HUD_Section_8_PBRA_Final_Recommendation_Deloitte_06202016.pdf

FINAL Version 06/20/2016

HUD Section 8 PBRA FINAL

Recommendation Report

Prepared for HUD by Deloitte

June 20, 2016

The data contained in this report is not based on Deloitte’s viewpoint. It represents the research collected and conversations held with HUD’s PBCA team. Because our scope does not include a cost buildup, this document does not serve as a formal cost-benefit analysis. Therefore, our recommendations do not include cost benefit trade-offs. This report includes data that shall not be disclosed outside of the Government and shall not be duplicated, used, or disclosed in whole or in part. This restriction does not limit the Government’s right to use information contained in this data if it is obtained from other sources without restriction. The data subject to this restriction are contained in this entire report.

HUD Section 8 PBRA FINAL Recommendation Report

06/20/2016 Page i

Contents

Executive Summary ................................................................................................................................... iv

I. Introduction

II. Background/Current State

III. Strategy Methodology

IV. Research Observations

A. Objectives and Potential Issues

B. Stakeholder Observations

V. Evaluation and Analysis of Potential Options

A. HUD Brings PBCA Services In-House

B. Geographic Approach

C. Acquisition Vehicle

D. Contract Type

E. Small Business Utilization

F. Comments and Observations on Leading Industry Practices

G. Commercial Tools

VI. Recommendations

A. Geographic Structure, Contract Type, Acquisition Vehicle and Small Business Utilization

B. Leading Industry Practices

C. Commercial Tools

Appendix A: Research Details

A.1 Document Review

A.2 Industry Day

A.3 Interviews: Internal & External Stakeholders

A.4 Comparable Structure Research

Appendix B: Analysis Details

Appendix C: Industry Day and Questionnaire Summaries

C.1 Industry Day Summary

C.2 Questionnaire Summary

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ACRONYMS

ACC Annual Contributions Contract

AQL Acceptable Quality Level

CA Contract Administrator

CAOM Contract Administration Oversight Monitor

CICA Competition in Contracting Act

CMS Centers for Medicare & Medicaid Services

CO Contracting Officer

COR Contracting Officer Representative

CREC Custom Records Extension Component

DHS Department of Homeland Security

DME Durable Medical Equipment

DoD Department of Defense

FAR Federal Acquisition Regulations

FASS Financial Assessment Subsystem

FC Functional Category

FFS Fee for Service

FHA Federal Housing Administration

FSS Federal Supply Schedule

FY Fiscal Year

G&A General and Administrative Expense

GAO Government Accountability Office

HAP Housing Assistance Payment

HFA Housing Finance Agency

HHS Department of Health and Human Services

HUD U.S. Department of Housing and Urban Development

HQ Headquarters

IDIQ Indefinite Delivery, Indefinite Quantity iMAX Integrated Multifamily Access Exchange System

IPERA Improper Payments Elimination and Recovery Act iREMS Integrated Real Estate Management System

LIHTC Low Income Housing Tax Credit

MAC Medicare Administrative Contractor

MF Multifamily

MFT Multifamily for Tomorrow

MHPI Military Housing Privatization Initiative

MITS Multifamily Information and Transactions Standard

MOR Management and Occupancy Review

NOFA Notice of Funding Availability

OCPO Office of Chief Procurement Officer

OGC Office of General Council

OIG Office of Inspector General

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OMB Office of Management and Budget

OMH Office of Multifamily Housing

PBCA Performance-Based Contract Administrators

PBCS Performance-Based Contract Services

PBRA Project-Based Rental Assistance

PBV Project Based Vouchers

PHA Public Housing Agency

PWS Performance Work Statement

QIO Quality Improvement Organization

RAD Rental Assistance Demonstration

RCS Rent Comparability Studies

REAC Real Estate Assessment Center

REIT Real Estate Investment Trust

SOW Statement of Work

TO Task Order

TRACS Tenant Rental Assistance Certification System

USDA U.S. Department of Agriculture

XML Extensible Markup Language

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Executive Summary

Under the Section 8 Project-Based Rental Assistance (PBRA) program, the Department of

Housing and Urban Development’s (HUD) Office of Multifamily Housing (OMH) provides monthly rental assistance payments on behalf of 1.2 million households throughout the United

States. These payments are made to over 17,000 private landlords, who are primarily responsible for assuring that the tenants receiving assistance are eligible for assistance under the terms of the

Housing Act of 1937, as amended. HUD currently engages Performance Based Contract

Administrators (PBCAs) through 53 Annual Contribution Contracts (ACCs) to perform the day-to-day monitoring and oversight of approximately 90% of Housing Assistance Payment (HAP) contracts that govern the relationship with participating property owners. As a result of recent litigation, the courts have established that these services must now be obtained through the use of competitive contracts processes that are fully compliant with the Competition in Contracting Act

(CICA) and Federal Acquisition Regulations (FAR).

HUD engaged Deloitte Consulting LLP to assist in developing a new strategy for obtaining

Performance Based Contract Services (PBCS), and to provide this recommended acquisition strategy. In developing the strategy, Deloitte conducted research and analyzed PBCA operating structures, PBCS stakeholders, and procurement options based on the research. This report provides the research methods used, research observations, an evaluation of potential options, and a recommended acquisition strategy.

Research observations are presented in Section IV. However, several themes appeared throughout the research and established context for the recommendations.

Competition - A review of leading practices indicates that competition can be used to achieve both the lowest cost and better service, particularly for well-defined, repetitive tasks. Because the stakeholders that we interviewed agreed that a significant goal is better service (to the residents, to the properties, to HUD), we placed high emphasis on acquisition structures that motivate and incentivize contractors to improve service and cost.

Under FAR, HUD has the ability to modulate the level and confines of competition to protect services it values. Mechanisms for modulating competition include evaluation factors for contractor selection (where levels of service can take precedence over price), specific directions in the scopes of work, and application of cost reasonable standards (that is, analysis to prevent awards for predatory pricing).

An implication of using competition to improve service and cost is that HUD should seek procurement structures that enhance the number and innovation levels of suppliers. This is one reason that other agencies have found that regional groupings work by increasing the number of suppliers for a given locality.

Flexibility - HUD faces intense pressure on the appropriations allocated for PBCA services. A particular concern is that services may not degrade gracefully if PBCA funds are reduced, and may hit breakpoints at which individual service components may have to be cut. For this reason, and also to allow innovations and improvements to be introduced easily, we looked for acquisition structures that could be flexible.

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The flexibility of an IDIQ structure provides many options. In the event of funding cuts, HUD can employ the tools used by the private sector to maintain service while lowering costs:

automation, division of labor, economies of scale, streamlined processes, and performance incentives. Flexible procurement structures also address uncertainties in the actual Section 8 unit subsidies. When a property faces financial pressure, many owners are tempted to cut precisely the “invisible” things that PBCA’s are supposed to be monitoring - maintenance may be deferred, tenant protections and treatment eroded, and accurate reporting of problems stopped.

Under such circumstances, HUD will benefit from flexible procurement structures that increase the ability to adjust priorities, conduct objective studies, allocate special interventions to specialists, and so forth.

Continuous Improvement – Obtaining PBCA services through a new acquisition process provides HUD the opportunity to focus on its objectives of high quality contract administration, lower improper payments, and portfolio management. A competitive and flexible structure allows HUD the opportunity to analyze, innovate, and continually improve. PBCAs should be viewed as valuable, but ultimately replaceable, partners who are held accountable for providing

Best Value services to HUD as their customer. The flexible structure is useful when HUD seeks improvement at the portfolio level and strives to define and achieve new goals. Together, competition and flexibility provide a foundation from which continuous improvement can occur, and it should become a principle of Multifamily Asset Management’s culture.

Our contract requested that we provide recommendations regarding 1) contract type; 2) acquisition vehicle; 3) geographic approach; 4) potential for small business utilization; 5) inclusion of potential best practices; and 6) commercial tools readily available in the marketplace. At HUD’s request, Deloitte also considered the option of HUD performing the services with internal resources. Through our research, Deloitte found that the implementation time and the required coordination of significant levels of staff hiring, facility and overhead, new

IT systems and travel budgets, created multiple potential points of failure and is not recommended.

Recommendation on Contract Type, Acquisition Vehicle, Geographic Approach, and

Potential for Small Business Utilization

Deloitte’s research indicates that after a year or more, additional pricing data, HUD knowledge, and industry adaptation will make the PBCA procurement environment more advantageous to

HUD. As a result, we recommend that HUD begin with an initial structure, and after consideration, adapt the structure in a second subsequent phase. Each recommended phase is presented below:

Initial Phase:

A. Procure PBCA services through up to three multiple award Indefinite Delivery, Indefinite

Quantity (IDIQ) contracts in each of the five regional areas. An IDIQ is an instrument of flexibility. Under an IDIQ, HUD can select up to three qualified applicants who will then submit proposals for individual task orders. This results in up to 15 total IDIQ contracts signed across the regions. This allows HUD flexibility to change task orders and structures as

06/20/2016 Page vi the program and HUD’s monitoring capabilities evolve over time. HUD can bundle or unbundle the various PBCA services into a better configuration for price and quality. To decrease disruption, services could remain bundled for initial task orders, and, subject to market research, be unbundled over time. Using five contracts instead of the current 53 substantially reduces the workload on HUD program and contracting staff. Additionally, the five regions are recommended to match HUD’s five Multifamily for Tomorrow

Transformation regions to facilitate monitoring and knowledge transfer.

B. Compete IDIQs on a full-and-open basis, with Best Value Tradeoff evaluation criteria.

Throughout our stakeholder interviews, the themes of better service and cost efficiency were repeatedly raised. Competition may accomplish lower costs and better services. We recommend that the IDIQs be competed in full and open competition to provide HUD with the widest possible supplier pool. Based on market research and assessment of qualified small businesses, HUD must consider full and open after exclusions of sources for a set-aside if conditions are met. Non-cost evaluation factors such as capability, past performance, local presence, and demonstrated value allow HUD to evaluate potential vendor qualifications for specific tasks and holistic approaches as desired.

Award under multiple-award IDIQs qualifies the supplier for proposing on task orders. For each individual task order, the smaller qualified group can then propose aggressive prices and services with the evaluation factors determining the outcome. This two-step process also reduces the resource burden on HUD contracts and program staff. By judiciously selecting evaluation criteria for individual task orders, HUD can retain aspects of protected suppliers:

willingness to invest in the long term, ability to hire for the long term, and retention of knowledge.

Multiple Award IDIQs for Each HUD Region, and Task Orders for Each IDIQ

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C. Include fixed unit prices and labor category rates in IDIQ pricing. Fixed unit pricing allows

HUD to track pricing across regions, drive further discounts, and more carefully estimate future costs. To allow for flexibility, labor category rates are recommended for pricing tasks that do not allow for a fixed unit price, or for new structures of CA services needed over time. Over time, the pricing discounts requested under task orders often result in cost savings due to the elimination of pricing anomalies.

D. Use task orders under the IDIQ to achieve flexibility and competition. Multiple concurrent task orders can subdivide regions or unbundle CA tasks. Initially, bundling all tasks within a task order is recommended, as it is consistent with current CA practices and minimizes disruption and transition time. However, regions can initially be subdivided to match HUD satellite offices or vendor capabilities in a region, which allows for a larger number of active vendors without the need to oversee additional contracts. Over time, tasks can be unbundled to reduce costs or capture efficiencies, and task unbundling can be tested regionally before nationwide implementation. Task orders further competition by promoting discounts from

IDIQ rates and the ability to file protests for a task order under $10M is very narrow.

Subsequent Phase:

As noted above, Deloitte’s research indicates that after a year or more, additional pricing data, HUD knowledge, and industry adaptation will make the PBCA procurement environment more advantageous to HUD. At an appropriate future time, multiple award National IDIQs could provide supplemental oversight resources to HUD or allow national performance of PBCA task(s) when risk of failure is low.

If effectively unbundled at the region level, nationally issued task(s) can provide greater consistency and cost savings. These could potentially include, but are not limited to, voucher renewal and payment, HAP Contract Renewal, and a subset of tenant communications help desk available seven days a week, 24 hours a day, or other tasks susceptible to automation.

A cross-cutting national oversight contractor can supplement HUD resources and analyze work through focus on quality assurance, process analysis and improvement, troubleshooting, and contingency operations. A national contractor can also be responsible at a national level for data analytics separate from the entities performing the day-to-day work.

Recommendation on Leading Industry Practices

Conduct Extensive Market Research. Extensive market research should be conducted to assess how to most successfully structure the IDIQs. At the very least, HUD should determine, for each of the seven task areas: (a) industry practices regarding the bundling or unbundling of services,

(b) which tasks require local knowledge or presence or governmental unit involvement, and (c) whether small businesses can perform any of the tasks.

Utilize Performance-Based Contracting. Switching to a performance-based methodology could help control costs, drive better value and delivery, and shift risk to suppliers.

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Open and Transparent Communication with Industry Throughout the Procurement Process.

Maintain open and transparent communication with Industry through events, such as Industry

Days, Pre-Proposal Conferences, notices to FedBizOpps, releasing a draft RFP, etc.

Include Key Personnel at the IDIQ Level. HUD should require named Key Personnel, including a Program Manager, to oversee the entire IDIQ. A lead should also be required for each task in the event HUD unbundles tasks.

Award a Task Order with the IDIQ. This allows HUD to evaluate a task order with the IDIQ, and forces industry to provide a competitive and realistic price for the accomplishment of the work of the task. This will also strengthen HUD’s ability to effectively select the most technically qualified vendors.

Add a ‘Cross-Cutting’ National Oversight Layer. Creating a national oversight layer could minimize the amount of time and effort HUD would need to use to oversee the PBCA services.

Recommendation on Commercial Tools

Allow PBCAs to innovate on their use of commercial software products or investment in custom software solutions. PBCAs have had many years to address workflow and software solutions.

Although an industry-wide solution could promote standardization and data collection, efficiencies resulting in increased performance and decreased costs are more likely to occur when PBCAs design their own workflow and software solutions rather than conform to using a required software product.

Explore the Use of Data Reporting Standards and Data Transaction Standards. Defined data reporting standards will create consistency for PBCAs operating in multiple areas, and allow

HUD to aggregate performance data from all PBCAs. Utilizing or expanding existing XML multifamily data transaction standards could allow PBCAs to transmit data from disparate information technology systems to HUD in a machine-readable format.

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I. Introduction

The Department of Housing and Urban Development (HUD) has engaged Deloitte Consulting

LLP to assist in developing a strategy to acquire Performance Based Contract Administrators

(PBCAs) in support of the Section 8 Project-Based Rental Assistance (PBRA) program within the Office of Multifamily Housing (OMH). Deloitte’s research and review of the PBRA program was performed during the period of February 4, 2016 through April 7, 2016.

HUD seeks a recommended acquisition strategy that utilizes a competitive contracts process fully compliant with the Competition in Contracting Act (CICA) and the Federal Acquisition

Regulation (FAR). The strategy will enable senior HUD management to make an informed decision on the overall approach for obtaining these services without any pre-conceived preference.

To develop the strategy, Deloitte conducted research and analyzed PBCA operating structures and procurement options. This report provides the research methods used, research observations, an evaluation of potential options, and a recommended acquisition strategy.

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II. Background/Current State

The Section 8 PBRA program provide subsidies for affordable multi-family (MF) rental developments to lower rental costs for low-income families and to help offset preservation and improvement costs associated with the properties. As stated in the TO PWS, under the PBRA program, HUD’s OMH provides monthly rental assistance payments on behalf of 1.2 million households throughout the United States. These payments are made to over 17,000 private landlords, who are primarily responsible for assuring that the tenants receiving assistance are eligible for assistance under the terms of the Housing Act of 1937, as amended.

Since 1999, HUD has relied on the support of PBCAs to provide the day-to-day monitoring and oversight of about 90% of these contracts. The existing PBCA program has evolved, and now

HUD has 53 separate ACCs with State Finance Agencies and local housing agencies. These

ACCs define the roles and responsibilities of the services and limit PBCA eligibility to State and local housing agencies. The ACCs are Cooperative Agreements that, when compared to traditional procurement contracts, have a more flexible process, fewer regulations to follow, and minimal process reviews. As a result of recent litigations, the courts have established that these services must now be obtained through a competitive procurement process that is fully compliant with the CICA and the FAR.

PBCAs are currently responsible for the following tasks:

Conducting management and occupancy reviews (MORs)

Adjusting contract rents

Reviewing and paying monthly vouchers from Section 8 owners

Renewing HAP contracts

Responding to health and safety issues (resident help desk)

Following up on results of physical inspections of Section 8 projects

Providing reports and certifications, including:

o Submitting Section 8 budgets, requisitions, revisions and year-end statements o Submitting audits of the PHA’s financial conditions o Reporting on PHA operating plans and progress

The Office of Inspector General Audit Report 2010-LA-0001 (IG Audit Report) indicated that the ACCs for PBCA services did not appear to provide HUD the best value for the dollars spent on these services. HUD reported that the ACCs currently cost about $273M a year. Through various internal stakeholder interviews, it was noted that the current ACCs are perceived to be generous and that HUD may be overpaying. It was also noted through external stakeholder interviews and Industry Day One-on-One sessions, that “leftover” funds are sometimes used outside of the ACC scope of work, but within the affordable housing mission.

The workload associated with awarding 53 ACCs and monitoring the performance of each

PBCA is accomplished in HUD’s field offices. Since it is such a large workload spread across several areas, it creates many potential areas for inconsistencies, a lack of standardization, and a large administrative burden.

The difficulties in monitoring the performance of each contractor make it difficult to assess if

HUD is receiving the best value. The ACCs do not do a good job of identifying risks and

06/20/2016 Page 3 defining success, as they are not truly monitored in a performance based manner. The IG Audit

Report indicated that HUD was paying about a third of the money as incentives, sometimes for tasks that were included in the PBCAs’ basic fee, and indicated a misalignment of funds within the program. Even if the ACCs were re-defined with lower fees, the other downfalls of this structure still remain, including multiple layers of profit and monitoring without enough oversight and monitoring, a large administrative burden, and the high cost of monitoring numerous PBCAs.

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III. Strategy Methodology

Deloitte used the five-step methodology presented below to analyze the program and develop the recommended strategy:

Stakeholder observations were compiled based on internal and external stakeholder interviews and reviews performed by Deloitte specialists knowledgeable in HUD/MF housing and economic cost-savings methods.

Options in the areas of a) bringing PBCA services in-house, b) geographic approach, c) acquisition vehicle, d) contract type, e) potential for small business utilization, f) leading industry practices, and g) commercial tools were evaluated and analyzed based on research, identified objectives and potential issues, and stakeholder observations.

Recommendations were developed based on the four previous steps, and the knowledge and experience of Deloitte specialists.

Objectives and potential issues were compiled from comments made by HUD officials in official interviews, as well as the Performance Work Statement for

DU203NP-14-A-07 TO 0004.

Research was conducted via document reviews, PBRA Industry Day, interviews with internal and external stakeholders, discussions with Deloitte specialists, a review of practices and programs at similar federal and non-federal entities, and commercial tools.

Stakeholder

Observations

Analysis

Recommendations

Objectives and

Potential Issues

Research

Evaluation and

Analysis of

Potential Options

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IV. Research Observations

Deloitte research included document reviews, participation in HUD’s PBRA Industry Day, conducting interviews with internal and external stakeholders, conducting discussions with

Deloitte specialists, a review of practices and programs at similar federal and non-federal entities, and a review of available commercial tools. Details of the research are presented in

Appendix A. For analysis, research observations are structured into two categories: Objectives and Potential Issues, and Stakeholder Observations.

A. Objectives and Potential Issues

The Task Order PWS defined that the objectives of this analysis address the following:

Performing High Quality Section 8 Contract Administration

Monitoring PBCA Performance and the Section 8 Portfolio

Reducing Improper Payments

Performing a FAR compliant procurement

Accordingly, research was organized around each objective and identifies HUD sub-objectives and potential issues on objectives as presented below.

Objective 1 - Performing High Quality Section 8 Contract Administration

With PBCA responsibilities affecting approximately $6 billion of annual rent subsidies, it is important that contract administration be performed at a high quality level.

Identified Sub-Objectives and Potential Issues:

Objective 2 - Monitoring PBCA Performance and the Section 8 Portfolio

HUD must monitor PBCA performance and must monitor the Section 8 portfolio in terms of program mission and requirements.

Sub-Objectives Potential Issues

Consistent task performance across the portfolio

CA tasks are performed as efficiently as possible

Potential risks are identified and mitigated or escalated prior to problems emerging

Residents have a mechanism to make HUD aware of property issues

Local property knowledge be available to HUD

Regional and Satellite offices

Improper payments are minimized

Leverage private sector capabilities and solutions

Task performance requires specialized knowledge of HUD regulations and handbooks

Limited HUD staff restricts HUD’s ability to perform the tasks themselves

Some PHAs have geographic service area restrictions

Subsidy disbursements require PBCA fidelity bond coverage

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Objective 3 – Reducing Improper Payments

This includes monitoring owner performance in the certification of tenant eligibility, calculation of tenant payments and Section 8 subsidies, verification of tenant income, and in the resolution of potential errors in tenant certifications and subsidy billing amounts.

Objective 4 – Performing a FAR Compliant Procurement

This includes ensuring that the procurement is FAR compliant, minimizes risk of a protest, and brings the best value to HUD and the program. In preparing recommendations, Deloitte did not interpret any court ruling or determine if potential solutions complied with any court rulings.

Additionally, Deloitte did not provide any legal services or legal interpretations, and did not review or consider potential solutions in terms of the Housing Act of 1937, as amended.

Identified Sub-Objectives and Potential Issues:

Sub-Objectives Potential Issues

Consistent PBCA oversight

Reduced PBCA monitoring burden

Asset centric portfolio monitoring

Reliable portfolio monitoring data

Affordable housing preservation

Stakeholder consideration of residents and owners/agents

PBCA task performance comparison

PBCA task cost comparison

HUD MF reorganization structure

HUD MF reorganization implementation

HUD HQ MF staff levels

HUD systems information: REMS, TRACs, LOCCS

HUD Risk Rating System

Sub-Objectives Potential Issues Accurate tenant eligibility

Accurate tenant subsidy calculation

Resolution of voucher processing issues

Accurate rent adjustments

Correct data collection

Restricted MOR performance

Site knowledge and resources

Sub-Objectives Potential Issues FAR compliance

Timely contract awards to minimize HUD costs

Able to adjust to unanticipated Appropriation reductions

Minimize protests

Meet HUD socio-economic procurement goals

Encourage competition and innovation

Effectively use incentives and disincentives

Provide for Work Statement adjustments

Provide flexibility to include additional HUD subprograms (202, 811) in the future

Value for Money

Enabler of operations, not inhibitor

PHAs generally do not have experience with FAR and FAR operational requirements

Time intensive requirements of FAR procurements

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B. Stakeholder Observations

Deloitte also organized research identifying stakeholder priorities related to contract administration. Five stakeholder groups consisting of HUD, Owners and Agents, Residents, Industry-PHAs and Industry-Private Sector were explored with observations presented below.

Through the research, the follow common themes emerged across all stakeholder groups:

The residents are the number one priority and they can best be served through better property management.

The program can benefit from standardization of inspections, reporting, processing, and oversight.

The program can benefit from automation and leveraging technology, such as electronic signatures.

HUDs systems (iRems, TRACS, iMAX, etc.) are dated and often lag behind HUD handbooks, rules, and regulations.

The program can benefit from increased oversight.

Rent adjustments, voucher processing and payments, renewing HAP contracts, and subsets of the tenant call center do not need local presence or knowledge.

Although state-based agencies share in HUD’s mission, other entities can perform the services as long as they are incentivized to keep local knowledge and presence as a priority.

PBCA services should be paid based on results, not just procedures.

• Want affordable shelter

• Want consistent application of requirements and rules

• Want to be respected and heard

• Wants to best serve the mission

• Wants to stop “overpayment” as soon as possible

• Is still transforming Multifamily

Asset Management

• Believes PHAs are capable partners

• Would struggle to conduct 53 procurements

Residents HUD

• Are motivated – want the work and ready to reduce fees

• Are unfamiliar / not ready for FAR based procurement

• Are expecting protests

• Don’t expect to “prime”, but would love if they could

• Are prepared and eager to work with PHAs

• Are numerous enough to provide options to PHAs

• Bring significant talent and solutions

Industry - PHAs Industry – Private Sector

• Want to know the rules and have consistency

• Want a “painless” process

• Fewest points of contacts / fewest changes over time

• Least interference with their operations

• Want HUD to hear them and work with them

Owners / Agents

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V. Evaluation and Analysis of Potential Options

Through the application of research results, we evaluated and analyzed multiple options assessing solutions for the following areas:

Geographic Approach through an analysis of current PBCA tasks

Acquisition Vehicle

Contract Type

Potential for Small Business Utilization

Comments and Observations on Leading Industry Practices from Private and Government

Commercial Tools Readily Available

Additional options were analyzed, some of which were determined to not be feasible. A more in-depth analysis of options is provided in Appendix B.

A. HUD Brings PBCA Services In-House

Although Deloitte’s recommendation is to focus on strategies for procuring PBCA services, Deloitte considered the issue of HUD bringing the capability to perform the services in-house, rather than continuing to acquire PBCA services.

Observations

Prior to acquiring PBCA services in 1999, HUD performed the tasks related to the PBRA program oversight internally. Performing the PBCA tasks in-house, rather than acquiring from external suppliers poses complex issues involving cost, risk, and control. Although a final decision to bring PBCA services in-house requires a thorough assessment, certain quantitative and qualitative aspects can be considered through the research we conducted.

Resources needed to provide these services will vary due to differing property conditions, local costs, structures, etc. We have not performed a “cost buildup”, which is part of the government’s procurement process. Based on conversations with stakeholders, it was assessed 1 FTE for every

9-10 properties could serve as an industry average for broad estimating. For 17,000 properties, this would require HUD to hire approximately 1,700 – 1,888 FTEs. HUD’s Congressional

Justification for the 2017 budget shows 2,717 FTEs requested for the Office of Housing at an average salary and expense cost of $144,699 per employee. This implies that the required in-house cost could range from $246M to $273M before the consideration of HUD administrative

FTEs, PBCA specific systems, additional training and additional travel for MORs. As the recent annual spend for PBCA services before the rebid was reported to us at approximately $273M, it does not appear that major cost savings would result from performing PBCA tasks in-house.

From a qualitative perspective, adding 1,700 to 1,888 FTEs could represent a 63-69% expansion in Office of Housing FTE staffing. This could require significant effort in recruiting and training, as well as a significant expansion of facilities and systems. Additionally, Federal employment regulations create inefficiencies in adequately staffing the PBCA requirements in the time required. The effort required to coordinate such a large number of staff, facilities and systems also creates a risk that assumption of PBCA duties would need to be delayed due to delay of a single critical component.

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Assessment of Relative Merits

We have not performed a make or buy analysis or a spend analysis and we do not present any cost-benefit tradeoffs. Based on our stakeholder and general research we see unclear monetary benefits and significant logistical risks in bringing PBCA services in-house. It is considered that the services are better acquired through a competitive process.

B. Geographic Approach

Through the assessment of the CA services (details provided in Appendix B), different potential geographic breakouts were considered in order to fulfil HUD’s needs in the most efficient and cost effective manner. Five options were considered:

Consolidating by supplier created blocks, housing characteristic, or by state creates multiple issues including a high administrative burden for HUD, complex procurement and evaluation processes, higher costs, and the risk of not finding suppliers for all states and areas. These options can result in up to 50+ contracts and several procurements. These options may also discourage small businesses from proposing on the work based on the complexity of the structure although each contract may be a more manageable size than a national contract. For these reasons, it was assessed that these options may likely not fulfill HUD’s needs.

Consolidating at a National level has a potential for significant cost savings through improved buying power, and provides assumed standardization and a very low administrative burden for

HUD staff. It could result in one procurement that can be managed by the time spent by one – two total FTEs (time being split between a Contracting Officer (CO), Contract Specialist, and

Contracting Officer Representative (COR)) within HUD HQ. It may also likely result in a loss of local knowledge and presence, and create less strategic alignment with individual states and

HUD’s MF Regional structure. A national contract creates the risk of a single point of failure, and could potentially affect the payment of subsidies to property owners nationwide.

Additionally, a contract of that size may discourage small businesses from proposing on the work.

Consolidating at a regional level is assessed as the recommended option and can create significant cost savings while maintaining the local knowledge and presence. It allows HUD to align PBCA services to the five regions of the MFT transformation, and potentially recognize better service to residents, partners, and stakeholders through standardization, improved risk management, and efficiency.

Characteristic

Breakout

CA services set by housing characteristic such as rural / urban

Bidders

Create State

Blocks Suppliers select any state combination

National

CA services performed at the National level

Regional

CA services performed at a

Regional Level

Individual

States

CA services performed at the State level

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PBCA Task Assessment

Currently, all PBCA tasks are performed under one scope of work. As further options are assessed, it will be noted which tasks do not require local knowledge or presence, and can potentially be “unbundled” and performed at a national level.

Many interviewees indicated that Voucher Processing and Payments could benefit from the standardized process and enhanced communication that could be achieved through using one national contractor. In some states, HAP contract renewals are subcontracted to private companies, and many interviewees indicated that this task could be performed at a national level.

Many interviewees also indicated that rent adjustments could be performed by a national contractor.

Our research showed that local presence and knowledge is more important for Management

Occupancy Reviews (MORs), physical review follow-up, and reports and certification. These tasks can result in better resident service, better property condition, and lower improper payments when the contractor has local presence and knowledge.

For the tenant call center, our research suggests that only portions of it can be awarded to a national contractor. Although a national contractor can allow for cost savings through scalable efficiencies, the lack of localized knowledge could make it more difficult to establish positive relationships with residents. Research and professional judgement indicates that a contractor with local knowledge could better address resident issues, and that only call centers for emergency issues could best be performed at a national level.

Although additional market research will need to be completed to fully evaluate which task areas can be performed nationally, it can be assessed through our research that HUD could award voucher processing and payment, HAP Contract Renewal, Rent adjustments, and a subset of tenant communications help desk services into national IDIQs. Performing these services in a contract structure that does not require local presence or knowledge does not appear to negatively impact the residents, the properties, or the property owners. Consolidating these tasks at a national level could create a more efficient and consistent way of providing these services and could result in potential cost savings. However, it could also provide the risk of a single point of failure, and should be considered when confidence in performance ability it high.

C. Acquisition Vehicle

Contract vehicles can be structured to assist with incorporating streamlined acquisition methods.

These streamlined methods can help reduce the time for completing the contract award. All contractors under any of these vehicles will be subject to Contractor Performance Assessment

Reporting System (CPARS) reports that assess a contractor’s performance and provides a record for a certain period of time. Each assessment is based on objective facts supported by program and contract management data, including cost performance, customer comments, quality reviews, technical interchange meetings, financial assessments, management reviews, operations reviews, functional performance evaluations, etc. These reports act as an incentive for

Contractors to deliver a high level of performance. Five acquisition vehicle options were considered (details provided in Appendix B).

06/20/2016 Page 11

Assessment

Blanket Purchase Agreements and Basic Ordering Agreements would not suit PBCA services as they may use GSA schedules and may likely preclude potential suppliers with technical experience and past performance from proposing as prime contractors. A GWAC could be considered if certain CA services related to automation or other IT requirements were broken out from the larger set of tasks. For these reasons, a GWAC, BPA, or BOA would not fulfill HUD’s needs.

A single, standalone contract may be appropriate for these services, but allows for less flexibility and competition. Our stakeholder interviews noted that it is difficult to predetermine the precise quantities of services needed. Without this information, acquiring these services on a single contract may necessitate a cost-reimbursement arrangement, and result in higher risks to HUD.

One risk includes the potential for a single point of failure. It may also offer HUD less diverse service capabilities, and could result in less competition and less innovation if new suppliers found it difficult to enter the market.

For the current CA services, an appropriate vehicle would be an IDIQ. Because precise quantities of services cannot be predetermined, but recurring needs are anticipated, an IDIQ provides HUD flexibility to fulfill its needs. FAR Subpart 16.504 indicates a multiple award preference, although an IDIQ can be a single award IDIQ or multiple award IDIQs.

An IDIQ also provides the flexibility to use a rolling admission of contractors to give new industry partners the opportunity to participate. Periodically, HUD can assess the quality of performance of each IDIQ holder, the number, value and complexity of work assigned and amount of competition achieved. If the assessment determines it is in the best interest of the

Government, a decision can be made to add additional IDIQ holders. Conversely, if a contractor is not performing at a level satisfactory to HUD, the option year for that contractor does not need to be exercised.

HUD has the flexibility to structure task orders such that tasks requiring regular communication with the owners/agents be awarded one contractor if it is assessed that a structure of that nature would be in the best interest of HUD and the stakeholders. Otherwise, HUD can create a communication plan that indicates who to contact for which types of issues based on the

FAR Subpart 16.703

Basic Ordering

Agreement

(BOA)

Blanket Purchase

Agreement

(BPA)

Indefinite-

Delivery /

Indefinite-

Quantity (IDIQ)

Provides for an indefinite quantity of supplies and services during a fixed period

Government-Wide

Acquisition

Contract (GWAC)

Not a contract, a written understanding including terms description of services/methods for ordering

Enables federal agencies to buy cost-effective and innovative solutions for IT requirements

Not a contract, but a simplified method of filling repetitive needs in small quantities and dollar values

FAR Subpart 16.504 FAR Subpart 17.5 FAR Subpart 13.303

Single, Standalone

Contract

One contract awarded to one vendor covering all

PBCA tasks

06/20/2016 Page 12 contractors who win the awards. The recommendation is to award all tasks under one task order initially prior to potentially unbundling tasks in future task orders.

With multiple award IDIQ contracts, it is possible that not all awardees will have work for a period of time. This encourages the vehicle holders to submit the strongest team at the best possible price every time to maximize their chances of winning. Being a vehicle holder of this

IDIQ does not preclude vendors from working other contracts while waiting for a chance to win a task order, and vehicle holders often retain their best staff through other contracts when necessary. Although it requires a large investment of time and money to compete for and win an

IDIQ and Task Orders, the benefits of a holding an IDIQ for a contractor often outweigh the potential of not being awarded much work.

D. Contract Type

A wide selection of contract types are available. They are grouped into two broad categories:

fixed-price and cost-reimbursement (included within cost-reimbursement is time & material / labor hour contracts) (details provided in Appendix B).

Managing contractor costs for all PBCA services under a cost-reimbursement contract would require significant HUD oversight and administration to ensure that only permissible costs are paid and that adequate overall cost controls exist. This would pose the highest amount of risk to

HUD. With cost-reimbursement contracts, the Government is not guaranteed a completed end item or service within the estimated cost, and there is a cost risk of not being able to fully assess the payment need for services each month. In a cost-type contract, the contractor has little incentive to keep spending to a minimum and there is limited certainty as to what the final cost will be. From a fixed-price perspective, PBCA services have been acquired for many years, so there is a lower risk of uncertainty. Based on these factors, and because many PHA providers may not have an approved accounting system allowing for cost-reimbursement type contracts, a fixed price type contract is beneficial to HUD.

Since the program needs to be flexible, Time & Materials and/or Labor Hour task orders should also be allowed within the vehicles, but only when absolutely needed due to an inability to accurately estimate the extent or duration of the work, or the inability to anticipate costs. Having

FFP and Time & Material and Labor Hour options available will allow HUD to select the most suitable contract type for balancing cost, the uncertainty of requirements, and the delivery risk

Cost - Reimbursement

Provides for payment of allowable incurred costs and used when requirements cannot support a fix price contract – maximum risk is on the Government

Time & Material / Labor

Hour

Can be used when it is not possible to estimate the extent or duration of work, or to anticipate costs

Fixed Price

Contractor agrees to deliver services at a price – maximum risk is on the contractor

FAR Subpart 16.2 FAR Subpart 16.3 FAR Subpart 16.6

06/20/2016 Page 13 for each task order. It will also allow for a hybrid of contract types within task orders for maximum flexibility.

E. Small Business Utilization

Through research of the program and the CA tasks, the potential for small business utilization was assessed to include not setting aside any portion of this work for small businesses, a partial small business set aside, or a total small business set aside (details provided in Appendix B).

Only a preliminary assessment for small business utilization can be made without performing market research to identify qualified small business vendors. Based on initial research, it is believed that there is not a reasonable expectation that two or more small businesses would submit proposals for the full scope of PBCA services. The requirement at a regional level is too large and complex for a small business to perform successfully without teaming with other companies who can supplement the requirements. There does, however, seem to be small businesses who perform some of the PBCA services, indicating that part or parts of a multiple award vehicle may be set aside for small business concerns, or that one or more contract award can be reserved for small business concerns. With additional market research, it can be assessed if small businesses can create teams that can cover the entire PBCA task scope in order to assess whether the requirement can be set aside. If market research shows that 2 or more small businesses are likely to submit proposals for the requirement, they can subcontract up to 49% of the work to a large business.

If no set aside, or a partial set aside is used, large prime contractors should be required to meet or exceed HUD’s small business goal. A small business plan would be required in the solicitation and should be part of the evaluation criteria.

Based on the task assessment completed above, Voucher Processing and Payments, HAP

Contract Renewal, Rent Adjustments, and a subset of the call center may be further assessed for small business set aside. For the areas where market research has assessed there to be more than two responsible small businesses, the sampling of appropriate NAICs codes are listed below.

Full and Open

Large Contractors will be required to meet or exceed

HUD’s small business subcontracting goals

Small Business Set Aside

A portion of the work must be set aside for a small business concern if conditions are met

The entire effort must be set aside for a small business concern if conditions are met

Partial Total

FAR Subpart 19.502-3 FAR Subpart 19.502-2

06/20/2016 Page 14

NAICS Title Potential PBCA Related

Tasks

Size Standard

522320 Financial Transactions Processing, Reverse, and Clearinghouse Activities

Voucher Processing and

Payments $38.5M

531320 Office of Real Estate Appraisers Rent Adjustments $7.5M

541350 Building Inspection Services Physical Review Follow Up $7.5M

541990 All other professional, scientific, and technical services

Various $15.0M

561422 Telemarketing Bureaus and Other

Contact Centers

Tenant Call Center $15.0M

624229 Other Community Housing Services Various $15.0M

F. Comments and Observations on Leading Industry Practices

Through research and professional judgement, several areas were identified as potentially benefitting the PBCA effort. These practices were analyzed to assess which ones applied to the program, and which ones needed more information to fully assess the impact.

Competition. The FAR advocates for competition (FAR Part 6) and CICA governs competition in federal procurement contracting. By competing this work, HUD can achieve the best value, improve contractor performance, and promote accountability for results. Full and open competition is required by FAR Subpart 6.1 unless an exception applies. Through the potential three IDIQ contracts within each of the five regional areas, competition is achieved at the vehicle level, and again, at the task order level potentially resulting in further savings.

Conduct Extensive Market Research. Extensive market research should be conducted to assess how to effectively structure the IDIQs. At the very least, HUD should determine, for each of the seven task areas: (a) industry practices regarding the bundling or unbundling of services, (b) which tasks require local knowledge or presence or governmental unit involvement, and (c) whether small businesses can perform any of the tasks.

Utilize Performance-Based Contracting. Switching to a performance-based methodology could help control costs, drive better value and delivery, and…