module 12 script - hud exchange

PHA Financial Management Training Module 12 – Procurement Compliance

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Slide 1: (Title Slide) Module 12: Procurement Compliance Welcome to the Public Housing Authority Financial Management Training. This session focuses on procurement, with an emphasis on micro and small purchase procurement, the two most common methods of procurement. Slide 2: Module 12 Topics This module provides information on general procurement guidelines and discusses the ethical standards required to comply with federal procurement regulations. The session then transitions to providing other general procurement requirements and some tips in planning procurement actions. Next, we will discuss in detail both the micro and small purchase methods of procurement and then provide a brief description of the other procurement methods. The module will then conclude with a discussion on what is meant by the “stricter of Federal or state law”. Slide 3: (Section Break) Procurement Guidelines This section titled, “Procurement Guidelines” provides general information on procurement, including the definition of procurement, the requirement to have a procurement policy and procedures, and the procurement roles and responsibilities of PHA staff and Board members. Slide 4: Definition of Procurement Procurement is simply the term used for buying any good or service, regardless of the amount of the item or service acquired. Procurement is highly regulated by both Federal and state laws and is an area of high risk for most PHAs. When reviews or audits are completed on a PHA’s procurement system, there are usually findings and questions regarding costs. In addition to being highly regulated, one of the reasons that procurement is considered a high risk is that different rules apply based on the item or service procured as well as the cost of the item or service. The definition of Procurement also extends to:

• Ensuring that the proper vendor was selected, and the price is reasonable, • Ensuring that the proper procurement method was used, • Ensuring that the item purchased or the contractors’ performance is in accordance with the terms,

conditions, and specifications requested, and • Ensuring that proper documentation exists to support each procurement action.


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Slide 5: General Procurement Requirements PHAs are required to develop a procurement policy and procurement procedures. The procurement policy and procedures must address how the PHA will handle organizational conflicts of interest and ethical issues and provide guidance on contract administration procedures. The PHA’s procurement policy must adhere to all Federal, state and local procurement laws and regulations and promote full and open competition. Slide 6: Procurement Authority On this slide is a list of the regulations and other guidance that PHAs must follow for any procurement action:

• Procurement Laws and Regulations, most notably – 2 CFR Part 200 – Uniform Administrative Requirements, Costs Principles and Audit

requirements for Federal Awards, and – State and local procurement laws, if more stringent.

• The HUD Procurement Handbook for PHAs 7460.8 REV 2, dated February 2007, provides administrative and managerial guidance.

• PIH Notices and other miscellaneous HUD Guidance also may provide additional directives. Usually this type of guidance focuses on specific items.

• Finally, the PHA must follow its own procurement policy and procurement procedures manual. PHAs should be aware that a recent statutory change authorized by the National Defense Authorization Acts for fiscal years 2017 and 2018 increased the micro-purchase limit from $3,000 to $10,000 and the simplified acquisition method (also called the small purchase procurement method) from $100,000 to $250,000. The U.S. Office of Management and Budget is responsible for the 2014 guidance found at 2 CFR Part 200. An OMB memo issued June 20, 2018 provided guidance on the revised procurement requirements found in the National Defense Authorization Acts. The memo can be accessed at the link provided in the presentation. The OMB memo permits federal grant recipients, which would include PHAs, the authority to implement these new limits upon the release of the memo. The memo also notes that OMB is in the process of updating 2 CFR 200 to reflect these changes. HUD has determined that PHAs can implement the new procurement limits as of the date of the OMB memo contingent on the PHA updating its own procurement policy and procedures to reflect the new threshold limits and insofar as state and local law does not mandate a lower threshold. This training session reflects the new threshold limits. PHAs should also be aware that that HUD has not yet updated the HUD Procurement Handbook for PHAs 7460.8 REV 2, dated February 2007 to reflect these new limits and other possible conforming changes, as needed. It is recommended that PHAs periodically view


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PIH’s procurement webpage and talk with their field office representative to be sure that they are aware of any new guidance on this topic. Slide 7: PHA Procurement Policy and Procedures

The requirement for PHAs to have their own procurement policy and procedures manual helps ensure that a PHA is acting legally and with integrity in its daily operations by providing regulatory and administrative oversight of all procurement activities. The PHA procurement policy, like any other PHA policy, should be adopted by the Board of Commissioners. The PHA’s procurement policy should identify the specific regulatory aspects of the procurement process and identify who at the PHA has been delegated with procurement authority. The procurement manual is typically approved by the Executive Director and provides standard operating procedures that implements the procurement policy. PHAs may wish to view a sample of a PHA procurement policy that HUD has provided as an appendix in the HUD Procurement Handbook for PHAs. Slide 8: Delegation of Authority The term “Delegation of Authority” is used to identify the PHA staff that can buy goods or services on behalf of the PHA. Unless there has been a delegation of authority, only the Board has the authority to purchase goods and services. The Board will normally delegate procurement authority to the Executive Director and the delegation should be included in the PHA’s procurement policy. A person who has been delegated procurement authority is also termed a “contracting officer” by HUD, regardless of other job duties or job titles.

Slide 9: Delegation of Authority (continued) The Board normally delegates procurement authority to the ED and may allow the ED to further re-delegate responsibility to procure, especially for larger agencies. The delegation and authority to re-delegate must be documented in the Board approved procurement policy. Delegation and re-delegation of procurement authority:

• Establishes the dollar limits of procurement authority to different individuals; • May limit procurement actions allowed by different individuals, such as the contract types that can

be used or the good and services that can be purchased; and • Communicates if the delegated individual, can further delegate this responsibility to other

individuals. The need to further delegate is usually a function of PHA size. If further delegation exists, the further delegation needs to be established through a written / signed document.


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Slide 10: Example Policy Language - Delegation of Procurement Authority (Board) On this slide is an example of language for the delegation of procurement authority that a PHA might have in their procurement policy. • The Executive Director is the contracting officer and is hereby delegated the following procurement

authority: – Authority to enter into contracts for goods and services not to exceed $10,000. – Authority to enter into contracts for construction, repairs, and modernization not to exceed

$10,000. – Authority to enter into leases of equipment for periods not to exceed five consecutive years,

irrespective of the total monetary amount of the procurement. • All contracts for goods and services more than $10,000 require the approval of the Housing Authority

Board of Commissioners. • The Executive Director has the authority to delegate, in writing, all or part of procurement functions to

trained individuals staffed within the organization to implement and manage this procurement policy up to the authority granted in this section.

• The Executive Director shall establish operational procedures to implement this procurement policy. The Executive Director shall also establish a system of sanctions for violations of the ethical standards described in this policy, consistent with Federal, State, or local law.

The first two bullets cover the dollar limits and type of contracts that are allowed. The third bullet is the re-delegation language, which allows the ED to have other staff also take on procurement responsibility. The last bullet is standard language, which requires the PHA to be compliant with procurement rules. This slide is only an example and for instance a PHA could set a lower procurement limit for Boards that want to be more involved in the procurement process.

Slide 11: Example Language - Re-Delegation of Procurement Authority (ED) This slide shows a sample of re-delegation language. Re-delegation of procurement authority is not part of the PHA policy but is usually in the form of an official PHA memo. The language is very similar to the delegation of procurement authority and provides:

• The names or positions in the PHA that have procurement, • Dollar limits, • Contract types allowed, and goods and services prohibited to be procured, and • Statements that all purchases must meet PHA standards and that all contracting actions must

conform to the PHA’s procurement policy and procedures. PHA standards refers to PHA specifications for certain goods or services. For example, most leases are printed on white legal sized paper, therefore when purchasing paper for leases, no one should purchase colored paper or decide to print the lease on 8.5 by 11-inch paper (i.e., letter-size paper) as this is not the PHA standard. Another example could be the color of paint used on the interior of the units.


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Who will have procurement authority, the dollars limits, etc. are normally associated with the size of the PHA, experience of staff, the programs administered by the PHA, and the risk the PHA is willing to assume. The re-delegation memo should be signed and dated by Executive Director and applicable staff. It is recommended that the memo be kept current and re-issued every year.

Slide 12: Procurement Roles and Responsibilities This slide discusses the role of the board and contracting officers in procurement. A PHA’s Board of Commissioners has a role in procurement. The Board will approve the PHA’s procurement policy, including delegation, provide oversight of procurement activities to ensure compliance, and may approve contracts/agreements which exceed a threshold or address a condition specifically outlined under the PHA’s procurement policy / procedures. However, the Board should not be directly involved in vendor/contractor selection. Contracting officer(s) of the PHA simply procure and execute contracts on behalf of the PHA. In addition to the staff involved in procurement, the PHA must have an appropriate contract administration system. The contract administration system aids in the internal coordination and controls of all procurement activities and helps ensure appropriate oversight of procurement actions including contractor compliance.

Slide 13: Contracting Officer Anyone who is assigned procurement authority is a contracting officer. With the title comes certain authority. Most notably, the signature of a contracting officer obligates the PHA to pay the contractor or vendor in accordance with the terms of the contract / sales agreement. In addition, the title of contracting officer requires the person to assume the duties related to procurement, including:

• Executing contracts, purchase orders, intergovernmental agreements and change orders, • Using sound judgement in accomplishing procurement activity, including granting and/or denying

protests, • Ensuring that bidders and contractors receive fair, impartial, and equitable treatment, • Ensuring that contract actions comply with all applicable rules and policies, and • Seeking the best value and greatest overall benefit for the PHA. • Maintains a complete vendor/contractor file (which includes, at minimum the RFP, vetting notes on

selection and criteria, cost analysis, duly-executed contract, notice of non-selected applicants, notice of award to proceed; if required, sole-source justification, copies of invoices, etc.).

PHAs should note that non-contracting officers, staff that have not been given procurement authority can bind the PHA to a procurement action, when that person acts as if they have such authority to a vendor or


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contractor. In discussions with a vendor or contractor, non-contracting officers should be careful to use language such as:

• “This request is for a price quotation and not an offer to buy” or • “This is a request for information only”.

Slide 14: (Section Break) Ethical Standards This section titled, “Ethical Standards” discusses the requirements of having a written code of standards for procurement actions, including guidelines around independence and language that covers other ethical standards.

Slide 15: Written Code of Standards PHAs are required to maintain a written code of standards governing the performance of employees that are engaged in the award and administration of contracts. Most notably is the standard that no employee, officer or agent of a PHA may participate in the selection, award or administration of a federally funded contract if a conflict of interest – real or apparent – exists. It is recommended that PHA staff:

• Do not solicit or accept gifts/favors or anything of monetary value, • Keep relationships professional, and • Avoid any conflicts of interest.

Slide 16: Conflicts of Interest Defined A conflict arises when Board members, PHA employees (including the ED), or agents of the PHA, including their family members, have a financial interest in a firm selected for award. In addition, PHA contractors should not hire any member of the PHA, their family members or business partners, nor any member of the local and State governing body. Note: the term contractor and firm also include sub-contractors. If in doubt, a PHA should obtain legal advice from their attorney or consult with HUD’s Legal Counsel Office. For more information on conflicts of interest, please refer to the module in this series titled “Module 3 - PHA Operating Environment” which covers this topic in more depth. Slide 17: Other Ethical Standards Under procurement rules, PHA staff are prohibited from accepting gratuities or kickbacks. It is a breach of ethical conduct to solicit, accept or agree to accept gratuities, favors, or anything of monetary value from contractors or potential contractors and it is a breach of ethical conduct and prohibited for any payment, gratuity, or offer of employment to be made by, or on behalf of, a contractor or subcontractor.


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PHAs may allow a gift from contractors if the gift is both unsolicited and of nominal intrinsic value. As a point of reference, the federal government allows a contractor to provide an annual gift of up to $25. If a kickback has occurred or is suspected to have occurred, the Contracting Officer must report to the Executive Director, the HUD Field Office, and the appropriate State and local officials any suspected anti-competitive practices by contractors. Slide 18: Other Ethical Standards (continued) Disclosure of confidential information to any person not authorized by the Contracting Officer to receive such information is a breach of ethical standards. Confidential information includes but is not necessarily limited to:

• Contents of a bid (prior to bid opening); • Contents of proposal (prior to contract award using competitive proposals); • Names of individuals or firms that submitted bids (prior to bid opening); • Proposals (prior to contract award); • PHA-generated information related to a procurement (including PHA cost estimates, evaluation

plans specifications [before solicitation is issued]); and • Any other information the disclosure of which would have a direct bearing upon the contract award

or the competitive process. Inappropriate disclosure of such information is a breach of ethical standards as this information provides for a competitive advantage for interested vendors, but procurement regulations require the promotion of full and open competition.

Slide 19: Remedies for Breach of Ethical Standards The PHA must have policy and procedures that cover disciplinary action for a breach of ethical standards. Listed below are common employee disciplinary actions for breaches of ethical standards.

• Oral or written warnings or reprimands, • Suspension with or without pay, • Dismissal from position, • Termination of employment, and • Civil and criminal charges.

In case of gratuities received, the value of gratuities must also be returned. The disciplinary action is commensurate with the breach of ethical standards and the history of the employee.


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Slide 20: Learning Activity - 01a To reinforce the material covered in the previous slides, the next four slides provide some facts that relate to a procurement action and asks you a question about the set of facts. After you hear the facts and question, take a moment and think about the answer. We will then provide the answer. Here are the Facts for this scenario:

• You are a property manager; • Your responsibilities and authorizations include procuring maintenance and other property supplies

and services, and approving invoices for payment; • You are also responsible for managing the maintenance staff, which includes a maintenance

technician whose wife owns and operates an independent plumbing business; • The maintenance technician explains that his wife provides a 15% discount on all labor and parts

when purchased by the PHA; and • This discount normally results in the lowest price in the area.

Question - All other considerations being equal, since the price will likely result in the lowest cost to the PHA, should the property manager use this vendor? Answer - The vendor should not be used for two reasons. There is a conflict of interest as the maintenance technician has a financial interest in the vendor and conflict of interest rules around procurement would therefore prevent the PHA from choosing this vendor. Secondly, no employee should participate in the selection, award or administration of a federally funded contract if a conflict of interest – real or apparent – is involved. In this case, the property manager would seem to have an apparent conflict of interest – hiring a firm that is owned by the wife of his maintenance technician. Slide 21: Learning Activity – 01b Here are the Facts for this scenario:

• Same facts as the previous question but the maintenance technician explains that one of the Board members highly recommends the use of a vendor that has recently opened for business and is providing a 15% discount on all labor and parts; and

• This discount normally results in the lowest price in the area. Question - All other considerations being equal, since the price will likely result in the lowest cost to the PHA, should the property manager use this vendor? Answer - Based on the information provided, the PHA could use this recommended vendor if the vendor is awarded a contract using proper procurement procedures. While the commissioner may just have the PHA’s best interest at heart, due diligence should be taken when considering this vendor. Commissioners (and other parties) should not try to steer contracts to specific vendors or put pressure on the PHA to use specific vendors. If there seems to be a lot of pressure by the commissioner to use a vendor, efforts should be taken to make sure there is no conflict of interest between the vendor and the commissioner.


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Slide 22: Learning Activity - 02a Here are the Facts:

• The property needs a vendor to come in and repair a security fence and sidewalk; • The property manager has not been delegated procurement authority; • The costs of repair are estimated to be in the range of $5,000 to $8,000; • The REAC physical inspection is scheduled at the end of the next month and the property manager

wants the items fixed before the inspection; • The PHA contracting officer is swamped with higher priority work and will not likely be able to

procure a vendor in time without assistance; • To help, the property manager has reached out to four vendors that have successfully completed

similar work at the PHA, provided the specifications for the work, received estimates for the work, and provided this information to the procurement officer.

Question - Has the property manager violated procurement rules? Answer - There is no procurement violation by the property manager. The work completed by the property manager is information gathering only and it is not unusual for non-contracting officers to provide the scope of the work. The contracting officer will determine if an award should or can be made to any of the vendors the property manager approached. Slide 23: Learning Activity – 02b The facts for this scenario are:

• The Same facts as the previous question but the property manager called the vendor that provided the lowest bid and let them know that they were the lowest price and asked if they could start the work next Wednesday; and

• The contract has yet to be officially awarded. Question - Has the property manager violated procurement rules? Answer - At least two procurement violations were made by the property manager. Because the contract has yet to have been awarded, the property manager should not have disclosed that the vendor was the lowest bid (prohibition on use of confidential information). Also, by asking if the vendor could start work next Wednesday, the property manager may have obligated the PHA into using this vendor as the vendor may assume that the property manager has authority to award the contract and that this call was a verbal agreement from the PHA to start work.


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Slide 24: (Section Break) Other General Procurement Requirements The next section provides general procurement requirements that are applicable to any procurement action. Slide 25: Competition The first requirement is that all procurement transactions shall be conducted in a manner that provides full and open competition. Full and open competition can be defined as competition in which all qualified firms or companies can compete in a free manner. This approach usually leads to an award to the firm whose price and approach are most favorable to the PHA PHAs should be cautioned that certain actions are normally considered restrictive. For example,

• Unreasonable qualification requirements on firms; • Requiring unnecessary experience or excessive bonding; • Non-competitive awards to consultants on retainer contracts; • Organizational conflicts of interest; and • Specifying only a brand name product.

These actions are considered restrictive because they limit the number of firms that can compete for the work. For example, a PHA could not require in its statement of work for fee accounting services, that the fee accountant must be a CPA, as a CPA license is not necessary to perform this work. This example highlights unreasonable qualifications. When purchasing computers, the procurement could not state “Dell Laptop 5000” but should talk about a laptop with certain specifications (processing speed, hard drive capacity, etc.). This example highlights specifying the brand name for a product. Slide 26: Maximum Contract Length Except for energy performance contracts, no PHA contract may exceed a period of five years. The five years includes all option periods and extensions. Contracts that exceed a total of five years are considered restrictive of competition and in violation of 2 CFR 200.319. Slide 27: Required Documentation All procurement actions need to be fully documented. PHAs are required to maintain records sufficient to detail the significant history of each procurement action, including

• The rationale for the method of procurement selected, if not apparent; • The solicitation (i.e., purchase order, request for bid, etc.); • The selection of contract pricing arrangement, but only if not apparent; • The information regarding contractor selection or rejection;


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• The basis for the contract price; and • Any contract administration issues/actions.

The level of documentation should be commensurate with the value of the procurement. Slide 28: Record Retention The PHA should retain all significant and material documentation and records concerning all procurements actions. The PHA must retain this documentation for a minimum period of three years after final payment and all matters pertaining to the contract are closed. If any claims or litigation are involved, the records shall be retained until all issues are satisfactorily resolved.

Slide 29: Legal Services PHAs can obtain outside legal services through procurement contracts. However, there are a couple of items to keep in mind when procuring legal services. A competitive procurement action is preferred as this method allows for the consideration of technical quality or other factors (in addition to price), when selecting a firm. A time and materials contract can be used only after the PHA determines that no other contract is suitable and if the contract includes a ceiling price that the contractor exceeds at its own risk.

PHAs must submit to HUD’s Regional Counsel for prior written concurrence, for any litigation service contracts related to a HUD program where the fee is expected to exceed $100,000. The only exception to this rule are litigation service contracts where the PHA is serving as a Section 8 private developer. Slide 30: Banking Services PIH Notice 1996-33 - which is still in effect- requires that banking services must be procured through a competitive solicitation process. In addition to procuring banking services, an unaltered and fully executed General Depository Agreement (HUD Form - 51999) must be executed between the PHA and the depository (i.e., bank) prior to commencing banking services. This document must remain on-hand at the PHA. Slide 31: Mandatory Contract Clauses HUD requires certain mandatory provisions to be included as part of all purchases, request for quotes and contracts, regardless of amount. State or locally-mandated provisions must be included if applicable. In addition, PHAs are encouraged to include additional provisions that are consistent with good business practice.


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Generally, small purchases, including micro purchases, are subject only to a limited number of HUD mandatory clauses. However, small purchases related to bid specifications and contracts for construction or maintenance work more than $2,000 are subject to additional mandatory clauses. Table 5.1 Mandatory Contract Clauses for Small Purchases Other Than Construction - pages 5-6, Procurement Handbook for Public Housing Agencies - provides the required clauses and language. Slide 32: Mandatory Contract Clauses (continued) The number and complexity of the required clauses in general directly relate to the size and type of the contract. HUD has provided the required clauses and language as PIH forms. For example, Form HUD-5370-EZ: “General Conditions for Small Construction/Development Contracts” has been designed for small construction jobs ($2,000 – 100,000 in value). These forms can be simply attached to the request for quotes and contract to ensure compliance. Chapter 5, Section 10: “Standardized Forms/Mandatory Contract Clauses” of the Procurement Handbook for Public Housing Agencies provides the related form numbers and information on their proper use. Again, please remember that at the time of recording of this training session, the handbook has yet to be updated for the new updated thresholds limits for micro and small purchases. As HUD updates the handbook, conforming changes may be needed to the Standardized Forms/Mandatory Contract Clauses that PHAs will need to incorporate into their procurement actions. Slide 33: (Section Break) Procurement Planning This next section provides some suggestions and best practices related to procurement planning. Slide 34: Procurement Planning For each upcoming procurement, the PHA should identify the scope or statement of work and the type of contract and procurement method, including an estimate of the contract value and the evaluation factors that will be used to assess the proposals. If the work is for modernization, the PHA should review the latest physical needs assessment, as this review could impact the statement of work. Additionally, PHAs need to keep in mind the time constraint. For example, if the required services are a priority need or cannot lapse, the procurement action would be considered urgent and the PHA should make sure that appropriate resources are tasked to complete the action timely. The type and size of the job also needs to be considered as a very specialized and complex requirement or a requirement that is very large in scope will usually take longer to procure. Finally, market conditions should be considered or said differently who are the qualified firms that will likely bid on the work. Based on that answer you may need to restructure the statement of work or expand the advertising to solicit bids. Except for micro purchases, all procurement actions must include an independent cost estimate - also known as an ICE - before advertising.


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The PHA also needs to identify the eligible source and availability of funds (i.e., Operating, Capital Funds, HCV administrative fee, other funding source, etc.) to complete the work requested. Slide 35: Procurement Calendar PHAs should develop a schedule for procurement actions planned with due dates. This schedule is normally referred to as a procurement calendar. The purpose of a procurement calendar is to:

• Improve the monitoring of expiring contracts and initiate the re-solicitation of these contracts to prevent a lapse in service;

• Ensure timely obligation and expenditure of Capital Funds; • Find patterns of procurement actions that could be performed more efficiently or economically; and • Develop new procurement actions based on the needs of the properties.

Slide 36: Procurement Methods When procuring, PHAs must determine and select the proper procurement method. Each procurement method has specific requirements which must be met for use. The federal government has established four procurement methods, which are (1) small purchases, (2) sealed bids, (3) competitive proposals, and (4) non-competitive proposals. Under the small purchase methodology, there is a sub-procurement method known as micro-purchases. Similarly, under the competitive methodology, there are two types – Request for proposal and Request for qualifications. It should be noted that credit / debit cards are a payment method and not a method of procurement. In the next sections, we will discuss each of the mentioned procurement methodologies. Slide 37: (Section Break) Micro Purchase Procurement Method This section discusses the micro purchase method of procurement, which is the least complicated method of procurement and can be used for the acquisition of goods and services less than $10,000 in cost. Slide 38: Micro Purchase Requirements The micro purchase method is a sub-category of small purchase for items / services that costs less than $10,000. Price analysis, which is the determination that the price paid for the good or service is reasonable, is required but needs to meet only minimal standards. First, PHAs may award micro purchases without soliciting competitive quotations if the contracting officer considers the price to be reasonable based on recent research, experience, or purchases. Additional price analysis is needed, however, if the contracting officer does not have a basis for the cost of an item or service. For example, an uncommon item that the PHA has not purchased in the last several years. Price


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analysis can be based on prior prices paid recently by other projects or price list / catalog prices publicly available. The signature of the contracting officer signifies that the price is reasonable and an independent cost estimate is not required. Slide 39: Micro Purchase Requirements (continued) Some other requirements relate to the purchases of like items. Like items should be equitably distributed among available suppliers and that prior to repeating a “series” of similar purchases, a new quote should be obtained to verify that the price paid is still reasonable. For example, if the PHA always goes to either Lowes or Home Depot for the purchase of doors, these vendors are competitors and the pricing is usually very similar. However, the PHA should research the price of doors on a periodic basis to make sure that the price is still reasonable. Slide 40: Bid Splitting Federal rules prohibit bid splitting. Bid splitting is the breaking down of purchasing requirements into multiple smaller purchases to use the small purchase / micro purchase methods or to avoid any requirements that apply to purchases that exceed the small purchase / micro purchase thresholds. There is one exception, larger requirements may be broken into smaller ones to afford small and minority businesses the opportunity to participate in the PHA’s procurements. The reasons for breaking down larger requirements into smaller ones must be shown in the contract file. An example of an allowed bid splitting would be as follows. The PHA wants to contract out all aspects of vacant unit turnaround. Normally this would be considered one requirement. However, the PHA could elect to break out for example unit cleaning or painting from the overall scope so that a small minority business is able to bid on the work. Slide 41: Evaluating Contractor / Responsible Vendor Regardless of the procurement method used, contracting officers must make awards or purchases from only responsible contractors and vendors. A responsible contractor or vendor is one that possess the ability to perform successfully under the terms and conditions of the proposed procurement and is able to provide the item under the terms of the agreement or sale. If this criterion is not meet, the contacting officer is prohibited from making the award to the vendor / contractor. Evaluation of a contractor can include personal knowledge of or experience with the vendor / contractor. A PHA cannot use debarred, suspended, ineligible contractors. At a minimum to determine if a contractor has been debarred, the PHA should review the debarred list in SAMs (the federal government system for award management) at www.sam.gov. Some states have similar websites.


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The signature of the contracting officer on the purchase order or contract signifies that the contracting officer has determined that the contractor has the capacity to carry out the procurement. Slide 42: Micro Purchase Documentation The following lists the documentation that should accompany any micro purchase.

• Fully completed and signed purchase order; • Payment Record/Documentation; • Receiving Reports (if applicable); • General Contract Correspondence (if applicable); and • Inspection and Field Reports (if applicable).

• Best Practices but not required, include:

– A written statement justifying the need (one or two sentences) for unusual purchases, large quantities, etc. No justification statement is needed for “every day” type items or services;

– Documentation of price reasonableness for unusual purchases, large quantities, or for items that the contracting officer did not already know the price (price from internet, etc.); and

– Documentation to show that price analysis is completed “now and then” throughout the year on commonly purchased items.

Slide 43: Learning Activity #03a To reinforce the material just discussed, the next seven slides provide some facts that relate to a procurement action and asks you a question about the set of facts. After you hear the facts and question, take a moment and think about the answer. We will then provide the answer. Here are the Facts for this scenario:

• Stoves cost $500. • The PHA’s policy is to first try to fix a stove but if the cost of the repair would be over $200 or too

time consuming, maintenance will simply replace the broken stove with a new stove. • The number of stoves purchased each year varies greatly from one or two stoves to two dozen.

Question - If a new stove is needed, can the micro purchase procurement method be used to buy a stove? Answer - The micro purchase procurement method may be used. The PHA’s policy is to first fix the stove and then replace the stove if more advantageous to the PHA. A stove costs $500 and historical information is not predictive of how many stoves will need to be purchased in the coming year.


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Slide 44: Learning Activity #03b Here is another set of Facts:

• Stoves cost $500. • As part of the preventive maintenance plan, the PHA plans to have maintenance replace 30 stoves

over the course of four months in selected units. • Because of other demands on maintenance staff’s time, it is expected that maintenance will be able

to replace only one to three stoves a week. • There is limited storage space at the PHA and since maintenance needs only one to three stoves a

week, the vendor will need to either deliver or maintenance will need to pick up one to three stoves a week as needed.

Question - Can the micro purchase procurement method be used to buy the stoves? Answer - The micro purchase procurement method should not be used as this could be considered bid splitting. While the PHA will need only one or three stoves a week ($500 or $1,500), which is well below the micro purchase threshold level of $10,000, the PHA needs $15,000 worth of stoves (30 stoves at $500), which is above the limit. Purchasing as needed under this set of facts would be considered bid splitting. Slide 45: Learning Activity #03c Here is another set of Facts:

• Stoves cost $500. • The project’s policy is to first try to fix the stove but if the cost of the repair would be over $200 or

too time consuming, maintenance will simply replace the broken stove with a new stove. • Historically the project has to replace two dozen new stoves throughout the year.

Question - Can the micro purchase procurement method be used to buy the stoves that cost $500? Answer - The micro purchase procurement method should not be used as this is another example of bid splitting. While the PHA does not know exactly how many stoves it will need, historical information reveals the PHA will purchase $12,000 worth of stoves which is above the micro purchase threshold level of $10,000. Slide 46: Learning Activity #04a Here is another set of Facts:

• Historically, the PHA has contracted for lawn care services, however, the PHA has decided that their own maintenance will now cut the grass.

• On the way home, you stop at Frank’s Lawn Care Equipment and see the following rolling mower listed for $8,000.

• The rolling mower fits the description of what maintenance requested.


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Question - Assume that you have purchasing authority and a purchase limit of $12,000. Can you buy this rolling mower now using the micro purchase procurement method? Answer - The rolling lawn mower should not be purchased. Even though the cost is $8,000 which is below the micro purchase threshold limit and you have authority to contract for $12,000 or less, the standards of cost reasonableness have not been met. Since you have no historical or current costs estimates of similar equipment, the price of $8,000 cannot be assumed to be reasonable. Slide 47: Learning Activity #04b Here is another set of Facts:

• Historically, the PHA has contracted out for lawn care services, however, the PHA has decided that their own maintenance will now cut the grass.

• One of the other projects at the PHA has already purchased a rolling mower from Home Depot for the cost of $9,000.

• Looking online, Turf Equipment, Inc. sells rolling mowers from $5,000 - $14,000 depending on the make and model.

• On the way home, you stop at Frank’s Law Care Equipment and see a rolling mower that fits the description of what maintenance requested and it is listed for $9,500.

Question - Assume that you have purchasing authority and a purchase limit of $12,000. Can you buy this rolling mower now using the micro purchase procurement method? Answer - The rolling lawn mower could be purchased as cost reasonableness was established through the review of actual costs of similar equipment purchased by the PHA and a review of costs of similar equipment from online line prices. Question - The salesman asks if you would like to additionally purchase a five-year service agreement for $1,000. Can you buy this rolling mower and the service agreement now using the micro purchase procurement method? Answer - The rolling lawn mower should not be purchased. While cost reasonableness was established, the total price is now over the $10,000 micro purchase threshold limit. The procurement method has now changed from micro purchase to small purchase, which requires an additional step and is subject to additional requirements. Slide 48: Learning Activity #05 Here are the Facts for this scenario:

• Home Depot is a five-minute drive from your project and sells everything your maintenance staff normally needs.

• The prices at Home Depot are considered reasonable.


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• Every other Friday, your maintenance lead provides a list of items needed to be replaced in inventory. The cost of all the items usually ranges from $200 - $300.

• The purchase order is approved Friday afternoon and the maintenance lead picks up the materials from Home Depot on Monday

Question - Assume that you have purchasing authority and a purchase limit of $5,000. Is this procurement action okay? Answer - There is a problem with this procurement strategy. HUD requires the purchase of like items to be equitably distributed among available suppliers. If other vendors are offering the same product at similar costs, the PHA should purchase from these qualified vendors also. Slide 49: Learning Activity #06 Here is another set of Facts:

• Normally you alternate buying office supplies from Office Depot and Staples, the only two suppliers in your area.

• You realize that the printer is out of printer ink and after the purchased order is approved, you simply go to Office Depot and buy $600 worth of ink.

Question - Assume that you have purchasing authority and a purchase limit of $5,000. Is this procurement action okay? Answer - There is no problem with this procurement strategy. Slide 50: (Section Break) Small Purchase Procurement Method This section discusses the small purchase method of procurement, which can be used for the acquisition of goods and services of $10,000 but less than $250,000 in cost. Slide 51: Small Purchase Procurement Method PHAs may use the small purchase procurement method when the independent cost estimate is less than $250,000 but more than $10,000. This procurement method is more formal than the micro-purchase method but less formal than the other types of procurement methods. Under the small purchase procurement method, PHAs may obtain equipment, supplies, or seek services, including construction.


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Slide 52: Small Purchase Procedures

To satisfy the requirements of both price reasonableness and open and full competition an adequate number of quotes must be obtained. An adequate number is defined as three or more. The quotes can be:

• Orally (in person or by phone); • In writing (via letter, fax or email); • Via catalogs; or by • Internet / e-procurement.

PHA should prepare a written solicitation when it is necessary to provide vendors with detailed information that cannot be easily conveyed orally (e.g., by phone). Slide 53: Small Purchase Procedures (continued)

Price analysis will consist of a comparison of the received priced quotes to each other and to other sources of pricing information (e.g., past prices paid, catalog prices, etc.). If only one quotation is received, the contracting office must document in the file how the price was deemed reasonable. A PHA does not need to select lowest price but if “other factors” are considered, the “other factors” must be disclosed to vendors, so the vendors can appropriately respond, and the contracting officer can fairly evaluate the offer. Slide 54: Small Purchase Procedures (continued) Similar to micro-purchasing, under the small purchase procurement method, bid splitting is not allowed and whether the contractor / vendor is responsible must be evaluated. Slide 55: Small Purchase Documentation The following lists the documentation that should accompany any small purchase.

• Fully completed and signed purchase order/contract; • Price Reasonableness;

– Which for oral solicitations includes names of the vendors contacted and prices and other terms and conditions quoted by each vendor;

– For written solicitations, the PHA should limit written records to notes or abstracts that show prices, delivery, references to printed price lists used, the vendors contacted, and any other pertinent information;

– The PHA should explain the absence of competition if only one source is solicited; and – The PHA should provide supporting information for the award decision if other than price-

related factors were considered in selecting the vendor.


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Slide 56: Small Purchase Documentation (continued) Other required documentation includes:

• Independent cost estimates; • Payment Record/Documentation; • Receiving Reports (if applicable); • General Contract Correspondence (if applicable); and • Inspection and Field Reports (if applicable).

Best practices, include a written statement justifying the need (one or two sentences) for unusual purchases, large quantities, etc. No justification statement is needed for “every day” type items or services. Slide 57: Learning Activity #07 This slide provides some facts that relate to a procurement action and asks you a couple of questions about the set of facts. After you hear the facts and question, take a moment and think about the answer. We will then provide the answer. Here are the Facts for this scenario:

• Your PHA needs storage space for maintenance supplies that must be climate controlled. • The cost of material and labor is estimated to be $20,000. • Determination of award will be made to the lowest bidder • Three quotes are received:

– Quote A - $17,000: Vendors past work is of poor quality with consistent schedule delays – Quote B - $20,000: Vendors past work is standard, sometimes with limited schedule delays – Quote C - $22,000: Vendors past work is of superior quality, no schedule delays

Question - What vendor should be selected for this work? Answer - The vendor associated with Quote B of $20,000 should be selected. While Quote A is the lowest price, the vendor would likely be considered not responsible. Contracting offices should make awards to only responsible contractors and vendors that possess the ability to perform successfully under the terms and conditions of the proposed procurement. Based on the evaluation the PHA has had problems with this vendor fulfilling the terms of similar contracts. The evaluation of vendor B’s work is satisfactory and since vendor B is the next lowest price, vendor B should be selected. The contract file should document this conclusion. Question - What vendor should be selected if the determination of award is based on cost and past performance? Answer - The case could be made to select vendor B or C. While vendor C’s work is of superior quality the cost is 10% higher than vendor B. The contracting officer would have to justify why the $2,000 in higher costs is reasonable.


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Slide 58: (Section Break) Other Procurement Methods This section briefly discusses all other methods of procurement. The goal of this section is to simply provide training participants that are not familiar with procurement some basic background information on different procurement methods normally associated with larger purchases. Slide 59: Sealed Bids (Invitation for Bids) The Sealed Bid type of procurement is used when material terms and conditions of the contract can be well-defined and is the preferred procurement method for construction, modernization, supplies, and non-complex service contracts. Under this procurement type, bids will be sought by issuing an Invitation for Bids. The award is to the bidder in the form of a firm fixed-price contract (lump sum or unit price). The contract is awarded to the bidder whose bid meets all requirements in the Invitation for Bid and who is the lowest price. Slide 60: Competitive Proposals (Request for Proposal) The Competitive proposal is a type of procurement used when the PHA’s specifications are unclear, incomplete, or not well defined. Competitive proposals are the preferred procurement method when (1) the requirement cannot be described specifically enough to permit the use of sealed bidding or (2) the nature of the requirement is such that the PHA needs to evaluate more than just price. This method is normally used for professional services (i.e., legal, architect-engineer, accounting, etc.) where the PHA needs specific expertise and experience and the requested work lends itself to different approaches (i.e. IT services and hardware purchases, upgrades to PHA information systems) To use this method, the market should guarantee adequate competition (i.e., 2 or more qualified offerors). The contract award will be based on technical merits and price. Slide 61: Non-Competitive Proposals (Sole Source) A non-competitive, also known as a sole source, procurement method is allowable when other types of procurement methods are not feasible and one of the following circumstances applies:

• Item is available only from a single source, or • After soliciting several sources, competition is determined inadequate with only one respondent.

PHAs are required to submit proposed noncompetitive contracts to HUD for pre-award review and approval, unless HUD has certified or the PHA self-certifies that the PHA’s procurement system meets all


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requirements. The major focus of HUD’s review is to ensure that the PHA procurement language is not limiting competition. Other items to keep in mind when using a non-competitive procurement method, is that

• The use of a non-competitive proposal must be justified in writing; • A cost analysis must be performed to ensure reasonability of price; and • All technical and cost aspects may be “negotiated” with the sole provider.

Slide 62: Common Procurement Actions Requiring HUD Approval Normally PHAs can procure goods and services without needing any approval from HUD. However, the following list describes those procurement actions that need HUD approval, prior to award:

• Any procurement procedures or operational actions which fail to comply with the established regulations;

• For procurements exceeding $150,000, HUD approval is needed when: – Only one bid or offer is received, – The contract will be awarded without competition, – The procurement specifies a “brand” name, or – The contract will be awarded to other than the apparent low bidder under an Invitation for

Bid; and • For contract modification which changes the scope of work or increases the contract amount over

$150,000.

• As a reminder, PHAs are required to submit proposed non-competitive contracts to HUD for pre-award review and approval, unless HUD has certified or the PHA self-certifies that the PHA’s procurement system meets all requirements.

Slide 63: IDIQ Contract Indefinite-delivery / Indefinite quantity (i.e., IDIQ) contract is not a procurement method but a contract type. Under this contract type, the PHA contracts with a vendor or multiple vendors to provide services / materials. Once setup, this contract type has many benefits because services and materials:

• Are provided on a set schedule or when ordered and • At a pre-determined price as price is determined as part of a competitive contract award.

The contract will set terms and minimum and maximum order level for the year and the contract is usually awarded with multiple option periods (up to four option periods). Benefits of this contact type include the following:

• Since price was set competitively as part of the contract award, no further price reasonableness determination is needed meaning the PHA can just order;


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• Usually the PHA will receive price discount due to order volume, for example a PHA may use IDIQ contracts for purchase of items such as unit appliances and materials, where volume will ensure a price discount.

Slide 64: (Section Break) Stricter of Federal or State Law This section briefly discusses the possibility of the PHA having to abide by state procurement laws and rules.

Slide 65: State Procurement Laws and Rules State procurement laws and rules may be applicable to your PHA and be more restrictive than Federal law and rules. While not common, city or county procurement rules may also be applicable. Because each State may have no or different procurement rules this training cannot provide specifics to your PHA. However, one of the more common differences between Federal and State procurement rules is differences in the purchase / contract amount and the procurement method that is allowed. The table below shows an example of such a difference for the State of New Mexico. The state has stricter procurement rules than the Federal rules. First the state micro purchase threshold is $3,000 not $100,000 as allowed by the Federal government under the revised procurement guidelines and secondly, the state small purchase threshold is $60,000 not $250,000 as allowed by the Federal government. Meaning any purchase over $60,000 is required to be awarded by a competitive procurement, such as a sealed bid. In addition, all quotes must be in writing under the state’s small purchase procurement method, but federal law allows the quotes to be in writing, orally, from catalogs or as published on the internet. If state law applies, the PHA must abide by the tighter standard. Essentially the PHA must comply with both sets of rules. Slide 66: State Procurement Laws and Rules (continued) In addition, individual states may have other requirements, not related to the use of different procurement methods. For example, some states require the purchaser to check the states vendor debarment / suspension database prior to making an award. If you are unsure of state purchasing requirements, check with other PHAs in your state or your state purchasing office. Some states provide a government-wide purchasing cooperative and joining such a cooperative has many advantages. First, normally a cooperative sets up contracts for products and services that have been awarded through a competitive proposal process that complies with state and Federal bidding requirements and allows its members to simply buy. This means that all the required steps that should be completed prior to purchasing (i.e. cost reasonableness standards or responsible bidder standards, etc.) have already been completed by the cooperative. The PHA can use the contract put in place by the cooperative. Because a cooperative may have hundreds or thousands of members, there are increased efficiencies and lower costs for member agencies through shared resources. Also, product and service


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prices are typically lower as the cooperative receives price discounts in its contracts due to the volume of expected purchases. The cost of joining a cooperative varies. Some cooperatives are free, some cooperatives charge a membership fee based on the amount or item purchased, and others charge a nominal annual fee. Slide 67: End of Module This ends the training module on Procurement Compliance.

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