U.S. Department of Housing and Urban Development
Wanamaker Building, Suite 1005
100 Penn Square East
Philadelphia, PA 19107-3380
District Inspector General for Audit
February 29, 1996
Audit Related Memorandum
No. 96-PH-201-1014
MEMORANDUM FOR: Ann Cohen, Director, Office of Public Housing,
Pennsylvania State Office, 3APH
FROM: Edward F. Momorella, District Inspector General
for Audit, Mid-Atlantic, 3AGA
SUBJECT: Philadelphia Housing Authority
Apartment Renovation Team Program
Philadelphia, Pennsylvania
INTRODUCTION
We performed a review of the Philadelphia Housing Authority's
(Authority) Apartment Renovation Team (ART) pilot demonstration
program. The purpose of the review was to determine whether the
ART program was managed in an effective and economical manner and
that the program objectives were carried out in the plan provided
to HUD by the Authority.
Audit work was performed between March and November 1995, and
covered the period June 1, 1992 through October 31, 1995. We
reviewed pertinent records at the HUD office and at the Authority's
offices, interviewed HUD and Authority staff, and photographed
selected properties (see photos).
SUMMARY
The ART program was a costly demonstration program. The program,
which was designed to have union workers and Authority residents
working together to renovate units and to provide training to
residents, resulted in total costs of $28.3 million to renovate
only 221 units. Over $2 million was spent on units which were
determined to be not viable and not structurally sound, and on
units that were never completed. Authority residents who
participated in the job training program received $347,211, but
union workers were paid over $19 million for renovation labor.
2
Also, union workers who participated in the ART program were paid
over and under the applicable Davis-Bacon wage rates. Although
payments made in excess of Davis-Bacon rates are not a violation,
such payments appear unnecessary and resulted in excessive costs
charged to the ART program.
The lack of proper planning resulted in union workers doing work on
properties that were determined to be unsuitable for renovation as
well as the leasing of a warehouse for five years at a cost of
$120,000 per year. In addition, costs of $209,830 were incurred
on the leased warehouse for building improvements, equipment and
various other items, although the warehouse was used for only seven
months under the ART program. Also, vandalism and theft at the
units under rehabilitation resulted in costs of $136,000, and
security services provided to prevent vandalism and theft cost the
Authority $716,498.
The Army Corps of Engineers, under an inter-agency agreement with
HUD, reviewed the Authority's ART program and provided HUD with a
report in December 1994. In August 1995 the Authority issued its
own report on the ART program which assessed the program, included
cost-related data and noted the many problems encountered. In
September 1995 the HUD Office of Public Housing issued a report on
the monitoring review of the Authority's Comprehensive Grant
Program and the ART program. Four of the nine findings related to
the ART program.
On November 27, 1995 we discussed the draft finding with the
Authority's Executive Director and cognizant staff and advised them
that the draft finding did not include recommendations for
corrective action because the recent monitoring review report
issued by the HUD Office of Public Housing addressed similar
concerns and included appropriate recommendations. The Executive
Director generally agreed with the draft finding, and added that
the Authority had offered employment to certain Authority residents
who participated in the ART program. He also believed that towards
the end of the pilot program, a number of the operational problems
had been worked out. Since the Authority's August 1995 report on
the ART program essentially responded to our draft finding, we
agreed that there was no need for a separate response to this
report (Attachment 2).
The finding will not be controlled. However, within 60 days,
please forward us copies of any correspondence or directives issued
because of the review.
3
BACKGROUND
A proposal concerning the ART program was submitted to HUD by the
Authority for approval on October 28, 1992. The proposal was for
the rehabilitation of 100 scattered site units, with a proposed
expansion to a second and third group of 100 scattered site units
each, for a total of 300 scattered site units. The ART program was
based on a pilot program on Mount Vernon Street in which six units
were rehabilitated by the Authority using local trades workers and
a professional construction manager. The six units were
rehabilitated at a total cost of $259,763, with a cost per unit of
$43,293. The composition of the ART program was anticipated to be
union workers from the Building and Construction Trades Council of
Philadelphia, and residents of the Authority developments who would
work as trainees.
On December 4, 1992 HUD approved the ART program proposal for 100
units, and on December 27, 1992 the Authority solicited proposals
for construction management services for the first 100 units. On
February 5, 1993 the Authority notified HUD that, based upon the
proposals received for construction management services, it would
be more prudent for the Authority to develop these services in-
house. On March 1, 1993 HUD concurred with the Authority decision
and authorized the Authority to hire staff to manage the
construction activities for the first 100 units. On May 20, 1993
HUD authorized the rehabilitation of up to 300 units.
Should you or your staff have any questions, please contact Richard
J. DeCarlo, Assistant District Inspector General for Audit, at 656-
3401.
Attachments
1. Finding
2. Authority Comments
3. Photos
4. Distribution
4
Attachment 1
Finding - The Authority's Pilot Renovation Program Was Too Costly
and Did Not Meet Resident Training Expectations
The Authority completed the ART
program on May 22, 1995, with
221 units renovated at a cost of
$26.1 million, or $118,502 per
unit, whereas the Authority
submitted to HUD a construction
budget of $14,407,632 for the
ART program in September 1993,
based upon a projected
completion of 275 units and an
average per unit cost of
$52,592. All but seven of the
completed units exceeded the total
development costs allowed by
HUD. Although some residents
received some training, the
amount of benefits accruing to the residents was minimal relative
to the dollar amount of the ART program.
Poor planning and program administration resulted in this being a
costly demonstration program. At the point when the Authority
recognized the shortcomings and tried to improve operations, over
$900,000 had been spent on units determined not viable and
structurally sound for renovation. In addition, costs of $1.2
million had been spent on 75 units that have not been completed.
The ART program resulted in total costs of $28.3 million.
Over $19 million of the $28.3
million was for labor-related
costs paid to union workers,
with only $347,211 going to
Authority resident/trainees.
The Authority paid wage rates in
excess of the Davis-Bacon rates
approved by HUD, and underpaid
certain trade classifications.
Although the overpayments are
not a violation of the Davis-
Bacon law, such payments appear
unnecessary and resulted in
excessive costs of at least $4.5
million being charged to the ART
program. Also, underpayments
made to certain trade classifications may result in additional
costs charged to the ART program.
5
There was no control over union worker schedules. There was no
evidence that work write-ups or cost estimates that were prepared
by the Authority inspectors were used as a basis for performing the
work or preparing the budget. Because of problems with materials
and storage the Authority decided to lease a warehouse for a five
year period for a demonstration program. The leasing of this
warehouse was very costly. Over the five-year period, the
Authority will have incurred leasing costs of $600,000, or $120,000
per year. In addition, the Authority has incurred costs of
$209,830 for building improvements and other costs. The Authority
has incurred costs of $136,000 related to vandalism and theft.
Because of these problems, the Authority hired security firms to
patrol the buildings, and incurred costs of $716,498.
Poor Planning
The Authority had no master plan for determining the feasibility or
viability of the properties selected for the program. According to
the ART program preliminary business plan, the initial 300 units
were selected by the Authority's assistant managers for scattered
sites during September 1992. An external inspection was conducted
at each of the 300 units to determine: (1) that the building had
not been demolished, and (2) that no serious structural problems
existed. Some of the properties selected were isolated row homes,
often with abandoned adjacent properties not owned by the
Authority. The long term viability of selective renovations in
otherwise blighted blocks, without other redevelopment activity in
the community, is questionable.
Prior to any renovation Authority inspectors also inspected the
units selected for renovation and provided work write-ups and cost
estimates. Our review of the work write-ups indicated that the
Authority staff did not pay any attention to the inspectors' work
write-ups. For example, the property at 2038 North 32nd Street had
extensive fire and water damage. The Authority's inspectors
recommended that the property be demolished. However, the
Authority incurred costs of $56,239 for work at this property, and
terminated the property from the ART program because of structural
conditions and the location of the property. We were advised by
the Authority staff that the work write-ups done by the Authority
inspectors were not used to determine the construction work to be
performed.
The Authority eliminated over 60 units from the ART program due to
structural conditions and/or location of the properties. Some of
these units were eliminated after clean-out and demolition work had
been done inside the units, resulting in costs of $903,452. We
were advised by Authority staff that an Authority employee who is
a civil engineer was available to inspect these units after clean-
out and demolition work had been completed. We were also advised
that the structural conditions of the units could not be determined
until the walls were removed.
6
The Authority began the program prematurely, that is, without a
proper cost analysis and an evaluation of the condition of the
units. We were advised by Authority staff that the cost to
renovate these units was based on the pilot program units, which
needed "patch and repair" work. However, the units in the ART
program were longstanding vacant units in need of extensive
renovation. We were advised by Authority staff that they were not
aware of the condition of the units until they had started the
renovations.
Our review of the work write-ups done by the Authority inspectors
indicated that the Authority staff should have been aware of the
condition of these properties. For example, on April 13, 1993 the
Authority inspector inspected 1401 North 18th St., which had three
units, and noted that the following work was needed:
- Install 100 amp electrical service for each apartment,
rewire entire property, install new ceiling fixtures in
every room.
- Remove all plumbing and heating from entire property,
including water waste, heat and gas lines, install new
gas lines to supply hot water heaters, heating units and
gas ranges.
- Install a new gas-fired hot air furnace, including new
duct work and vents.
- Demolish and replace rear wall, brace and shore to make
safe all floors and roof as needed. Reinforce
foundation to accommodate new wall.
Additional work included at this property included installing
windows, doors, walls, ceilings, floors, concrete steps, kitchen
cabinets and sink, bathroom tub, sink and toilet. The Authority
inspectors estimated the hard costs to renovate this property at
$114,202, or $38,067 per unit. The estimated hard costs did not
include overhead or administrative costs. The Authority incurred
actual costs of $307,007, or $102,335 per unit, to renovate these
three units.
Because of the problems associated with the ART program the
Authority postponed the renovation of 75 units and incurred costs
of $1.2 million.
We also found evidence that some of the units selected for
renovation were occupied. The intent of the ART program was to
renovate long-term vacant units.
7
Davis-Bacon Wage Rate Inequities
The Authority paid workers over and under the required Davis-Bacon
wage rates. As of February 1995 this has resulted in payments of
$4.5 million over the Davis-Bacon rates. The Authority is also in
the process of determining the amount certain trade classifications
were underpaid. Although the over payments are not a violation of
Davis-Bacon, they resulted in unnecessary and excessive costs being
charged to the ART program. In addition, the underpayments could
result in additional costs being charged to the ART program.
On May 19, 1992, the Authority and the Building and Construction
Trades Council of Philadelphia (BCTC) signed an addendum to their
contract for the union workers involved in the ART program which
specified the hourly pay rate and fringe benefits for skilled
tradesworkers . The hourly rate for skilled tradesworkers was set
at $18.67 and for laborers it was $15.95, with fringe benefits
differing from union to union. On March 19, 1993 HUD advised the
Authority that Davis-Bacon wage rates effective August 30, 1991
applied to the ART program union workers, rather than HUD-
determined wage rates.
The Authority has paid workers over and under the Davis-Bacon
rates. For example, the basic hourly rate and fringe benefits for
a laborer per the Davis-Bacon wage decision dated August 30, 1991
is $8.00 per hour and $2.00 for fringe benefits. The Authority,
however, paid a laborer $15.95 per hour and $8.84 for fringe
benefits, resulting in a $14.79 per hour overpayment. The
Authority determined that laborers were paid a total of $2.3
million over the Davis-Bacon wage decision as of February 1995.
The Authority also determined that the total overpayment to various
trade classifications is $4.5 million.
In addition, the Authority underpaid certain trade classifications,
which include plumbers, power equipment operators, and roofers.
The Authority is in the process of determining the amount of the
underpayments to these trade classifications.
Control of Union Work Schedules
Laborers started cleaning trash and debris out of buildings on
March 29, 1993. Carpenters started boarding up cleaned buildings
on April 13, 1993. A roofing crew started work on April 27, 1993.
The roofing crews were completely redoing roofs on buildings that
were structurally unsound and would later be eliminated from the
ART program. In other words, each trade union controlled its own
work schedule. As a result, some unions advanced faster than
others, with little coordination of completion dates.
Consequently, when properties were determined to be unsuitable for
renovation by the inspectors, some work had already been completed.
When units were removed from the ART program, the work and funds
spent on those abandoned properties were essentially wasted.
8
Resident-Trainees/Training Program
The Authority's resident job training program had little impact, if
any, on the ART program. The resident job training program is a
training and employment program which provides low-income, public
housing residents with the opportunity to enter the workforce,
preferably through enrollment in a building trades union
apprenticeship program.
Since June 1993 approximately 45 residents have participated in the
resident job training program and the ART program. Eleven
resident/trainees who participated are now in the trade
apprenticeship program. As of June 1995 the resident/trainees who
participated in the ART program were paid a total of only $347,211,
while union workers were paid over $19 million.
While the ART program did result in some benefits to the resident
job training program, there are far less costly renovation programs
available to the Authority.
High Cost Lease
Because of the type of renovation the Authority was doing in the
ART program, there was a need for a separate warehouse to store
materials, because materials stored at the sites were constantly
stolen. In addition, ART program materials stored at the
Authority's main warehouse were sometimes pulled for other uses,
making the materials unavailable for the ART program. As a result,
on August 8, 1994, a separate warehouse with office space was
leased by the Authority for the ART program. The Authority signed
a five-year lease, with monthly rental payments of $10,000, or
$120,000 per year. In November 1994, the ART program staff moved
into the warehouse. In addition to the monthly rent the Authority
incurred costs of $209,830 for building improvements, office
furniture, telephone lines, security system, and equipment for the
warehouse (fork lift trucks, shelving, weight scales). The leasing
of this warehouse for a five-year period and the additional
improvements were very costly, because the warehouse was used for
only seven months (the ART program moved into the warehouse in
November 1994 and stayed until May 1995, when the last units were
completed).
Work Write-Ups and Cost Estimates
The work write-ups and cost estimates appeared to be used only for
documenting that the estimated cost did not exceed the total
development cost (TDC) allowed under the Comprehensive Improvement
Assistance Program and Comprehensive Grant program. The Authority
had work write-ups and cost estimates for all of the buildings
renovated in the ART program, but there was no evidence that the
Authority compared the estimated cost to actual cost incurred, or
used the work write-ups as a basis for performing the work. The
TDC limits were used as cost guidelines.
9
According to the U.S. Army Corps of Engineers the work write-ups
failed to provide both the necessary data to plan an efficient
rehabilitation project, such as detailed drawings and
specifications, and photographs of all exterior walls, interior
load bearing walls, floors, floor joist and any other areas that
would be of value in the renovation of the buildings.
Vandalism and Theft
The Authority has incurred substantial losses due to vandalism and
theft. Reported losses total $135,000, but the Authority
indicated that actual losses could be as much as $270,000. The
theft of materials includes windows, furnaces, doors, plumbing,
electrical supplies and employees' tools.
Security
Because of problems with vandalism and theft the Authority hired
security firms to patrol the buildings under construction. In
addition, the Authority used interior alarm systems to monitor the
buildings. The Authority incurred costs of $716,498 related to
security.
AUTHORITY COMMENTS
The Executive Director generally agreed with the finding and added
that, in addition to the resident/trainees who are now in trade
apprenticeship programs, certain residents were offered employment
by the Authority. In addition, the Authority's August 1995 report
on the ART program addressed the problems cited in the finding and
should be considered as the Authority's response.
OFFICE OF INSPECTOR GENERAL COMMENTS
We recommend that your office continues to follow up on resolution
of the wage inequities and other areas reviewed that need
corrective action as a result of this pilot demonstration program.
CC:OSWALD
CIANCI
3AGA:DECARLO:AMP:02/27/96
Correspondence
Code 3AGA
Concurrence DECARLO
Date
14
Attachment 4
Distribution
Secretary's Representative, 3AS
Internal Control & Audit Resolution Staff, 3AFI
Director, Office of Public Housing, 3AP
Director, Field Accounting Division, 3AFF
Assistant to the Secretary for Field Management, SC (Room 7106)
Comptroller/ALO, PF (Room 4122) (3)
Acquisitions Librarian, Library, AC (Room 8141)
Chief Financial Officer, F (Room 10166) (2)
Deputy Chief Financial Officer for Operations, FO (Room 10166) (2)
Assistant Director in Charge, US GAO, 820 1st St. NE Union Plaza,
Bldg. 2, Suite 150, Washington, DC 20002 ATTN: Mr. Cliff Fowler
REPORT NAME: Philadelphia Housing Authority
Apartment Renovation Team Program
Philadelphia, Pennsylvania
REPORT NO: 96-PH-201-1014
ISSUE DATE: February 29, 1996
REGIONAL OFFICE (NON-OIG)
Secretary's Representative, Mid-Atlantic, 3AS 1
Internal Control & Audit Resolution Staff, 3AFI 1
Director, Office of Public Housing, 3AP 1
Director, Field Accounting Division, 3AFF 1
HEADQUARTERS (NON-OIG)
Assistant to the Secretary for Field Management, SC (Room 7106) 1
Barbara Burkhalter, Comptroller/ALO, PF (Room 4122) 3
Acquisitions Librarian, Library, AS (Room 8141) 1
Chief Financial Officer, F (Room 10166) 2
Deputy Chief Financial Officer for Operations, 2
FO (Room 10166)
HEADQUARTERS (OIG)
Michael R. Phelps, Acting Assistant Inspector General, GA, (Room 8286) 1
James M. Martin, Director, Program Analysis & Special Projects Division, GAP 1
(Room 8180)
Central Files (Room 8266) 2
Semi-Annual Report Coordinator (Room 8254) 1
DISTRIBUTION OUTSIDE HUD
Assistant Director in Charge, US GAO, 820 1st St. NE Union 1
Plaza, Bldg. 2, Suite 150, Washington, DC 20002 19
Attn: Mr. Cliff Fowler
From:
Edward F. Momorella, DIGA, Mid-Atlantic
Wanamaker Building, Suite 1005
100 Penn Square East
Philadelphia, PA 19107-3380
Philadelphia HA, Philadelphia, PA
Published by the Department of Housing and Urban Development, Office of Inspector General on 1996-02-29.
Below is a raw (and likely hideous) rendition of the original report. (PDF)