A80BDR_J&A_FBO.pdf

J&A Log Number 19-45

EXHIBIT 1

U. S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT tHUD)

JUSTIFICATION AND APPROVAL FOR OTHER THAN FULL AND OPEN

COMPETITION

1. IDENTIFICATION OF THE AGENCY AND THE CONTRACTING

ACTIVITY, AND SPECIFIC IDENTIFICATION Of THE DOCUMENT AS A

“JUSTIFICATION FOR OTHER THAN FULL AND OPEN COMPETITION.”

Agency: U.S. Department of Housing and Urban Development (HUD) 451 7th Street SW, RM 5256 Washington, DC 20410

Contracting Activity: Office of the Chief Procurement Officer, Headquarters

2. NATURE AND/OR DESCRIPTION OF ACTION BEING APPROVED.

Single Family Premium Collection Subsystem - Periodic (SFPCS-P), Single Family Premium Collection Subsystem -Upfront (SFPCS-U), and Distributive Shares and Refund System (DSRS) (A$OBDR).

Approval is being sought to enter a 6-month contract with Salient Federal Solutions, Inc. to provide Operations and Maintenance (O&M) for Information Technology Services and Support for the Single-Family Premium Collection Subsystem - Periodic (SFPCS-P), Single Family Premium Collection Subsystem-Upfront (SFPCS-U), and Distributive Shares and Refund System (DSRS).

A new sole source contract is being sought to ensure continuity of services while the follow-on competitive solicitation is being completed.

Contract Type: Hybrid--firm Fixed Priced and Labor Hour Line Items Type of Funds: Contract action will be funded with Information Technology funds Method of Contracting: New contract award

3. A DESCRIPTION OF SUPPLIES OR SERVICES REQUIRED TO MEET THE

AGENCY’S NEEDS (INCLUDING THE ESTIMATED VALUE).

Contractor support is required for Operation and Maintenance services for the Single Family Premium Collection Subsystem - Periodic (SfPCS-P), Single Family Premium Collection Subsystem - Upfront (SFPCS-U), and Distributive Shares and Refund Subsystem (DSRS).

Performance Period: 08/30/2019 - 02/29/2020 Estimated Total Dollar Value: S 1,767,849.00

4. AN IDENTIFICATION OF THE STATUTORY AUTHORITY PERMITTING

OTHER THAN FULL AND OPEN COMPETITION.

Statutory Authority: FAR 6.302-2, Unusual and compelling urgency - 41 USC 3304 (a) (2)

5. A DEMONSTRATION THAT THE PROPOSED CONTRACTORS UNIQUE

QUALIFICATIONS OR THE NATURE OF THE ACQUISITION REQUIRES USE

OF THE AUTHORITY CITED.

As the incumbent, Salient CRGT Inc. located at, $255 Greensboro Drive, West McLean, VA 22102 has extensive experience in successful providing expedited and efficient support services under the past and existing HUD contract. Salient CRGT has demonstrated an in-depth knowledge of HUDs if infrastructure, inclusive of a clear understanding of HUD’s single-family modernization standards. Only this contractor can meet this requirement due to the lack of time available to make a new contract award by August 29, 2019. In addition, only this contractor can meet the current operations and maintenance support needs of the (A8OBDR) Single-Family Premium collection Subsystem - Periodic (SFPCS-P), Single Family Premium Collection Subsystem - Upfront (SFPCS-U), and Distributive Shares and Refund System (DSRS), system because they possess the unique knowledge, skills and abilities. The requirement is essential because A8OBDR is a critical HUD system processing approximately $1 billion per month in mortgage insurance premiums.

A lapse in contract would jeopardize HUB’s ability to fulfill its most critical mission in providing FHA Insurance by ceasing the endorsement of new FHA cases and the collection of insurance premium (over $12 billion annually). This would create a major financial and public relation burden to HUD and the FHA funds, as well as create economic hardship within the mortgage industry

The impact of delay if this contract is not awarded by August 29, 2019, is that there will be a break in service and a major business impact affecting the Office of Single-Family Housing and the overall mission of HUD to provide mortgage insurance premiums.

6. A DESCRIPTION OF EFFORTS MADE TO ENSURE THAT OFFERS ARE

SOLICITED FROM AS MANY POTENTIAL SOURCES AS IS PRACTICABLE,

INCLUDING WHETHER A NOTICE WAS OR WILL BE PUBLICIZED AS

REQUIRED BY SUBPART 5.2 AND, IF NOT, WHICH EXCEPTION UNDER

5.202 APPLIES.

As required by the FAR Subpart 5.2, a notice will be publicized in the Federal Business Opportunities site, www.kIbi7kpp.\. Additionally, a competitive follow-on acquisition is in progress for O&M services for A$OBDR with an anticipated award date ofFY 20, 1st Quarter.

7. A DETERMINATION BY THE CONTRACTING OFFICER THAT THE

ANTICIPATED COST TO THE GOVERNMENT WILL BE FAIR AND

REASONABLE.

The Contracting Officer will determine that the anticipated cost to the Government will be fair and reasonable based on the Independent Government Cost Estimate (IGCE) founded on historical pricing for the same or similar services.

8. A DESCRIPTION OF THE MARKET RESEARCH CONDUCTED (SEE PART 10)

AND THE RESULTS OR A STATEMENT Of THE REASON MARKET

RESEARCH WAS NOT CONDUCTED.

A competitive acquisition for a follow-on contract for O&M services for A8OBDR is currently underway. The original market research conducted by the program personnel in October 2018, on the competitive acquisition was done via GSA schedule 70 Competition and Sole Source. The original market research indicated that there are potential small business sources that are interested in the requirement. Additional market research was not conducted for this six (6)-month Sole Source Contract because market research was recently performed for the competitive action and the market has not changed.

9. ANY OTHER FACTS SUPPORTING THE USE Of OILIER THAN FULL AND

OPEN COMPETITION.

The Distributive Shares & Refund Subsystem (DSRS) and the Single Family Premium Collection Subsystems — Periodic and Upfront (SFPCS-P & U) are legacy systems that collect, and process transactions related to FHA’s premium collections and refund disbursements. A break in service of Vendor support for these critical systems not only affects FHA’s reputation among the lender and servicer communities, but also poses significant risk to the health of FHA’s Mutual Mortgage Insurance (MMI) Fund and financial statement audit opinion.

These three (3) systems are hosted on the IBM mainframe using COBOL, ColdFusion, CA Gen 8.6, and Nomad. Vendor services are needed to ensure these systems process FHA transactions timely and accurately.

Presented below are the impacts of the break in service and related risks. Attached are supporting documents as evidence of the volume of transactions that are processed monthly, and for the fiscal year.

The harm to the government for the break in service of Vendor support for the A8OBJD/R systems, as projected between August 30, 2019 to October 15, 2019 include:

A. A critical mainframe security patch, designed to protect personally identifiable information (PIT) for 16 major systems on the HUD mainframe, was implemented on September 15, 2019. The software was tested and validated, prior to implementation, on thirteen of the systems to ensure the security upgrade was functioning properly. As a result of the unscheduled break in service, the IT support Vendor was not available to participate in preliminary testing and validation for the three A8OB/D/R systems.

Impact: As a result, these systems may be vulnerable to a data breach since the upgrade was installed without proper testing, putting 6.5 million borrower PIT records at risk of exposure to unauthorized access and use; making the agency liable for the cost of credit monitoring services for all 6.5 million borrowers and 4,000 lenders, per federal regulations.

In addition to providing support with input and technical testing for upgrades, the Vendor also initiates system modifications, corrections and subsequent software releases. Since June 2018, the Vendor prepared 192 software releases including a major release to streamline the periodic MIP refund process and provide batch refund processing capability. During this period the Vendor has also provided support for the following: 235 infrastructure upgrades; 175 ad hoc reports for lenders, Single Family Housing, Office of General Counsel, State Attorneys, and Office of Inspector General;

modifying 22 system interfaces; and correcting 692 software errors and produced and/or analyzed 296 system variances reports and activities. Without the vendor, no system modifications, corrections, or software releases can occur. The Government will be unable to benefit from improved functionality of these improvements.

B. FHA has a regulatory obligation to refund certain categories of Upfront MIP. Due to the break in service, refund activity related to Upfront MIP that does meet system edit checks are not being processed since the Vendor is not available to release these files.

This affects over 1,200 borrowers and lenders in the amount of $2.1 million.

Impact: Without Vendor support, refund payments of some Upfront MIP is being delayed and could result in increased Congressional and Freedom of Information Act inquiries and negatively impact FHA’s reputation with impacted lenders and servicers.

FHA will most likely also receive audit findings due to the loss of significant internal controls activities that are performed by the Vendor.

C. There is no Vendor support to monitor hourly payment-collection files submitted by both originating and servicing lending institutions. The Vendor provides technical support to ensure these files are properly transmitted to Treasury for processing via HUD’s Pay.gov Common Service - thus, avoiding file processing delays or rejections.

FHA would not be able to generate proper monthly bills for over 6.5 million loans or collect insurance premiums for $1 billion monthly should system issues arise that impact system functionality or processing capabilities. Any issues preventing the collection of Upfront MIP will delay endorsement for Forward mortgages.

In addition, A80 B/D/R are all financial systems that are required to complete year-end closeout and reporting. At the beginning of each fiscal year an assignment of new Treasury tracking schedule number series for deposits, debit vouchers for unsuccessful draws, and disbursements are required to be reset. The schedule number series format is unique to identify the fiscal year associated with each transaction. The Vendor must load new schedules in A80 B and R starting with October 1, 2019 deposits and debit vouchers. Failure to load the new range of schedule numbers prior to October 1 may cause financial data between TreasLiry and HUD to not be reconciled timely. This will also impact the General Ledger Division accounting and cash reconciliation. The systems may not properly record premium collection totaling $1,000,000,000 at case level from October 1 through October 15, 2019. This could impact future billing cycles including assessing invalid late charges until collection is properly applied. At this time, we are not aware of other impacts as this is the first time that the schedule number will not be reset. There could be other potential processes impacted.

Impact: Without Vendor monitoring support, the potential financial exposure to FHA is the inability to collect premiums totaling S 1,539,000,000 for 6,587,000 active cases, during the period; material understatement of FHA premium receipts affecting fHA’s financial statement audit results and data integrity issues in the cash flow models and projections, and annual financial statement re-estimate. FHA will require additional resources and may incur unplanned costs associated with overtime expenses to address increased volume of lender’s inquiries, or additional needs for programming and software releases to correct improper bills. Treasury also depends on all federal agencies to accurately report their cash receipts and disbursements to manage daily cash flow projections therefore, lack of Vendor support to address system processing issues related to these activities, impacts Treasury’s ability to manage government cash flows.

In a three-month period, the Vendor provided technical assistance to three lenders that resulted in FHA’s ability to collect $92,000,000 in insurance premiums. One larger lender could affect collection of as much as $123 million for one million loans or up to $400 million in daily deposits if the Vendor is not available to address technical issues associated with lender file submissions, or if there are any issues with the seven essential system interface applications. Since June 2018, the Vendor has provided 1,699 user support and pay.gov operation support totaling $158 million for over 1.4 million loans, that had mortgage insurance premium issues requiring the Vendor’s intervention.

Any unresolved discrepancies to A80 R’s upfront MIP collection data will impact fHA’s ability to endorse over 43,000 FHA forward mortgages for endorsement amount valued at $11 billion. This will impact the completeness of transactions included in the financial statements and fHA’s audit opinion, data integrity concerns in the Office of Risk Management modeling data and budgetary re-estimates, as well as optimization of FHA seasonal volume projections.

Lack of proper recording of premium collections at case level of approximately $1,000,000,000 may impact the integrity of the bills and lead to increased lender inquiries. Additional resources may be required to address and resolve the increased volume of inquiries.

D. The Vendor maintains the Do Not Pay List (DNPL) in the system for lenders who have filed for bankruptcy, have gone out-of-business, are under investigation, or have committed fraud. To date, the DNPL contains over 4,600 refunds totaling $9.1 million that are on hold. Based on direction from the Office of General Counsel (OGC) and HUD staff, only the Vendor has access to add or remove lenders from the DNPL to ensure refund payments are properly made to eligible lenders.

Impact: If the Vendor is not available to add new lenders to the DNPL, FHA will not be in compliance with IPERIA for failure to maintain proper internal controls to detect and prevent payment errors, should payments be made to ineligible lenders.

In addition, if OGC approves a lender’s removal from the DNPL, the Vendor updates the list. Without the Vendor, refunds will remain on hold until the their DNPL status can be updated by the Vendor.

Recommended Solution The Office of Finance and Budget is recommending a cure to this break-in-service by immediately awarding a Single Family Premium Collection Subsystems — Periodic and Upfront, and Distributive Shares & Refund Subsystem (A80 B, D and R) short-term bridge contract to the incumbent Vendor, to allow sufficient time for the Technical Evaluation Panel and OCPO to complete the work needed to award the new competitive contract. This award is needed to mitigate the risk exposures caused by the break-in-service. The requested period of performance for this action should be a minimum of 6 months, to include the 2 month transition period, if the award is to a new Vendor.

/Attachments (4)

1. Periodic Collections (monthly) - PMIP Collection 102018-082019

2. Upfront Collections - UMIP Collections 102018-082019

3. Periodic Collections (daily) - PMIP Collection for August 2019

4. Daily Collection Summary - August 2019 UFMIP Collection

There are no estimated duplicative costs.

10. A LISTING Of THE SOURCES, IF ANY, THAT EXPRESSED, IN WRITING, AN

INTEREST IN THE ACQUISITION.

No sources have expressed, in writing, an interest in this sole-source acquisition.

11. A STATEMENT OF THE ACTIONS, If ANY, THE AGENCY MAY TAKE TO

REMOVE OR OVERCOME ANY BARRIERS TO COMPETITION BEFORE

ANY SUBSEQUENT ACQUISITIONS FOR THE SUPPLIES OR SERVICES

REQUIRED.

A competitive acquisition for the re-compete of O&M services for A$OBDR is currently ongoing. Contract award is anticipated for FY20 1st Quarter.

12. CONTRACTING OFFICER CERTIFICATION THAT THE JUSTIFICATION

IS ACCURATE AND COMPLETE TO THE CONTRACTING OFFICER’S

KNOWLEDGE AND BELIEF.

See certification at Part 2, Form-24012