hamtramck Homes and provide a green
assessment manual, a green operations and maintenance manual, a green procurement policy,
and green training. The contract was for more than $1.1 million.




                                               3
Our objective was to determine whether the Commission administered its Recovery Act
competitive grant in accordance with HUD’s requirements and its own policies.




                                             4
                                     RESULTS OF AUDIT


Finding 1: The Commission Did Not Comply With Recovery Act,
HUD’s, or Its Own Procurement Requirements
The Commission did not comply with Recovery Act, HUD’s, or its own procurement
requirements. Specifically, it (1) improperly awarded a noncompetitive Recovery Act-funded
contract, (2) lacked support for the reasonableness of the price paid for its Recovery Act-funded
activities, and (3) used Recovery Act funds to pay for work activities that were not included in
its approved annual or 5-year action plan. The deficiencies occurred because the Commission
disregarded Federal procurement requirements and lacked adequate procedures and controls to
ensure that it administered its grant in accordance with Federal and its own requirements. As a
result, the Commission subverted full and open competition, and both HUD and the
Commission lacked assurance that more than $1.1 million in Recovery Act competitive grant
funds was used appropriately.


    The Commission Did Not
    Properly Procure Its Recovery
    Act-Funded Contract


                 On July 14, 2009, the Commission executed a memorandum of agreement with
                 its contractor. According to the agreement, its contractor pledged to assist the
                 Commission in completing the application to apply for a Recovery Act-funded
                 competitive grant. In exchange, the Commission agreed that if it were awarded
                 the grant, it would use the funds to noncompetitively award a contract to its
                 contractor for the work.

                 In September 2009, HUD awarded the Commission a more than $1.1 million
                 Recovery Act-funded competitive grant. On August 5, 2010, in accordance with
                 its agreement with its contractor, the Commission executed the noncompetitive
                 contract. However, it did not maintain support (1) to justify the use of the
                 noncompetitive procurement method and (2) to show that the awarding of the
                 contract was infeasible under sealed bidding or the competitive procurement
                 method as required.2

                 By executing the memorandum of agreement before applying for the competitive
                 grant, the Commission documented its intent to not procure the grant activities
                 competitively as required by HUD’s regulations,3 which was in violation of the

2
  24 CFR (Code of Federal Regulations) 85.36(d)(4); 24 CFR 85.36(b)(9); HUD Handbook 7460.8, REV-2, section
8.5; the Commission’s procurement policy; and section VI.B.3a of the notice of funding availability
3
  Regulations at 24 CFR 85.36(c) state that all procurement transactions will be conducted in a manner providing
   full and open competition consistent with the standards of section 85.36.


                                                       5
                  grant requirements4 and contrary to the certification5 on the grant application that
                  the Commission would administer the grant in compliance with all requirements.
                  At the time the agreement was executed, the Commission had 14 months until
                  the grant was required to be obligated, during which it could have solicited bids
                  or proposals.

                  According to the Director of the Detroit Office of Public Housing, in addition to
                  subverting full and open competition through the agreement, by way of having
                  its contractor assist in preparing the application and planning the projects, the
                  Commission opened itself to possible conflicts of interest and gave the contactor
                  an unfair competitive advantage6 because it would have had internal knowledge
                  of the grant, including the amount of funds awarded to the Commission.

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

                  On August 5, 2010, in accordance with the agreement with its contractor, the
                  Commission executed a noncompetitive contract to upgrade the electrical
                  components at Colonel Hamtramck Homes7 and provide an environmental or
                  green (1) assessment manual, (2) operations and maintenance manual, (3)
                  procurement policy, and (4) training. The Commission did not provide support
                  showing that it completed an independent cost estimate before entering into a
                  contract for its Recovery Act-funded projects as required by HUD.8 The
                  Commission’s architect completed an independent cost estimate; however, it was
                  dated 4 days after the date on which the contract was executed. According to the
                  Commission’s project manager, the Commission prepared an independent cost
                  estimate for the project before executing the contract. However, she discarded
                  the estimate because it was substandard in comparison with the independent cost
                  estimate prepared by the Commission’s architect.

                  In reviewing the independent cost estimate completed by the Commission’s
                  architect, we determined that it also was inadequate. For instance, the estimate
                  covered only the electrical infrastructure upgrades, which were estimated to cost
                  between $745,000 and $785,000. However, the estimate did not include costs
                  for the Commission’s green (1) assessment manual, (2) operations and
                  maintenance manual, (3) procurement policy, or (4) training. Documentation

4
  Section VI.B.2.c of the notice of funding availability
5
  In box 9 of the grant application, the Commission certified that it would administer the grant in accordance with
   all the requirements of the notice of funding availability and all requirements applicable to public housing,
   including HUD regulations, and all other requirements as such requirements may be amended from time to time.
6
  HUD Handbook 7460.8, REV-2, paragraph 9.3(E)
7
  The electrical component upgrades included the replacement of 18 pole-mounted transformers, overhead feeders,
   and the main distribution panels for 36 buildings.
8
  24 CFR 85.36(f)(1)


                                                         6
                provided during the execution of the project showed that the contractor listed the
                cost of these items at $20,833. Further, the Commission did not provide support
                showing that it compared the independent cost estimate to the contract price and
                did not explain the difference between the independent cost estimate and contract
                price in the procurement file as required by HUD9 since the final contract price
                exceeded the independent cost estimate by more than 30 percent.

                HUD regulations require that, in addition to the independent cost estimate,10 a
                cost analysis11 needs to be conducted for noncompetitive procurements and profit
                should be negotiated separately.12 However, the Commission did not conduct
                the required cost analysis or negotiate the profit separately. Therefore, it did not
                maintain adequate support to fully determine the reasonableness of the contract
                price and did not maintain support for the basis of the contract price.13

                Additionally, we identified costs for work items that were not included in the
                scope of work of the actual contract or the independent cost estimate. The
                contract price included $79,975 for the replacement of exterior doors and door
                locks to the electrical rooms and to demolish the electrical rooms at Colonel
                Hamtramck Homes. However, in reviewing documentation provided by the
                Commission, these activities were part of a different contract with the same
                contractor. Therefore, since these work items were not allocable14 to the
                contract, they were ineligible15 to be paid for with Recovery Act grant funds.

                The Commission also did not provide support for the $239,03316 difference
                between the independent cost estimate and contract price. Because the
                Commission did not (1) have support showing that it completed an independent
                cost estimate before awarding the grant, (2) explain the difference between its
                independent cost estimate and contract price in its procurement file, and (3)
                complete the required cost analysis or negotiate the profit separately, HUD had
                no assurance that the price paid for the grant activities was reasonable and that
                all activities were necessary.




9
  HUD Handbook 7460.8, REV-2, paragraph 10.3(E)
10
   24 CFR 85.36(d)(4)(ii)
11
   HUD Handbook 2210.18, paragraph 1-2(B)
12
   24 CFR 85.36(f)(2)
13
   24 CFR 85.36(b)(9)
14
   HUD Handbook 2210.18, Appendix 1, Federal Acquisition Regulation, Part 31.201-4
15
   HUD Handbook 2210.18, Appendix 1, Federal Acquisition Regulation, Part 31.201-2(a)
16
   $1,124,841 - $785,000 - $20,833 - $79,975 = $239,033


                                                     7
     Some of the Commission’s
     Recovery Act-Funded
     Modernization Activities Were
     Not Included in the
     Commission’s Annual Plan

                  HUD requires17 that the grant-funded activities be included in a current annual
                  plan or a 5-year plan. The Commission did not ensure that it included each of its
                  Recovery Act-funded activities in either its revised annual plan or 5-year plan.
                  The plans did not include the green (1) assessment manual, (2) operations and
                  maintenance manual, (3) procurement policy, and (4) training. Therefore, these
                  items totaling $20,833 were ineligible for payment using Recovery Act funds.

                  The Commission amended its annual plan to include the electrical infrastructure
                  upgrades; however, the revision to the plan would have been considered a
                  substantial deviation.18 As a result, the Commission was also required to hold a
                  public meeting to discuss the change and to post the notice of the meeting at least
                  10 days before it was to be held.19 The revised plan was approved by HUD on
                  July 20, 2010; however, the Commission failed to post the notice of the meeting
                  10 days before the meeting. The Commission provided documentation showing
                  that it posted the notice of the meeting on May 28, 2010, and that the meeting
                  was held on June 2, 2010. Therefore, the notice was posted for only 5 days. As
                  a result, the amendment to the plan to include the electrical infrastructure
                  upgrades was not conducted in accordance with Recovery Act requirements.

     The Commission Disregarded
     Federal Requirements and
     Lacked Adequate Procedures
     and Controls

                  The Commission disregarded Federal procurement requirements regarding full
                  and open competition and lacked adequate procedures and controls to ensure that
                  it administered its grant in accordance with Federal and its own requirements.

     Conclusion

                  As a result of the deficiencies detailed above, HUD and the Commission lacked
                  assurance that more than $1.1 million in Recovery Act competitive grant funds
                  was used appropriately and efficiently. Further, had the Commission allowed
                  full and open competition in its procurement or complied with HUD’s
                  requirements, the project may have been obtainable at a lower cost.

17
   Public and Indian Housing Notice 2009-12
18
   Based upon the Commission’s definition in its 5-year plan
19
   Section VI.B.2.b of the notice of funding availability


                                                        8
     Recommendations

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

                 1A.      Reimburse HUD $79,975 from non-Federal funds, for transmission to the
                          U.S. Treasury, for the work items that were not allocable to the Recovery
                          Act competitive grant-funded contract.

                 1B.      Reimburse HUD $20,833 from non-Federal funds, for transmission to the
                          U.S. Treasury, for the Recovery Act-funded work items that were not
                          included in the Commission’s annual or 5-year plan.

                 1C.      Support the reasonableness or reimburse HUD $239,033 from non-
                          Federal funds, for transmission to the U.S. Treasury, for the amount of
                          the Commission’s Recovery Act-funded contract that exceeded the
                          independent estimate.

                 1D.      Support the use of the sole-sourcing procurement method for its
                          Recovery Act-funded competitive grant or reimburse HUD $785,159
                          from non-Federal funds for transmission to the U.S. Treasury.20

                 1E.      Develop and implement adequate contract administration procedures and
                          controls to ensure that the Commission’s contracts are procured and
                          administered in accordance with HUD’s requirements and the
                          Commission’s policies.




20
  The actual unsupported amount was $1,125,000. However, the amount was reduced by recommendations 1A
($79,975), 1B ($20,833), and 1C ($239,033), thus totaling $785,159. If the Commission is able to provide support
for recommendation 1C, the amount for recommendation 1D would increase to $1,024,192 ($785,159 + $239,033).


                                                       9
Finding 2: The Commission Did Not Comply With Recovery Act,
HUD’s, or Its Own Grant Administration Requirements
The Commission did not comply with Recovery Act, HUD’s, or its own grant administration
requirements. Specifically, it did not (1) support that energy savings were achieved, (2) issue
payments to its contractor in accordance with HUD’s requirements, and (3) ensure that its
contractor purchased American-made products. It also did not (1) ensure that it complied with
the Section 3 and Davis-Bacon Act requirements of the Recovery Act, (2) file the required
declaration of trust, and (3) accurately report Recovery Act grant activities in
FederalReporting.gov. The deficiencies occurred because the Commission lacked adequate
procedures and controls to ensure compliance with Recovery Act, HUD’s, and its own
requirements. As a result, HUD and the Commission lacked assurance that the Commission’s
Recovery Act competitive grant was administered in accordance with HUD’s requirements and
its activities achieved their intended purpose.


 The Commission Did Not
 Support That Energy Savings
 Were Achieved

              The Commission did not provide support showing that the electrical utility
              upgrades achieved the purported energy savings in its grant application or its
              request to HUD to amend its Recovery Act grant activities.

              Section V.A.4.c.2.b of HUD’s notice of funding availability, dated June 3, 2009,
              states that to comply with category 4, option 2, rating factor 2, strategy for
              energy-efficient communities, a public housing agency is required to document
              savings in energy and water consumption. The public housing agency must
              substantiate a savings in energy consumption for the project that is the subject of
              the application by converting all energy sources to a common unit, the British
              thermal unit. The savings will be verified through the comparison of an
              established baseline, developed upon an independent energy audit and a
              postretrofit energy audit.

                     In its Recovery Act grant application, the Commission certified that it
                      would develop and document a strategy that would provide a greater than
                      35 percent savings in energy and water consumption.
                     In its request to amend its grant activities, the Commission stated that its
                      efforts would achieve an estimated 35.39 percent reduction in energy
                      consumption.
                     In a letter sent to HUD on behalf of the Commission, the Commission’s
                      contractor stated that the proposed electric distribution replacement was a
                      primary energy conservation measure and that the distribution
                      replacement conservation measure would save energy as a stand-alone
                      measure (more than 46,000 kilowatts per year).


                                               10
                  According to the Commission’s executive director, the contractor had yet to
                  provide the energy savings report for the grant activities. Section 3.1.2 of exhibit
                  A of the Commission’s contract with its contractor stated that at the end of the
                  work, the contractor would prepare and deliver a savings report detailing the
                  amount of energy savings attributable to the measures implemented as part of the
                  work. Therefore, in addition to not supporting the energy savings, the
                  Commission did not enforce all of the requirements of the contract.

                  As a result, HUD had no assurance that the Recovery Act grant-funded activities
                  achieved the purported savings. HUD’s notice of funding availability, dated
                  June 3, 2009,21 states that failure to comply with the performance measure will
                  subject the grant to sanctions, including recapture of grant funds proportional to
                  the shortfall in scope of committed activities. Thus, since the Commission did
                  not provide support showing that energy savings were achieved as required, the
                  entire grant amount was unsupported.

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

                  The Commission did not properly document progress inspections for the
                  Recovery Act activities. According to HUD’s notice of funding availability for
                  the Recovery Act competitive grant, the public housing agency must requisition
                  funds only when payment is due and after inspection and acceptance of the
                  work.22 Further, HUD’s requirements23 state that all progress inspections should
                  be documented using an appropriate public housing agency inspection report
                  form. The inspection report should include a description of the work completed
                  and a determination as to whether the work is acceptable. However, the
                  Commission’s inspection reports for its electrical infrastructure upgrade project
                  did not indicate whether the work had been inspected and determined to be
                  acceptable.

                  The Commission also did not issue progress payments to its contractor in
                  accordance with the payment schedule of the contract in compliance with HUD’s
                  requirements.24 According to the payment schedule, the Commission was
                  supposed to pay its contractor in 7 installments; instead, it issued more than 11
                  payments to its contractor.




21
   Section VI.B.2.f.4.b.i of the notice of funding availability
22
   Section I.C.2. of the notice of funding availability
23
   HUD Handbook 7460.8, REV-2, section 11.2
24
   HUD Handbook 7460.8, REV-2, paragraph 11.2(E)(5)


                                                           11
     The Commission Did Not
     Ensure That Its Contractor
     Purchased American-Made
     Products

                  The Commission did not ensure that $278,561 in manufactured goods,25 such as
                  pole-mounted electrical transformers, electrical distribution panels, electrical
                  cabling, electrical conduits, and electrical connectors, used for its Recovery Act-
                  funded project, complied with the buy American requirements of the Recovery
                  Act.26 The Commission obtained statements from its contractor before starting
                  the project, emphasizing the intent to follow the buy American requirements of
                  the Recovery Act. However, it did not verify or provide support that the
                  materials purchased by its contractor were produced in the United States. The
                  Commission did not provide sufficient support to determine whether the items
                  were manufactured in the United States in accordance with the requirements.

     The Commission Did Not
     Comply With or Ensure
     Compliance With Section 3

                  The Commission did not always comply with Section 327 requirements for its
                  Recovery Act competitive grant. Specifically, it (1) did not provide support
                  showing that it achieved the Section 3 minimal numerical goal of awarding 10
                  percent of the total dollar amount of all covered construction contracts to Section
                  3 business concerns and (2) was unable to meet the goals required by HUD. 28
                  Further, the Commission did not submit the required form HUD-60002 for 2009
                  or 2010.29

                  The Commission also did not ensure that its contractor complied with Section 3
                  requirements. It did not provide support showing that its contractor incorporated
                  the Section 3 clause into all subcontracts.30 Additionally, its contractor’s Section
                  3 narrative did not contain a description of the actions taken to provide
                  subcontracting opportunities to Section 3 business concerns as required by the
                  Commission’s Section 3 plan.31 We requested on multiple occasions but the



25
   Public and Indian Housing Notice 2009-31
26
   Section VI.B.3.a.7 of the notice of funding availability
27
   Section 3 is a provision of the Housing and Urban Development Act of 1968. It requires that recipients of
certain HUD financial assistance, to the greatest extent feasible, provide job training and employment opportunities
to low- or very-low income residents and contracting opportunities to the businesses that substantially employ them
(Section 3 business concerns).
28
   24 CFR 135.30 and (d)(2)
29
   24 CFR 135.90
30
   24 CFR 135.38(b)
31
   Part 5 of the Commission’s Section 3 plan


                                                        12
                 Commission did not provide copies of the contracts between its contractor and
                 subcontractors.

     The Commission Did Not
     Ensure Davis-Bacon
     Compliance

                 The Commission did not ensure that all mechanics and laborers working on its
                 Recovery Act competitive grant activities were paid the prevailing wages in
                 accordance with the Davis-Bacon Act.32 The Commission obtained certified
                 payroll documentation from its contractor that did not always contain employees’
                 job classifications as required.33 Therefore, we were not able to determine
                 whether the appropriate Davis-Bacon wage rates were paid.34

                 One of the subcontractor’s employees, who was designated as an apprentice on
                 the contractor’s certified payroll, was paid at a rate less than the prevailing wage
                 rate applicable for any category of worker applicable to the contract. The
                 certified payroll did not include a classification for the apprentice. The
                 compensation at a rate less than the prevailing rate is allowed only if the worker
                 is enrolled 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 with a recognized
                 State apprenticeship agency. The Commission did not verify or provide support
                 showing that the employee was enrolled in an approved apprenticeship program
                 to justify the employee’s being paid at a rate less than the prevailing wage rate.

                 Further, at least four of the subcontractors’ employees, who were designated as
                 equipment operators, were compensated at rates less than the prevailing wage
                 rate for that job classification. Documentation provided by the Commission
                 suggested that the Commission identified the classification of one of the
                 subcontractor’s employees as “equipment operator.” However, when the
                 Commission reviewed the documentation, it did not identify that this employee
                 was underpaid because it did not match the wage paid to the required wage rate
                 on the wage decision. Further, the Commission did not provide support showing
                 that it reviewed the payroll documentation for the remaining three subcontractor
                 employees.

     The Commission Did Not
     Amend or File the Required
     Declaration of Trust



32
   Section VI.B.3.j of the notice of funding availability
33
   29 CFR 5.5(a)(3)(i)
34
   The job classifications are needed for the Commission to determine the applicable rate and role of each worker
   and evaluate the wage paid versus the required wage.


                                                        13
                  The Commission was required to have a declaration of trust35 recorded in
                  relation to the acceptance of the Recovery Act competitive grant. All public
                  housing authorities are required to record a declaration of trust against all
                  property that has been acquired, developed, maintained, or assisted with funds
                  under the U.S. Housing Act of 1937. However, the Commission did not provide
                  support showing that a declaration of trust was recorded for its Colonel
                  Hamtramck Homes project. Additionally, the Commission did not file or amend
                  a declaration of trust as a result of the Recovery Act competitive grant.

                  HUD issued Public and Indian Housing Notices 2009-28 and 2010-44, which
                  reminded housing authorities of their responsibility to record declarations of trust
                  for their projects. Based on the U.S. Housing Act of 1937, HUD regulations, and
                  the annual contributions contract, public housing agencies certify (with their 5-
                  year or annual plan under 24 CFR (Code of Federal Regulations) Part 903) their
                  compliance with all Federal requirements, including declaration of trust
                  requirements. Further, according to the notices, “if HUD determines that a
                  public housing agency is noncompliant with its public housing agency plan and
                  certifications, it may take whatever action it deems necessary and appropriate,
                  including but not limited to the following actions (1) disallow all or part of the
                  cost of the activity or action not in compliance or (2) require that some or all of
                  the grant amounts be remitted to HUD.”

                  The Commission’s executive director said that he was not aware of the
                  requirement.

     The Commission Did Not
     Accurately Report Recovery
     Act Grant Information


                  We reviewed the Commission’s FederalReporting.gov prime recipient reports
                  from the third quarter of 2009 through the first quarter of 2012. We reviewed 11
                  reports and determined that 6 (55 percent) were submitted after the reporting
                  deadline. Additionally, the Commission did not report that any jobs were created
                  or retained, although work was being performed during the second, third, and
                  fourth quarters of 2011 at Colonel Hamtramck Homes. However, we
                  determined, using documentation provided by the Commission and the reporting
                  formula,36 that at least (1) six jobs were created or retained during the third
                  quarter of 2011 and (2) two jobs were created or retained during the fourth
                  quarter of 2011. Also, for one of the quarters, the Commission reported that



35
   The declaration of trust is a legal instrument that grants HUD an interest in the public housing property and
   provides public notice that the property must be operated in accordance with all Federal public housing
   requirements, including the requirement to not convey or otherwise encumber the property unless expressly
   authorized by Federal law or HUD.
36
   Office of Management and Budget Memorandum M-10-08, part 2, section 5.3


                                                         14
                  work was performed; however, the work described was not related to its
                  Recovery Act grant activities.

     The Commission Did Not
     Always Comply With HUD’s
     Requirements

                  The Commission did not always comply with HUD’s or its own grant and
                  contract administration requirements. HUD’s Office of Public and Indian
                  Housing issued multiple notices during the grant period, which explained the
                  program requirements and provided guidance for their implementation; however,
                  the Commission failed to comply with many of the requirements. The
                  deficiencies occurred because the Commission disregarded HUD directives, did
                  not adopt adequate policies to ensure compliance with HUD’s directives, and
                  lacked adequate procedures and controls to ensure compliance with HUD’s and
                  its own requirements. The Commission’s executive director acknowledged that
                  there were mistakes in the implementation of the Commission’s policies and
                  procedures.

     Conclusion

                  As a result of the deficiencies detailed above, HUD and the Commission lacked
                  assurance that the Commission’s Recovery Act competitive grant was
                  administered in accordance with HUD’s requirements and achieved its intended
                  purpose.

     Recommendations

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

                  2A.    Support that the grant activities achieved the purported energy savings. If
                         the Commission did not achieve the purported savings, it should
                         reimburse HUD the amount proportional to the shortfall in scope of
                         committed activities.37

                  2B.    Support that the manufactured goods used in the Commission’s Recovery
                         Act competitive grant-funded project complied with the buy American
                         requirements of the Recovery Act. 38
37
   This recommendation does not contain any costs, since the questioned amount of $1,125,000 was included in
recommendations 1A, 1B, 1C, and 1D. If the Commission provides documentation to support recommendations
1C and 1D, it needs to support that the energy savings were achieved.
38
   This recommendation does not contain any costs since the questioned amount of $278,561 was included in
recommendations 1D and 2A. If the Commission provides documentation to support its procurement method and
that energy savings were achieved, it needs to support that the items used complied with the buy American


                                                     15
                2C.      Support that the worker who was compensated as an apprentice was
                         enrolled in an approved apprenticeship program as required by the Davis-
                         Bacon Act and obtain and review proper Davis-Bacon support and ensure
                         that any workers who were not compensated in accordance with the
                         prevailing wage requirements receive wage restitution, taking the
                         appropriate administrative actions as outlined in the requirements for any
                         contractors that willingly do not comply with their obligations.

                2D.      Provide the required form HUD-60002 for the years 2009 and 2010 to
                         HUD for review and approval.

                2E.      File the required declaration of trust against the Commission’s projects to
                         protect the interests of HUD.

                2F.      Review all grant information reported on the FederalReporting.gov Web
                         site, provide HUD with a summary of any discrepancies between what
                         was reported and what should have been reported, and maintain corrected
                         documentation on file.

                2G.      Develop and implement adequate grant and contract administration
                         procedures and adequate controls to ensure that all grants and contracts
                         are administered in accordance with HUD’s and the Commission’s
                         requirements.




requirements. The value of any noncompliant or unsupported manufactured goods should be reimbursed from non-
Federal funds for transmission to the U.S. Treasury.


                                                    16
                       SCOPE AND METHODOLOGY

We performed our onsite audit work between February and July 2013 at the Commission’s
office located at 12025 Dequindre Avenue, Hamtramck, MI. The audit covered the period
March 1, 2009, through September 30, 2012, but was expanded when necessary to include other
periods.

To accomplish our objective, we reviewed

      Applicable laws; regulations; Federal Register notices; HUD’s program requirements at
       24 CFR Parts 85, 135, 902, 903, 905, 965, and 968; 29 CFR Part 5; HUD public and
       Indian housing notices; HUD Handbook 2210.18; HUD Handbook 7460.8, REV-2;
       HUD Guidebook 7510.1; the U.S. Housing Act of 1937 as amended; Office of
       Management and Budget requirements at 2 CFR Part 225; Office of Management and
       Budget Circular A-133; and Office of Management and Budget Memorandums M-09-
       10, M-09-15, M-09-21, and M-10-08.

      The Commission’s accounting records; annual audited financial statements for fiscal
       years 2009, 2010, and 2011; bank statements; general ledgers; contract and procurement
       files; policies and procedures; board meeting minutes for March 2009 through
       December 2011; organizational charts; program annual contributions contract with
       HUD; and HUD’s Line of Credit Control System information and requests for
       payments.

      HUD’s files for the Commission.

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

Finding 1

We reviewed 100 percent of the documentation provided by the Commission to support its
procurement process for the Recovery Act competitive grant to determine whether the grant
activities were procured in accordance with HUD’s and the Commission’s requirements. We
determined that the Commission did not maintain all of the required documentation and did not
perform all of the required actions for its procurement. We evaluated the Commission’s
contract price against the independent cost estimate and other support to try to assess the
reasonableness of the contract price. Based on inadequate support, we were unable to determine
whether some costs were reasonable based upon market conditions or whether they were
necessary to the grant.

We reviewed documentation from HUD’s and the Commission’s files to determine whether the
Commission’s Recovery Act competitive grant activities were included in an approved annual
or 5-year plan. We also reviewed support provided by the Commission to determine whether
the plan was amended by the Commission in accordance with HUD’s requirements.



                                             17
Finding 2

We reviewed the Commission’s grant application and request to change the grant activity to
determine the energy savings that the Commission purported would be achieved by its project.
We reviewed the Commission’s investment-grade energy audit and grant application support to
determine the baseline for the energy use. The Commission did not provide the postretrofit
energy savings report or support that the energy savings were achieved; therefore, we were
unable to determine whether savings were achieved.

We reviewed the Commission’s inspection reports and compared them to the draws from
HUD’s Line of Credit Control System to determine whether the Commission inspected the
work before requisitioning funds in accordance with the Recovery Act. We evaluated the
inspection reports against relevant criteria to determine whether they were documented
correctly. We compared the rate of grant draws and payment disbursements to the payment
schedule for the Commission’s contract.

We reviewed the support for buy American compliance provided by the Commission. We
requested the Commission’s review and enforcement support and support that the materials
used were produced in the United States in accordance with the Recovery Act.

We requested the Commission’s Section 3 enforcement support and support for compliance
with Section 3. We reviewed the Commission’s procurement activities to determine whether
the Commission achieved the Section 3 goals to the greatest extent feasible or documented why
it was not feasible to achieve the goals. We reviewed the support documentation the
Commission obtained to ensure the compliance of contractors and subcontractors and evaluated
that support against the Commission’s policies and procedures and Federal requirements. We
reviewed the Commission’s submission of form HUD-60002, Section 3 Summary Report.

We reviewed the support documentation used by the Commission to ensure Davis-Bacon
compliance. We compared the certified payroll to the wage determination to determine whether
the workers were compensated in accordance with the prevailing wages. We requested support
from the Commission to demonstrate that it identified and resolved any deficiencies.

We requested that the Commission provide support for the declaration of trust filed against its
Colonel Hamtramck Homes project related to the Recovery Act competitive grant. The
Commission’s executive director admitted that the Commission did not file the declaration of
trust.

We reviewed the support documentation provided by the Commission for its Federal reporting.
We evaluated submission dates versus the deadlines to determine whether the reports were
submitted during the required timeframe. We recalculated the Commission’s figures, using
Davis-Bacon certified payrolls and the jobs created and retained formula, to determine whether
the Commission reported accurate information for its grant.

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



                                               18
evidence to provide a reasonable basis for our findings and conclusions based on our audit
objective. We believe that the evidence obtained provides a reasonable basis for our finding
and conclusion based on our audit objective.




                                              19
                              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 preparation of financial statements in accordance
                      with generally accepted accounting principles.

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

               We assessed the relevant controls identified above.

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



                                                20
Significant Deficiency

            Based on our review, we believe that the following item is a significant deficiency:

                  The Commission did not comply with Recovery Act, HUD’s, or its own
                   procurement and obligation requirements and did not administer its grant in
                   accordance with the requirements (see findings 1 and 2).




                                             21
                                    APPENDIXES

Appendix A

                 SCHEDULE OF QUESTIONED COSTS


                Recommendation
                    number               Ineligible 1/       Unsupported 2/
                      1A                         $79,975
                      1B                          20,833
                      1C                                            $239,033
                      1D                                              785,159
                                               $100,808            $1,024,192



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.




                                              22
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation                      Auditee Comments




             Audit Draft Response

Comment 1            In responding to this draft audit report please know that each and every
             document that is referred to in this response as an attachment or in the body of
             this response has already been provided to the auditor at least once.

                     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 five of the last six years the
             HHC has been recognized by the Department of Housing and Urban
             Development (HUD) as the largest “Public Housing High Performer” by
             Capital Fund Program (CFP) in the state of Michigan. The fact that our
             buildings are nearly 80 years old is an important aspect when considering the
Comment 2    modifications completed with this funding. The necessity to replace the
             electrical infrastructure must be adamantly considered when assessing this
             audit. In addition to the 36 buildings encompassing three hundred (300) mixed
             family units ranging in size from 1 to 5 bedrooms comprising the Colonel
             Hamtramck Homes, the HHC has is an eight (8) story tall Senior high rise built
             in 1986 which is comprised of 150 elderly apartments.

             The funding received and the expenditures associated with the funding being
             assessed through this audit amounts to $1,125,000.00.




                                             23
Ref to OIG Evaluation                     Auditee Comments


                     The HHC through a competitive process applied for this grant funding
             after receiving a “notice of funding availability” (NOFA) update (June 3,
             2009). Upon learning of the NOFA the HHC began assessing the likelihood of
             obtaining funding, and after meeting all prerequisites ultimately received
             $1,125,000.00. The HHC, through a HUD Washington Substantial Deviation
             Approval was authorized to spend these funds on electrical infrastructure
             upgrades at the Colonel Hamtramck Homes. The HHC spent $1,125,000.00 on
             electrical upgrades.

                     The HHC per an Energy Performance Contract (EPC) had an
Comment 3    investment grade energy audit performed by Siemens and had accurate, up to
             date data in regards to what energy upgrades would save enough money to
             warrant the available upgrades. As background, the energy performance
             contract (EPC) is another financial vehicle encouraged by HUD that allows
             public housing commissions to obtain private funding to perform upgrades to
             their properties that provide savings to the commission by reducing the
             commission’s consumption of water, electricity, and gas, and ultimately
             reducing the bills associated with the commission’s usage. HUD agrees to
             continue to fund the commission at old consumption rates, and the difference
             between HUD funding and the savings experienced because of the upgrades, is
             utilized to pay the private funding back. While this project is technically not
Comment 4    part of the audit it is imperative to understand its functionality and how it is
             intertwined with the ARRA Competitive Grant that the HHC received.

                      Two important things were assessed when HUD determined which
             PHA’s were eligible to receive ARRA funding. The first was a PHA’s ability
             to leverage non-HUD funding, which for the HHC was the energy
             performance contract (EPC financing). The second was the commission’s
             ability to save energy through a guaranteed savings. Again for the HHC this
             was the energy performance contract with savings guaranteed by Siemens.

                    It is imperative to understand the intricate dependency the ARRA
Comment 5    Competitive Grant has on the EPC, and vice versa. Neither project exists
             without the other. The HHC has included a time line for easy reference to




                                            24
Ref to OIG Evaluation                      Auditee Comments

             understand the complete history of this project. (See appendix A) The time line
             will be very important in understanding the way in which the HHC arrived at
             competing for, receiving, obligating, and expending the ARRA competitive
Comment 6    grant. At all times the HHC completed all machinations of this process in
             concert and with complete approval Detroit Field Office and HUD
             Washington.

                     The first step in the HHC’s process of obtaining the ARRA competitive
             grant (CFCRG) began many years before the NOFA became available.
Comment 7    In order to compete for the ARRA CFCRG the commission had to have the
             EPC process in place which it did by contract. Specifically the MOA dated
Comment 8    April 22, 2008. As such our ARRA journey began long before the ASSA
Comment 9    CFCRG funding became available.

                    On February 13, 2007 the Hamtramck Housing Commission sent the
             Request for Qualifications for an energy consulting firm to Dale Wofford of
             the Detroit Field Office. The HHC had to receive permission from the Detroit
             Field Office in order to advertise the Request for Proposals for an energy
             consulting firm. After receiving the approval to proceed the HHC advertised
             for energy consulting services. Please refer to see Attachment B to review a
             copy of the RFP. The RFP states on page 1 paragraph 2, “The Hamtramck
             Housing Commission is interested in entering into a cooperative relationship
             with an energy services firm to implement a full range of water and energy
             conservation measures and related capital improvements.” Further, note that
             on page 7 under Contract Duration, the HHC request states emphatically,
             that the duration of the contract “shall not be fewer than six (6) years. . . . . .
             .appropriations”.
             The HHC published the advertisement requesting qualifications of an “Energy
             Services Company”, (ESCO) on August 26, 2007 in The Detroit Free Press,
             The Detroit News, and on the Internet Bill Board. In the ad itself the language
             states the HHC is seeking proposals from “Energy Savings Companies
             (ESCOs) that are capable of providing comprehensive energy management
             and energy related capital improvement services through an energy
             performance contract that will improve the energy efficiency of the authority’s
             450 housing units and related administrative facilities. PHA is contracting full




                                             25
Ref to OIG Evaluation                     Auditee Comments

              range of energy service and energy related capital improvements…”. Please
              refer to Attachment C, which contains a copy of the advertisement.

Comment 9          It is clear and obvious that the HHC competitively procured an energy
           services company to handle all of the HHC’s energy projects. The language in
           the request to proceed submitted to, and authorized by Dale Wofford the
           ESCO specialist at the Detroit Field Office, in all three of the official ads
           placed in the newspapers and on the internet, convincingly, overwhelmingly,
           and plainly states the intent of the HHC to procure a long term relationship
           with an energy company to provide for ALL of the energy projects of the
           HHC. Finally, the RFP itself states on page 7 that this is minimally a 6 year
           contract. There can be no other interpretation, it exists there in black and
           white. The HHC‘s intent cannot be any more obvious, to procure an energy
           services company for a minimum of 6 years, which is via an MOA, still legally
Comment 10 in force as of April 22, 2014. (Per the MOA signed on April 22, 2008 which
           has been identified by the auditor as a contract, see audit draft report dated
           June 26, 2013 page 1, Memorandum of Agreement). (Attachment MM)
           The OIG has produced nothing in written or oral form to suggest that the HHC
           was seeking to procure an energy savings company for some limited time or
           some limited purpose. The only language which does exists is that which is
           plainly stated in the only documents that could or would describe it, as
           previously described above.

                      On February 28, 2008 the Hamtramck Housing Commission body as a
              whole heard live presentations from representatives of the two companies who
              responded to the RFP advertisement. (see Attachment H, presentations, board
              minutes) (also refer to the full RFP responses from both interested parties in
              attachments F&G) All Commissioners and the Executive Director rated the
              two companies as per the technical appendix contained in the original RFP.
              (Attachment B) After the presentation and tally of the ratings sheets Siemens
              Industries Inc. was chosen. (see Attachment I)

              The first task performed by Siemens was an energy audit. After receiving the
              energy audit and analyzing the results the Commission selected energy
              upgrades based on the payback potential and needs of our residents. The




                                            26
Ref to OIG Evaluation                      Auditee Comments


Comment 11 factors which influenced our decisions were to replace items which would save
           enough energy and money to afford the cost of the upgrade, and chose items
           that would continue to save energy over time. During the energy audit it was
           discovered that whole blocks of apartments at the Colonel Hamtramck Homes
           were not receiving 100% of the required amperage into the residences. Some
           of these residences were receiving as little as 80%. This explained a chronic
           problem we were having with ignition failures in the furnaces and lighting
           problems with our stoves. Although old inefficient equipment could operate
           with the decreased amperage, the new proposed high efficiency furnaces and
           water heaters needed 100% amperage in order to operate, and in order for
           Siemens Industries to guarantee their proposed savings, the very cusp of the
           project payback.

Comment 11          The HHC selected all items determined necessary and cost effective
              including the Electrical Infrastructure upgrades. The total cost to complete all
              modifications was approximately 4.6 million dollars. The HHC began seeking
              out financial mechanisms to fund the improvements. The HHC attempted
              conventional financing methods however, those could not be amortized in a
              way that allowed enough cost savings for the duration of the loans. Attempts at
              obtaining financing through municipal bonds also proved to be useless. During
              this time the Notice of Funding Availability (NOFA) was released.

                      On May 7, 2009 the NOFA for the ARRA CFCRG was released. On
              June 3, 2009 an update to the NOFA was released. At this point the HHC
              already had in its possession a key element to applying for the NOFA grant to
              wit an energy audit with current data and an ESCO company, namely Siemens,
              under contract. Upon initial competition and application for the CFCRG the
              Commission was still under the thought that the full EPC amount would be
              financed through the EPC private funding. Only after being awarded the
              ARRA CFCRG, did the Commission learn that the proposed financing of the
              EPC was not going to be possible. At this point the Commission re-examined
              its position and determined the only ability for either project to proceed would
              be to request a substantial deviation from HUD allowing the Commission to
              scrap the window project originally proposed in our grant application. Now,




                                             27
Ref to OIG Evaluation                      Auditee Comments


Comment 11 the electrical infrastructure upgrades had to be moved from the original scope
           of work contained in the EPC to the ARRA CFCRG. This ultimately reduced
           the dollar amount being financed through private funding and allowed the
           amortization and the guaranteed savings payback of the EPC to move forward
           as well as the Commission retaining the Competitive award of the CFCRG.
           Without HUD approval, neither project would have moved forward.

                       To do this, the Commission requested via letter dated May 28, 2010 an
               amended 50075.1 (annual statement and performance form) requesting the
               revision to expend funds on electrical system upgrades. (Attachment N)

                   Since the HHC had already procured Siemens and contracted them for
Comment 12 a minimal 6 years, the HHC, on July 15, 2009 signed and issued a second
           MOA in which Siemens agreed to manage and guarantee the savings
           experienced by the proposed expenditures of the ARRA CFCRG. (see
Comment 13 Attachment L). The HHC applied for and submitted the ARRA CFCRG grant
           application on June 14, 2009. The HHC, requested the substantial deviation in
           accordance with PIH notice 2009-25 clause 9, paragraph 3, in which it states
           “ECM (energy conservation measures) may be added or replace current ecm’s
           in the original projects”, specific permission to amend the ARRA CFCRG
           grant was required. The HHC applied for and received permission to amend
           our grant application from windows to the electrical grid upgrade from
           Lindsey Reames, HUD Washington in an email dated July 1, 2010. (see
           Attachment O)

                   In a letter dated July 14, 2010 the HHC indicated to HUD our intent to
               proceed with the approved substantial deviation and proposed budget approved
               by HUD. (see Attachment P)

                      Following the HUD approval to deviate from our original grant
               application on July 1, 2010, the incessancy and depth of the interaction in
               regards to simultaneously moving forward on both the EPC and the CFCRG,
               among the HHC, the Detroit HUD Field office, and HUD Washington is
               evidenced in the attachments enclosed for your review:




                                             28
Ref to OIG Evaluation                      Auditee Comments



                     Attachment R: Letter to HUD dated August 6, 2010, HHC’s
                                   clarification to HUD explaining and reiterating the
                                   leveraging ties and commitments of the EPC and the
                                   CFCRG.
                     Attachment U: Letter to HUD dated August 10, 2010 memorializing
                                   the intricate relationship and connection of the EPC
                                   and the CFCRG
                     Attachment V: Letter from Dominique Blom dated August 20, 2010
                     Attachment W: Letter from the HHC in response to HUD
                                   Washington’s Letter dated 08/20/2010
                     Attachment X: Letter from HHC dated September 7, 2010 requesting
                                   that approval to proceed with EPC be given from HUD.
                     Attachment Y: E-mail from Jeff Riddel, Director of the Office of
                                   Capital Improvement dated September 21, 2010
                                   officially granting the Substantial Deviation.

                   These letters are imperative to review and understand because the
           history outlines the exigent time line that the Commission was under to get
Comment 14 these funds under contract and ultimately obligated. Upon final HUD approval
           being received on September 21, 2010 from Washington, the Commission
           had 48 hours to obligate its funds.

Comment 15             The HHC received HUD approval to move forward with the EPC on
              November 23, 2010. (Attachment AA). The Commission could not contract
              with Siemens Industries Inc. until this approval was received from HUD and
              as such formally executed its EPC contract on December 15, 2010.
              (Attachment CC). It is important to note that the Commission could not sign
              the full EPC contract because it was waiting on the necessary approvals from
              HUD, thus explaining the use of the MOA contracts executed earlier in the
              process. This requirement of HUD approval to enter into a full EPC contract
              made it necessary for the HHC to contract every earlier step of the relationship
              between the chosen ESCO company and the Commission in phases.




                                             29
Ref to OIG Evaluation                     Auditee Comments


Comment 16           The Hamtramck housing commission (HHC) ascertains that it fully
              complied with HUD and its own requirements during the contract management
              process of its American Recovery and Reinvestment Act (Recovery Act)
              Public Housing Capital Fund Competitive Grant.

Comment 17            The commission provided support that it ensured its contractor
              obtained the required performance and payment bond for the Recovery Act
              Grant funded contract. (See attachment CC) Per the contract documents,
              specifically HUD form 5370 clause 24, “prohibition against liens”, the
              contractor is prohibited from placing a lien on the PHA’s property.

Comment 18            The commission made progress payments to its contractors for
              Recovery Act Grant activities and did so after completing daily HHC
              Management inspections and monitoring. HHC also received third party
              inspections and written reports. The Construction Observation Reports
              (COR), detailing weekly progress, commenced on June 2, 2011 and ran
              weekly through December 2, 2011. (See attachment GG, COR Reports 1-20)
              Please note the COR’s included observations of both the Recovery Grant as
              well as the Energy Performance Contract as both projects were intertwined and
              simultaneously under construction.

Comment 19         The Housing Commission reviewed and assessed all payment requests
           and made by the contractor and paid them according to third party oversight’s
           weekly inspections, and only upon the third party A/E firm reviewing,
           approving, and certifying that all work being requested for payment had
           substantially been completed did the Commission request a voucher draw
           down. Funds were only received from HUD after a HUD review was
           completed of all eloccs draw down’s supporting documentation that was sent
Comment 20 to HDU with each draw request. As the only differences and corresponding
           corrective remedies of materials and workmanship are noted on CORs,
           observations noting the completion of individual components are or should be
           implied as conforming to the contract documents.




                                            30
Ref to OIG Evaluation                      Auditee Comments


                   The commission has provided support for all of its draws from HUD’s
Comment 19 Line of Credit Control Systems (LOCCS). See attachment HH in which all
           draws are present. Attached to each draw you will find a copy of the checks
           written to the vendor proving that payment was issued to its contractors within
           three (3) working days of receipt of the funds.

                   As stated earlier, ALL payment requisitions from the Contractor were
Comment 18 issued to Alliance Architects, the commission’s third party oversight, who
           completed the weekly walk through and produced the construction observation
           reports in which work was deemed either acceptable or outlined further action
           necessary. Upon Alliance Architects receipt of the requisition, Alliance would
           review and cross reference that the work being invoiced as part of the
           requisition was completed and had been inspected and deemed acceptable.
           Upon those criteria being met, the Architect would sign the AIA document,
           See attachment HH in which you will find the reviewing party’s signature on
           each pay requisition.

                       Upon being approved by the architect, the pay requisition would be
               sent to the housing commission. The housing commission would review the
               documentation of acceptability from the third party, would process the
               voucher, and send the field office all ESSR required forms. The commission
               would cut the checks for payment to the vendor upon release of funds from the
               Detroit Field Office.

                   The commission contends that it fully complied with the Buy American
Comment 21 for all materials utilized in the ARRA funded portion of the project. See
           Attachment II for supporting documentation regarding compliance of electrical
           closet doors and hardware, electrical service panels, electrical conduit, and
           electrical transformers.

                  The commission has provided support to show it complied with Section
Comment 22 3 and did ensure compliance of its contractors and sub-contractors for its




                                             31
Ref to OIG Evaluation                    Auditee Comments


             Recovery Act Competitive Grant. See attachment JJ in which the
             commission’s general and sub-contractors provided certification of Section 3
             compliance.

Comment 23           The commission complied and reviewed all payroll documentation for
             completeness and accuracy of job classifications and correct wages paid per
             Davis Bacon requirements. See Attachment KK, as previously submitted to
             auditor in its entirety, for supporting documentation included are payroll
             reports for the following contractors:
                     Motor City Electric             PR–1 (6/1/11) to PR-38 (11/20/11)
                     Mudzilla                        PR-1 (6/25/11) to PR-2 (7/2/11)
                     Qualified Construction          PR-1 (8/27/11) to PR-11 (10/29/11)
                     Brian Buchanen*                 PR-1 (7/2/11) to PR-8 (8/20/11)
             All payroll reports correspond in sequence with payment application submitted
             by Siemens Technologies.

Comment 24           The commission believes that it complied with the cost reasonableness
             review of the ARRA Portion of the contract in multiple ways. First, the
             electrical upgrades were competitively bid by Siemens Technologies. Two,
             bids were received and were within $3000.00 of each other. The commission
             then had a third party firm perform an Independent Cost Estimate (ICE) for the
             electrical upgrades. The ICE concluded that Motor City’s bid of $758,000, fell
             within their projected range of $745,000 – $785,000. The remainder of the
             contract amount, attributed to Siemens Technologies fees and services were
             evaluated by the commission to be reasonable based on historical data received
             for similar work performed at other housing agencies.


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




                                           32
                           OIG Evaluation of Auditee Comments

Comment 1     We acknowledge that we received documentation throughout the audit. The
              reason for the repetitive information requests was to give the Commission an
              opportunity to provide complete support documentation that had not been
              previously provided. We disagree with the Commission’s assertion that every
              document had been provided at least once. For instance, the energy performance
              contract, product brochures, and apprenticeship documentation referred to in
              attachments CC, II, and JJ, respectively, of the Commission’s response had not
              been previously provided.

Comment 2     The Commission stated that the necessity to replace the electrical infrastructure
              must be adamantly considered when assessing this audit. However, it did not
              provide support for its assertion that the items were necessary. Further, finding 1
              of the report did not address the necessity of upgrading the electrical
              infrastructure. Instead, the finding related to the Commission’s procurement and
              administration of its Recovery Act-funded project and whether the Commission
              maintained the required documentation to support its use of Federal funds to
              perform the upgrades.

Comment 3 We acknowledge that the Commission executed an energy performance contract
          with its contractor in December 2010. The Commission’s contractor assisted in
          designing the contract and conducting an investment-grade energy audit under a
          separate agreement with the Commission. However, that agreement was not
          related to the memorandum of agreement the Commission executed with the same
          contractor in 2009 as discussed in finding 1.

Comment 4 We agree that the Commission’s energy performance contract was not part of the
          audit.

Comment 5 The Commission stated that it is imperative to understand the intricate dependency
          the Recovery Act competitive grant had on the energy performance contract, and
          vice versa. According to the Commission, neither project existed without the
          other. The Commission did not provide support to show that the energy
          performance contract would not be feasible without the electrical infrastructure
          upgrades funded by the Recovery Act competitive grant or vice versa.

Comment 6 We disagree with the Commission’s assertion that all machinations of the process
          were completed with approval of the Detroit field office and HUD Washington.
          Neither the public housing staff in HUD’s Detroit field office nor Washington,
          D.C., were aware that the Commission agreed to award a Recovery Act-funded
          noncompetitive contract before it applied for the grant.

Comment 7 We disagree with the Commission’s assertion that it had to have the energy
          performance contract process in place to compete for the competitive grant. HUD
          regulations did not require the Commission to (1) have an energy performance



                                              33
            contract process in place to obtain a grant or (2) use an energy savings company
            to perform the work funded using Recovery Act grant funds.

Comment 8 The Commission stated that its Recovery Act journey began long before the
          ASSA Recovery Act funding became available. For clarification purposes,
          “ASSA” should read “ARRA” for the American Recovery and Reinvestment Act.

Comment 9 The Commission indicated that it competitively procured an energy services
          company to handle all energy projects. Although the Commission procured a
          contractor to develop an energy performance contract, it did not justify the
          Commission awarding additional unrelated contracts to the same contractor
          noncompetitively. HUD regulations at 24 CFR 85.36(c) state that all procurement
          transactions will be conducted in a manner providing full and open competition.

            The Commission’s comment asserted that it had an agreement in place that would
            allow it to use that same contractor for its Recovery Act work; however, the
            Commission did not provide support for its assertions. The memorandum of
            agreement, dated April 2008, stated that the Commission’s contractor would
            perform an investment-grade energy audit. The agreement further stated that the
            parties could elect to enter into a performance contract at a later date. At the time
            the Commission signed the memorandum of agreement pledging to
            noncompetitively award a Recovery Act-funded contract to the same contractor,
            the Commission was planning to use the grant funds to install energy-efficient
            windows at its project. This activity was not included in energy performance
            contract planning as explained by the executive director during the audit.
            Therefore, it would not be unallowable to enter into a memorandum of agreement
            to use the contractor under Public and Indian Housing Notice 2009-25.

            Under Public and Indian Housing Notice 2009-25, if the work was not integral to
            the energy performance contract or if it was not included in the original contract,
            the items would be considered add-on items, and the public housing agency
            would need to first determine whether a contract for the additional item was
            infeasible under small purchase procedures, sealed bids, or competitive proposals
            before noncompetitively procuring the work. These determinations were required
            to be recorded in the public housing agency’s procurement files.

            As stated in the report, the Commission entered into a noncompetitive contract
            but did not (1) include a justification for the procurement type, (2) determine that
            the procurement by other methods was infeasible, and (3) document the
            significant history of the procurement in the procurement file as required by HUD
            and the Commission. The Commission has not provided support to show that the
            electrical infrastructure upgrades were integral to the perspective energy
            performance contract development or that the upgrades were included in any
            original plan, proposal, or specifications. Further, the electrical upgrades were
            not included or cited as necessary in the contractor’s proposal or the investment-




                                              34
              grade energy audit report. Therefore, the Commission did not comply with
              HUD’s and its own procurement requirements.

Comment 10 The Commission stated that its intent to procure an energy company for a
           minimum of 6 years, via a memorandum of agreement, was obvious and still
           legally in force as of April 22, 2014. The Commission further stated that the
           auditor referred to the agreement signed on April 22, 2008, as a contract. We
           disagree. In a draft outline that was subject to review and revision, the audit staff
           referred to the memorandum of agreement, dated June 26, 2013, as a contract.
           However, this statement made by the audit staff did not apply to all of the
           Commission’s agreements, in particular, the memorandum of agreement dated
           April 22, 2008, that the Commission referred to in its comments. Further, the
           April 2008 agreement was for the contractor to perform an investment-grade
           energy audit. The terms of the agreement did not state that the company had an
           exclusive right to the management of energy-related work in perpetuity or for a
           set amount of time. The agreement clearly stated that the parties could elect to
           enter into a performance contract at a later date. It also described (1) what would
           happen if the Commission decided not to enter into a later performance
           agreement and (2) the Commission’s right to cancel the agreement. Further, the
           Commission has not provided support to show that it had an agreement in place
           with the contractor for any activities other than to obtain an investment-grade
           energy audit.

Comment 11 The Commission provided an explanation for the amendment to the grant activity
           to include the electrical upgrades; however, it did not provide support to show
           that the electrical infrastructure upgrades were (1) necessary and (2) included in
           the original scope of work under its prospective energy performance contract. It
           also did not support its assertions that the electrical upgrades were integral to the
           feasibility of the energy performance contract.

Comment 12 We disagree with the Commission’s assertion that through the memorandum of
           agreement, dated July 15, 2009, the Commission’s contractor agreed to manage
           and guarantee the savings experienced by the proposed expenditures of the
           competitive grant. Based on the terms of the agreement, the contractor agreed to
           (1) assist the Commission in applying for the grant by providing an application
           completion process manual and (2) inform the Commission of the requirements
           imposed by the grant. In exchange, the Commission agreed that any funds
           received as the result of the contractor’s efforts would be used to fund work that
           would be noncompetitively awarded to the contractor. The agreement did not
           include a guarantee of savings.

Comment 13 The Commission stated that it submitted the Recovery Act-funded grant
           application on June 14, 2009. It further stated that it requested and received
           permission to amend the grant activities that were listed on the application.
           However, documentation provided by the Commission during the audit showed
           that the Commission applied for its Recovery Act competitive grant on July 19,



                                              35
              2009, not June 14, 2009. We acknowledge that the Commission received
              approval from HUD to deviate from the work activities identified in its original
              Recovery Act grant application. However as mentioned in the report, the
              Commission did not amend its annual plan in accordance with the Recovery Act
              requirements because it did not post the notice of the public meeting at least 10
              days before the meeting was held as required by HUD. The report also
              addressed the Commission’s noncompliance with Federal and its own
              procurement requirements.

Comment 14 We disagree that the Commission had 48 hours to obligate its Recovery Act
           funds on September 21, 2010. The funds were considered obligated when the
           Commission signed the contract with its contractor on August 5, 2010.

Comment 15 As mentioned in comment 4, the energy performance contract was not the
           subject of the audit.

Comment 16 We disagree with the Commission’s assertion that it fully complied with HUD’s
           and its own requirements during the contract management process. As cited in
           findings 1 and 2 of this audit report, the Commission did not comply with
           Recovery Act, HUD’s, or its own procurement and contract administration
           requirements.

Comment 17 We commend the Commission on obtaining the performance and payment bonds
           as required by HUD’s and the Commission’s policies. However, the
           performance and payment bonds were not cited as deficiencies in the draft or
           final audit reports.

Comment 18 The Commission stated that it made progress payments to contractors after
           completing daily inspections and monitoring. It also stated that it received third-
           party inspections and reports. As cited in finding 2 of this audit report, the
           construction observation reports did not comply with HUD requirements as
           outlined in HUD Handbook 7460.8, REV-2, section 11.2, because there were no
           (1) descriptions of the work that was completed and reviewed and (2) indications
           of whether the work was determined to be acceptable.

Comment 19 As cited in finding 2 of this audit report, the Commission did not issue payments
           to its contractor in accordance with the payment schedule of the contract as
           required by HUD Handbook 7460.8, REV-2, section 11.2(E)(5), and section
           I.C.2 of the notice of funding availability.

Comment 20 The Commission stated that funds were only received after HUD reviewed the
           eloccs draw down’s support documentation that was sent to HDU with each draw
           request. For clarification purposes “HDU” should read “HUD” for the United
           States Department of Housing and Urban Development.




                                              36
Comment 21 The Commission stated that it fully complied with the buy American Act for all
           the materials related to its Recovery Act-funded project. It further stated that
           attachment II, included with its written response, contained support for the
           electrical closet doors and hardware, electrical service panels, electrical conduits,
           and electrical transformers. However, the electrical doors and hardware were not
           part of the competitive grant contract and the support for the electrical service
           panels, electrical conduits, and electrical transformers did not indicate that these
           items were used for the Commission’s Recovery Act-funded project. Further,
           the brochure provided by the Commission suggested that the Commission’s
           contractor used Prolec GE transformers in the project; however, Prolec GE’s
           Web site states that its manufacturing plant is located in Apodaca, Mexico. If
           these transformers were indeed used in the Commission’s project, they may not
           have complied with the buy American requirements, and the $175,450 spent on
           the transformers would be an ineligible expense.

Comment 22 We disagree with the Commission’s assertion that it complied with and ensured
           compliance with Section 3. As cited in finding 2 of this audit report, the
           Commission did not provide support that (1) it achieved the contracting
           numerical goal and (2) its contractor incorporated the Section 3 clause in all
           subcontracts. It also did not (1) submit the required forms to HUD and (2)
           ensure that the contractor’s Section 3 narratives contained the information
           required by the Commission’s Section 3 plan.

Comment 23 As cited in finding 2 of this report, the Commission did not ensure that it
           complied with Davis-Bacon requirements because the payroll documentation did
           not contain the required information. Additionally, the Commission did not
           identify workers who were underpaid or require that wage restitution be
           provided. Further, the apprenticeship documents provided in attachment JJ of
           the appendix were for individuals who were not listed on the certified payroll
           reports and did not perform work relating to the competitive grant. The
           Commission provided payroll reports in attachment KK. However, only one of
           the four contractors identified on the payroll reports worked on activities
           allocable to the Recovery Act-funded competitive grant.

Comment 24 We disagree with the Commission’s assertion that it complied with the cost
           reasonableness requirements. As cited in finding 1 of this audit report, contrary
           to HUD’s requirements, the independent cost estimate was completed after the
           contract was signed. Further, the Commission estimated the cost of the work to
           be between $745,000 and $785,000; however, it entered into a contract for more
           than $1.1 million. The Commission did not (1) explain the difference in the
           contract file and (2) perform a cost analysis as required. The Commission also
           did not provide support to show that it evaluated the amount that was attributable
           to its contractor’s fees and services and that the costs were necessary and
           reasonable.




                                              37
Appendix C

     FEDERAL AND THE COMMISSION’S REQUIREMENTS

Finding 1

Section VI.B.2.b of the notice of funding availability, dated June 3, 2009, states that when a
public housing agency needs to amend its annual or 5-year plan, according to HUD’s
regulations at 24 CFR 903.17, the public housing agency’s board of directors or similar
governing board must conduct a public hearing to discuss the 5-year action plan or annual plan
and invite the public to comment on the plan. For all public housing agencies accepting these
grant funds, the HUD Secretary is using the waiver authority in the Recovery Act to reduce the
public notice period to 10 calendar days.

Section VI.B.2.c of the notice of funding availability, dated June 3, 2009, states that grantees
must administer the grant in accordance with all requirements of the notice and all requirements
applicable to public housing, including the U.S. Housing Act of 1937; the Recovery Act; HUD
regulations; the annual contributions contract, including all amendments; and all other Federal
statutory, executive order, and regulatory requirements as such requirements may be amended
from time to time.

Section VI.B.3.n of the notice of funding availability, dated June 3, 2009, states that the
commitments made for each grant application will be strictly monitored and enforced. A false
statement in an application is grounds for denial or termination of an award and possible
criminal, civil, or administrative sanctions. Capital Fund competitive grant funds not used in
accordance with the notice will be recaptured or repaid with non-public-housing funding
sources. Further, failure to comply with the performance measures indicated in the notice will
subject the grant to sanctions, including recapture of grant funds proportional to the shortfall of
the performance measure(s).

HUD regulations at 24 CFR 85.36(b)(9) state that grantees and subgrantees will maintain
records sufficient to detail the significant history of a procurement. These records will include
but are not necessarily limited to the following: rationale for the method of procurement,
selection of contract type, contractor selection or rejection, and the basis for the contract price.

HUD regulations at 24 CFR 85.36(c) state that all procurement transactions will be conducted
in a manner providing full and open competition consistent with the standards of section 85.36.

HUD regulations at 24 CFR 85.36(d)(4) state that 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 circumstances applies. Cost analysis, such
as verifying the proposed cost data, the projections of the data, and the evaluation of the specific
elements of costs and profits, is required.




                                                 38
HUD Regulations at 24 CFR 85.36(f)(1) state that grantees must make independent estimates
before receiving bids or proposals.

HUD regulations 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 2210.18, paragraph 1-2(B), states that a 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. The grantee must request a complete cost breakdown and use these cost
principles to establish a fair and reasonable price or established cost.

HUD Handbook 2210.18, Appendix 1, Federal Acquisition Regulation, Part 31.201-3(a), 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 a 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 should 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 should be upon the contractor to establish that such
cost is reasonable.

HUD Handbook 2210.18, Appendix 1, Federal Acquisition Regulation, Part 31.201-4, 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. A cost is allocable to a Government contract if it (a)
is incurred specifically for the contract; (b) benefits both the contract and other work and can be
distributed to them in reasonable proportion to the benefits received; or (c) is necessary to the overall
operation of the business, although a direct relationship to any particular cost objective cannot be
shown.

HUD Handbook 2210.18, Appendix 1, Federal Acquisition Regulation, Part 31.201-2(a), states that
the factors to be considered in determining whether a cost is allowable include the following: (1)
reasonableness and (2) allocability.

HUD Handbook 7460.8, REV-2, section 8.5, states, “A. that procurement by noncompetitive
proposals must be conducted only if a written justification is made as to the necessity of using
this method …The justification should include the following information: 1. Description of the
requirement; 2. History of prior purchase and their nature (competitive vs. noncompetitive); 3.
The specific exception in 24 Code of Federal Regulations 85.36 (d)(4)(i)(A) through (D) which
applies; 4. Statement as to the unique circumstances that require award by noncompetitive
proposals; 5. Description of the efforts made to find competitive sources, e.g., advertisement in
trade journals or local publications, phone calls to local suppliers, issuance of a written
solicitation, etc.; 6. Statement as to the efforts that will be taken in the future to promote
competition for the requirement; and, 7. Signature of the contracting officer and any higher




                                                 39
approving official as required by the public housing agency’s policy B. The contracting officer
must include the written justification and approval in the contract file.”

HUD Handbook 7460.8, REV-2, paragraph 9.3(E), states that to ensure objective contractor
performance and eliminate unfair competitive advantage, contractors funded to develop or draft
specifications, requirements, statements of work, invitations for bid, or requests for proposals
must be excluded from competing in the procurement. The only exception to this rule is if,
before the solicitation, all respondents to solicitations are provided with materials and
information made available to the contractor involved in matters pertinent to the solicitation.

HUD Handbook 7460.8, REV-2, paragraph 10.3(E), states that documentation is required to
demonstrate price reasonableness whenever the price obtained varies significantly from the
independent cost estimate, in which case the contracting officer should note or explain the
reasons for the differences; that is, poor estimate, etc.

Office of Management and Budget Memorandum M-09-10 states that although the law calls on
agencies to commence expenditures and activities as quickly as possible consistent with prudent
management, this statement, by itself, does not constitute a sufficient justification to support
award of a Federal contract on a noncompetitive basis. Agencies are expected to follow the
same laws, principles, procedures, and practices in awarding noncompetitive contracts with
Recovery Act funds as they do with other funds. Competition is the cornerstone of our
acquisition system. The benefits of competition are well established. Competition saves money
for the taxpayer, improves contractor performance, curbs fraud, and promotes accountability for
results. To the maximum extent practicable, contracts using Recovery Act funds must be
awarded as fixed-price contracts using competitive procedures.

Public and Indian Housing Notice 2009-12 states that if a solicitation of a proposal is from only
one source or if the public housing agency finds that after the solicitation of a number of
sources, that competition is inadequate, the public housing agency may award the contract
noncompetitively when small purchase procedures, sealed bids, or competitive proposals are
infeasible and one of the circumstances in 24 CFR 85.36(d)(4)(i) applies. Public housing
agencies may use the noncompetitive proposals method but must do so on a contract-by-
contract basis and in compliance with all 24 CFR Part 85 requirements, including the
requirement for a cost analysis.

Public and Indian Housing Notice 2009-12 states that public housing agencies must use the
funds on Capital Fund-eligible activities currently identified in either their annual statement (a
component of the annual plan) or 5-year action plan.

Public and Indian Housing Notice 2009-25, section 8, states that for agencies which have
already procured energy performance contractors, no additional procurement is required to
enable the contractor to perform the work using Recovery Act capital funds for a scope of work
integral to the energy performance contract, provided those energy improvement activities were
in the original contract and provided that other funds were not previously obligated for that
purpose and the procurement meets the Recovery Act procurement requirements.




                                                40
Public and Indian Housing Notice 2009-25, section 8, states that in a situation in which a public
housing agency has an approved energy performance contract but wishes to add an energy
infrastructure improvement, the public housing agency must first determine, pursuant to 24 CFR
85.36(d)(4), whether a contract for the additional item is infeasible under small purchase
procedures, sealed bids, or competitive proposals. Then, if infeasible under these competitive
methods, the public housing agency must determine whether this additional item is available
only from a single source or is there a public “exigency” or emergency for this work, which will
not permit a delay resulting from competitive solicitation. These determinations must be
recorded in the public housing agency’s procurement files.

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

The Commission’s procurement policy, dated May 19, 2006, states that each procurement based
on noncompetitive proposals must be supported by a written justification for the selection of
this method. The justification, to be included in the procurement file, should include the
following information: “1. Description of the requirement; 2. History of prior purchases and
their nature (competitive vs. noncompetitive); 3. The specific exception in HUD’s regulations
at 24 Code of Federal Regulations 85.36(d)(4)(i)(A) through (D) which applies; 4. Statement as
to the unique circumstances that require award by noncompetitive proposals; 5. Description of
the efforts made to find competitive sources (advertisement in trade journals or local
publications, phone calls to local suppliers, issuance of written solicitation, etc.); 6. Statement as
to efforts that will be taken in the future to promote competition for the requirement; 7.
Signature by the contracting officer’s supervisor (or someone above the level of the contracting
officer) and; 8. Price reasonableness. The reasonableness of the price for all procurements
based on noncompetitive proposals should be determined by performing an analysis, as
described in this policy.”

The Commission’s procurement policy, dated May 19, 2006, states that the Hamtramck
Housing Commission must maintain records sufficient to detail the significant history of each
procurement action. These records must include but should not necessarily be limited to the
following: “A. Rationale for the method of procurement (if not self-evident); B. Rationale for
the contract pricing arrangement (also If not self-evident); C. Reason for accepting or rejecting
the bids or offers; D. Basis for the contract price (as prescribed in this handbook); E. A copy of
the contract documents awarded or issued and signed by the Contracting Officer; F. Basis for
Contract modifications; and G. Related contract administration actions.”

The Commission’s Recovery Act procurement policy amendment states that the Commission
adopts the “Non-Competitive Proposal Rules, IF DETERMINED NECESSARY[sic],” and in
accordance with HUD regulations at 24 CFR 85.36(d)(4)(i)(B) and discussed in chapter 8 of the
Procurement Handbook.




                                                 41
Finding 2

Title XV, section 1512(c), of the Recovery Act states that 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 Act 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 Act funds were expended or obligated, including an estimate of
the number of jobs created and the number of jobs retained by the project or activity.

Section I.C.2. of the notice of funding availability, dated June 3, 2009, states that the public
housing agency may requisition funds only when payment is due and after inspection and
acceptance of the work.

Section V.A.4.c.2.d of the notice of funding availability, dated June 3, 2009, states that grant
recipients must comply with Section 3 of the Housing and Urban Development Act of 1968 and
its implementing HUD regulations at 24 CFR Part 135. Specifically, grantees are required to
ensure, to the greatest extent feasible, that training, employment, and other economic
opportunities will be directed to low- and very low-income persons and to business concerns
that provide economic opportunities to low- and very low-income persons in that area in which
the project is located.

Section VI.B.3.a.7 of the notice of funding availability, dated June 3, 2009, states that public
housing agencies must follow buy American requirements of Section 1605 of the Recovery Act
and use only iron, steel, and manufactured goods produced in the United States in their projects.

Section VI.B.3.j of the notice of funding availability, dated June 3, 2009, states that Federal
labor standards are applicable to Capital Fund competitive grants. These labor standards
involve the payment of not less than prevailing wage rates and may include overtime
requirements and record-keeping and reporting requirements. Davis-Bacon wage requirements
apply to the activities funded with Capital Fund competitive grant funds.

Section V.A.4.c.2.b of the notice of funding availability, dated June 3, 2009, states that to
comply with category 4, option 2, rating factor 2, strategy for energy-efficient communities, a
public housing agency is required to document savings in energy and water consumption. The
savings will be verified through the comparison of an established baseline developed upon an
independent energy audit and a postretrofit energy audit.

HUD regulations at 24 CFR 85.36(b)(2) state that grantees and subgrantees must maintain a
contract administration system, which ensures that contractors perform in accordance with the
terms, conditions, and specifications of their contracts or purchase orders.

HUD regulations at 24 CFR 135.30(c) state that each recipient and contractor and subcontractor
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



                                                 42
housing rehabilitation, housing construction, and other public construction and (2) at least 3
percent of the total dollar amount of all other Section 3-covered contracts.

HUD regulations at 24 CFR 135.30(d)(2) state that 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 in this section.
Such justification may include impediments encountered despite actions taken.

HUD regulations at 24 CFR 135.32 state that each recipient has the responsibility to comply
with Section 3 in its own operations and ensure compliance in the operations of its contractors
and subcontractors.

HUD regulations at 24 CFR 135.38(b) state that all Section 3-covered contracts must include
the Section 3 clause.

HUD regulations at 24 CFR 135.90 state that each recipient that 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.

HUD regulations at 24 CFR 905.505(4) state that all public housing rental projects must show
evidence satisfactory to HUD of an effective declaration of trust being recorded in first position,
meeting the requirements of paragraph (c) of this section and covering the term of the financing.

HUD regulations at 24 CFR 905.505(3)(c)(2) state that any public housing or portion of public
housing that is modernized using amounts under this part (including proceeds from financing
authorized under this part) must be maintained and operated during the 20-year period that
begins on the latest date on which the modernization is completed, except as otherwise provided
in the U.S. Housing Act of 1937.

Labor standards regulations at 29 CFR 5.5(a)(3)(i) state that payrolls and basic records relating
to them must be maintained by the contractor during the course of the work and preserved for a
period of 3 years thereafter for all laborers and mechanics working at the site of the work. Such
records should contain the name, address, and Social Security number of each such worker and
his or her correct classification, hourly rates of wages paid, daily and weekly number of hours
worked, deductions made, and actual wages paid.

Labor standards regulations at 29 CFR 5.5(a)(3)(i) state that 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 the apprentices
and trainees, and the ratios and wage rates prescribed in the applicable programs.

Section 8 of the Commission’s annual contributions contract with HUD states that promptly
upon the acquisition of the site of any project, the Commission should execute and deliver an
instrument confirming and further evidencing, among other things, the covenant of the
Commission not to convey or encumber the project except as expressly authorized in the annual



                                                43
contributions contract. Such instrument and all amendments should be duly recorded or filed
for record when necessary to give the public notice of their contents and protect the rights and
interests of HUD and any bondholders. The Commission must furnish HUD with appropriate
evidence of such recording or filing. From time to time, as additional real property is acquired
by the Commission in connection with projects, the Commission must promptly amend such
instrument to incorporate all such real property and should record the instrument as amended.

HUD Handbook 7460.8, REV- 2, paragraph 10.9(E), states that the public housing agency is
responsible for the administration and enforcement of labor standards requirements 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, section 11.2, states that all progress inspections should be
documented using an appropriate public housing agency inspection report form. The inspection
report should include a description of the work completed and a determination as to whether the
work is acceptable.

HUD Handbook 7460.8, REV-2, section 11.2(E)(5), states that the public housing agency is
responsible for making progress payments to the contractor based on the public housing agency-
approved schedule of amounts for contract payments.

Public and Indian Housing Notice 2009-31 defines a manufactured good as a good brought to
the construction site for incorporation into the building or work that has been processed into a
specific form and shape or combined with the other raw material to create a material that has
different properties than the properties of the individual raw materials.

Office of Management and Budget Memorandum M-10-08, part 2, section 5.2, number 10,
states that recipients should be prepared to justify their [jobs created or retained] estimates.

Office of Management and Budget Memorandum M-10-08, part 2, section 5.3, states that the
[jobs created or retained] 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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