Issue link: https://read.dmtmag.com/i/454549
FEBRUARY 2015 12 THE JOURNAL Time for an Investigation of HUD Program Contracting MHARR VIEWPOINT BY MARK WEISS The founders of the American Republic were wary of government power. To preserve freedom, they created a unique system that divides defined and limited federal powers among three co-equal branches of government, while providing checks and balances to prevent impositions by one branch on the authority of another and, more importantly, the accumulation of excessive power in any one branch. These familiar principles, that are so im- portant to preventing abuse of government power by officials that are directly accountable to Ameri- cans via the ballot box, are even more important for government contractors that can wield signifi- cant de facto power without the degree of oversight and accountability that should be a given. And that brings us to the HUD manufactured housing pro- gram and recent contracting activities involving the federal dispute resolution (DR) program. Contracting -- and the proper role of paid con- tractors in a regulatory program that can impose civil and criminal penalties -- has been a long-time sore spot for the federal manufactured housing pro- gram. Irregularities, rather than being the excep- tion, have been the norm, almost since day-one. Start with the fact that one – and only one -- contractor (albeit under different corporate names) has held the key program monitoring contract since the inception of federal regulation nearly 40 years ago – a feat nearly unheard-of in Washington, D.C. Add to that: (1) the consistent absence of any real competition for the monitoring contract; (2) the involvement of the "monitoring" contrac- tor in regulatory activities that far exceed the scope of "monitoring" Primary Inspection Agencies; (3) revenue-driven incentives for the contractor to find fault with manufactured homes and HUD Code producers; (4) the creation, more recently, of make-work functions for the contractor in the face of historically-low industry production levels; (5) constant or increasing monitoring contract funding levels despite that downturn; and – perhaps most importantly -- (6) serious "questions and uncer- tainties about HUD's oversight of [the] monitor- ing contract" raised by the Government Accountability Office (GAO) in its July 2014 re- port on the HUD program -- and what you have is an unacceptable concentration of de facto regula- tory power in one contractor, leading to subjec- tive, inconsistent and arbitrary demands on regulated parties, along with disputes, controver- sies and unnecessary costs that are ultimately paid by already hard-pressed consumers. Many of these factors, as industry members may recall, led MHARR to seek reforms, as part of the legislative process for the Manufactured Housing Improvement Act of 2000, designed to ensure proper competition for all program contracts, as well as a de-centralization of the various functions that could be delegated to contractors under the law. This effort ultimately led Congress to include multiple contracting reform provisions within the 2000 law. In addition to narrowly defining the "monitor- ing" function for the first time in section 603(20), the most important program contracting reform of the 2000 law is in section 620, governing program expenditures and the use of label fee revenues. Section 620(b) specifically provides that: "In using amounts from any fee collected under this section, the Secretary shall ensure that separate and inde- pendent contractors are retained to carry out mon- itoring and inspection work and any other work that may be delegated to a contractor under this title." (Emphasis added). The 2000 reform law thus es- tablishes a clear and mandatory firewall that pro- hibits any contractor hired to do "monitoring and inspection" work from performing any other work that may be delegated to a contractor under the law – which plainly includes work relating to the federal dispute resolution program. Again, this firewall was designed to: (1) prevent the accumulation of excessive de facto regulatory power in any one pri- vate, paid contractor; (2) prevent the misuse or abuse of such de facto regulatory power; and also (3) prevent the misuse or abuse of inside informa- tion obtained via the "monitoring" process in con- nection with other program functions, and vice versa. While HUD, under the federal dispute resolu- tion rules adopted in May 2007 had been acting as its own DR implementation "agent" in so-called "default states" (i.e. , states that have not adopted a state-law DR program as authorized by the 2000 reform law), the Department, in late 2014 -- after increasing the label fee paid by manufacturers by 156% -- awarded a federal DR implementation contract to the Savan Group, L.L.C. (Savan) of Arlington, Virginia. Savan, in turn, named the Institute for Building Technology and Safety (IBTS) -- HUD's de facto sole-source "monitor- ing" contractor of nearly 40 years – as its "principal subcontractor." Under that subcontract, as ex- plained by IBTS in a December 18, 2014 news re- lease, IBTS would perform the highly-sensitive core functions of DR implementation, including "case intake and tracking, and mediation and arbi- tration of disputes." Among other things, IBTS as a DR arbitrator – in addition to all of its other de facto regulatory powers as the program monitoring contractor -- would have the authority under the federal DR rules, to: (1) "conduct on-site inspec- tions;" (2) "issue requests for documentation and information;" (3) "make proposed findings, in - cluding findings of defect and culpability;" and (4) "recommend apportionment of the responsibility of paying for or providing correction or repair of the home…." (Emphasis added). On its face, this subcontracting arrangement would circumvent section 620(b) of the 2000 re- form law and its mandate for separate and inde - pendent contractors to carry out "monitoring and inspection work and any other work that may be delegated to a contractor…." Quite simply, if Savan itself had the technical expertise and per- sonnel to service the federal DR contract, there would be no reason for it to subcontract its core DR implementation functions to IBTS as a "principal subcontractor." Conversely, if Savan lacked the technical expertise and personnel to service the federal DR contract without IBTS, there would be no reason to award the contract to Savan, other than as a means of circumventing the law. Instead, from the information available at press time, Savan appears to be little more than a straw man to allow IBTS to perform overlapping program functions and collect fees that would otherwise be prohibited. HUD con- tracting authorities, moreover, were likely aware \ 15