Audit Report On The Department Of Housing Preservation And Development’s Controls Over The Prequalification And Awarding Of Open Market Orders To Prequalified Vendors For Its Emergency Repair Program

EXECUTIVE SUMMARY

The New York City Department of Housing Preservation and Development (HPD) is the largest municipal housing preservation and development agency in the nation.  The agency’s mission is to promote the construction and preservation of housing for low- and moderate-income New Yorkers in neighborhoods across the city.

HPD’s Division of Maintenance (DOM)^[1] is responsible for taking action to correct emergency violations issued to property owners, under their Emergency Repair Program (ERP), when residential owners do not remediate the conditions relating to those violations.^[2]  The cost of these repairs are billed to the property owner by the New York City Department of Finance.  HPD generally utilizes vendors, rather than City employees, to conduct emergency repairs.

The City’s Procurement Policy Board (PPB) Rules allow for prequalification of vendors for construction or construction-related services where the need for advance screening of vendors’ qualifications outweighs the benefits of broader competition.  In addition, HPD has its own Contractor Compliance Unit’s Eligibility Procedures for Acceptance to Prequalified Contractor Lists (PQL Procedures) to provide further guidance to its staff.  HPD currently maintains lists of prequalified contractors from which it can draw to perform different types of emergency maintenance and repair work in residential buildings up to the $100,000 small purchase limit set forth in the PPB Rules.  Eligibility criteria for becoming prequalified are set out in the PPB Rules and HPD’s fact sheet and application form.  The DOM Contractor Compliance Unit (CCU) approves and maintains lists of prequalified contractors.  Contractors on the Prequalified List (PQL) are prequalified to perform work in various trades, including plumbing, electrical, general carpentry, and extermination.  According to the 2018 Mayor’s Management Report, the total amount spent on emergency repairs (excluding demolitions and the Alternative Enforcement Program) in Fiscal Year 2017 was $10,009,946.

The objective of this audit was to determine whether: 1) selected contractors meet the PPB requirements and HPD’s criteria for prequalification; and 2) Open Market Orders (OMOs, also known as work orders) are awarded in accordance with HPD’s established criteria.

Audit Findings and Conclusions

We found that HPD does not have adequate controls over the prequalification vendor application process or over its awards of OMOs to prequalified vendors for its ERP.  Specifically, HPD did not solicit the minimum number of vendors required by the PPB Rules for a significant number of OMOs, thereby denying vendors the opportunity to bid on work relating to more than 6,300 OMOs.  In addition, HPD failed to remove unresponsive vendors from the PQL as required by PPB Rules, which also had the effect of denying vendors an opportunity to bid in instances where unresponsive vendors were improperly given an opportunity to bid in their place.  Furthermore, HPD did not maintain evidence that vendors accepted onto the PQL have satisfactorily met the requirements for inclusion, increasing the risk that vendors that do not have sufficient insurance protection or do not have sufficient experience may nevertheless have been awarded OMOs.

We also found that HPD does not adequately enforce its requirement that OMOs do not exceed 10 percent of the estimated cost for the contracted work.  Rather, we found that Over 25 percent of the OMOs for the period of January 1, 2017 through June 30, 2017 were awarded at greater than 10 percent of the estimated cost.  Further, we found no evidence that a cost estimate was even prepared for 14 OMOs totaling $35,909.  In addition, we found that OMOs were awarded to vendors that were in pending status—awaiting submission of required licensing and/or insurance documentation.  Contributing to the problems identified in this audit, we found that HPD lacked written policies and procedures over the awarding of OMOs using prequalified vendors for its ERP.

Finally, HPDInfo is the system by which OMOs are processed, approved and payments are rendered to vendors.  However, we found that HPD lacked adequate HPDInfo systems documentation, raising concerns about its functionality and user access rights.

Audit Recommendations

Based on the audit, we make 21 recommendations, including:

• HPD should develop written policies and procedures to help ensure compliance with the PPB Rules and it should enforce the implementation of those procedures.
• HPD should develop reports in HPDInfo to track and monitor vendor responses and ensure management reviews these reports regularly.
• HPD should remove vendors who do not respond to three consecutive bid solicitations from the PQL as required by PPB rules.
• HPD should ensure that an adequate file review is conducted, and such reviews are documented, to ensure that no vendors are added to the PQL that have not met all requirements and that any waivers are approved.
• HPD should ensure that standard operating procedures are created for the processing and awarding of OMOs, including the necessary steps to take before an OMO can be awarded that is more than 10 percent above the estimated cost, and that staff and management are trained on these procedures.
• HPD should consider modifying HPDInfo functions to require: (1) additional authorization and justification for approving OMOs greater than 10 percent of the estimated cost; and (2) an estimated cost amount to be entered.
• HPD should implement process controls in HPDInfo to prevent pending vendors from being solicited for bids and being awarded OMOs. If this cannot be done, HPD should implement a compensating control to prevent vendors in pending status from being solicited and awarded OMOs.
• HPD’s Management Information Systems (MIS) unit should create an HPDInfo user manual and distribute it to all DOM personnel.
• HPD should ensure that standard operating procedures are created for bid solicitations and the awarding of OMOs.

Agency Response

Of the audit’s 21 recommendations, HPD agreed in principle with 11—although it believes that it already complies with three—partially agreed with two, and will take four under consideration.  HPD also disagreed with one recommendation and did not specifically address three recommendations.  HPD also disagreed with the audit’s overall conclusion.  After carefully considering HPD’s arguments, we find no basis to change any of the audit’s findings or conclusions.

[1] The Division of Maintenance Unit was recently renamed the Emergency Operations Division.

[2] Emergency violations are issued by HPD’s Division of Code Enforcement for conditions that affect the health and safety of the tenant and general public.