Wednesday, May 16, 2012
By Al Gray
Within the last three years the Housing Department of the City of Augusta has contracted for the construction of multiple new housing units throughout the city, most prominently in the Laney-Walker Community. Questions in the community, city, and area abound. Are taxpayer funds being used wisely? Are the funds being disbursed according to governing regulations? How do costs compare with similar new homes in the city or in Columbia County?
The question of whether the home building funds were dispersed properly within the terms of the governing contracts and regulations has been reviewed. Augusta Today contributor Dee Mathis submitted a Georgia Open Records Request Act on February 23, 2012 to the Augusta Richmond County Law Department requesting:
“Plans and Specifications for the two units built under contract with the City of Augusta at 1120 and 1122 Florence Street; Payments made under the contract for the construction of these units, including invoices, payroll registers, and any other documents substantiating the costs reimbursed or paid to the contractor.”
As background, it is noted that Dee Mathis has exhibited keen interests in the real estate developments and revitalization efforts in the Laney-Walker neighborhood, having previously appeared before the city commission in opposition to the Laney-Walker overlay zoning ordinance.
The housing constructed was a duplex of two stories built by designated Laney Walker contractor J&B Construction and Services, Inc. The contract for it was dated June 22, 2010 and it was completed before, October 2011, when the final payment was made by the City of Augusta. J&B Construction is a designated Development Partner for the City’s Laney Walker Bethlehem improvement district. There are other development partners who have similar contracts and this review is not intended to single out this contractor but to address the City’s performance in administering similar contracts.
On March 6, 2012, Ms. Mathis received a two page response from Kenneth Bray of the Augusta Law Department accompanied by 60 pages of documents. This report summarizes the key points of the resulting review and commentary.
The nature of the contract is that it provides for construction costs to be reimbursable up to a Not-to-Exceed (Maximum) Price.
The stated amount of the contract was stated in Article 1, Section A, paragraph 1 as, “an amount not to exceed $272,681.00 shall be expended ….. from NSP Program funds for construction costs related to the development of an affordable multi-family housing unit as part of the Florence Street Project.”
Then the contract states in Article II, Section A, paragraph 2: “The method of payment shall be on a reimbursement basis… For invoicing, J&B Construction and Services, Inc. will include documentation showing proof of payment in the form of a canceled check or check register and completed reimbursement form that includes the amount requested, amount remaining and specific line items that relate to contract Budget…”
Article V, Section F. states that, “Requests for payment shall be accompanied by proper documentation… For purposes of this section, proper documentation includes: “Reimbursement Request Form supplied by HCD, copies of invoices, receipts, other evidence of indebtedness, budget itemization and description of specific activities undertaken.”
Article V, Section H, states, “Unexpended funds shall be retained by Augusta.” This supports the nature of the contract as being cost reimbursable because had the contract been a Lump Sum, the full contract price payment would have precluded the existence of any unexpended funds.
Appendix B, Reporting Requirements, contains this statement: “Report will contain actual/estimated costs/date, issues and concerns.”
**Payments were made based upon the Maximum Price, instead of reimbursable costs.
The progress payments made against the contract were based upon the original estimate, plus 3 change orders, and less contingency allowances, resulting in a total contract adjustment of $1,874.28, so that the total contract payments were $270,806.74. **(View Final Payments Document Here.)
In response to Ms. Mathis’ Georgia Open Records Request Act inquiry, The Augusta Housing Department provided no billing support that evidenced that the billed costs were actual costs as defined by check stubs, check registers, paid vendor and subcontractor invoices, or payroll registers for contractor employee-performed work.
When this writer contacted Mr. Shawn Edwards, Neighborhood Stabilization Program Manager for the City of Augusta to inquire about the required billing support, he initially indicated that the City was only getting the reimbursement form from the contractor and was making payments based upon the agreed-upon contract price, contending that the contract price was the proper basis for payment, not reimbursable costs. A follow up request is in process for Augusta to provide the actual cost back-up it might possess. This report will be updated if contradictory data is provided.
**The Federal Department of Housing and Urban Development has already cited Augusta for deficiencies like those in evidence for 1120 Florence Street.
James D. McKay, Regional Inspector General for Audit, Atlanta Region, issued an audit report in 2010 which included the following: During the review, we identified two concerns regarding internal controls and entering obligations before contracts were fully executed.
The City did not have internal controls in place to perform continuous and routine monitoring of its obligation process to ensure that its obligations were processed as intended and were valid. We discussed this matter with the City during the review, and the City agreed to develop monitoring procedures.
The City entered its NSP1 obligations into the DRGR database in June 2010 for its LH25 set-aside activities. At that time, the obligations were not valid because the contracts for those obligations had not been signed by all parties. However, the City obtained the required signatures and fully executed the contracts in August 2010, ahead of the September 5, 2010, deadline. We discussed this matter with the City, and it agreed that its obligations were not valid until the contracts were fully signed and executed by all parties.
The failure to secure evidence of reimbursable costs, while paying out contracts based upon the maximum price, would appear to be a 1120 Florence Street manifestation of the first exception that HUD noted.
The second failure is definitely found to exist with the 1120 Florence Street units, as the contract was signed in June, 2011, three months after the initial contract payment.
The Office of Management and Budget circulars governing the NSP1 funds include the following.
OMB Circular A-87, Cost Principles for State, Local and Indian Tribal Governments (05/10/2004) HTML or PDF (58 pages, 216 kb),
OMB Circular A-110, Uniform Administrative Requirements for Grants and Other Agreements with Institutions of Higher Education, Hospitals and Other Non-Profit Organizations (11/19/1993) (further amended 09/30/1999, Relocated to 2 CFR, Part 215
OMB Circular A-133, Audits of States, Local Governments and Non-Profit Organizations
There are indications that the reimbursable cost could be materially less than the maximum price in the estimate and adjusted contract price.
The contract pricing detail on page 4 shows a charge for a central air system with a 15 Standard Energy Efficiency Rating (SEER). The unit installed was observed to be a Nutone Model NT4BD. This model is shown by the manufacturer as a 13 SEER Heat pump, capable of reaching a 14 SEER if paired with a variable speed air handler. The cost differential between a 13 SEER and 15 SEER is significant, because of the rigorous ductwork, blower, and air handler upgrades to achieve the higher rating. Having the HVAC contractor invoice, as required by this contract, and inspection of the installed system would settle this question.
The paid-out contract price included a line item entitled “Administration.” In the absence of clarification, “Administration” would be an indirect cost which would be covered by the 15% Overhead and Profit allocation against all of the direct cost in the estimate, meaning that inclusion as a marked-up direct cost overstates “costs.” The overage would be $13,800, according to page 2 of the price estimate. This single factor would be 5% of the total contract value.
Using prices from Lowes in comparison to the estimate provides a mixed picture. The estimate prices for bricks and blocks would be a savings, but the prices of wallboard, lumber, mortar mix, concrete, roofing felt, and access doors seem to indicate losses. (These are current prices and can only be used as points of reference, as the actual contractor costs would govern.)
The contract estimate shows the “cost” per square foot on page 6 to be $79.73, exclusive of land costs. Review of the real estate transfer shows the lot to have cost Augusta $12,000, taking the total square foot “cost” to $83.24. By comparison the sales prices of new homes in Grovetown, which include the developers overhead and profit on top of construction costs, are in the $76 to $82 range. This would indicate as much as 10% savings could be had by complying with the reimbursable cost standards of Augusta’s contracts.
KEY QUESTIONS – Since there are dozens of similar Augusta contracts within the Laney Walker Bethlehem development project, wouldn’t the savings from enforcing the contracts as written save between 5% and 10% of construction costs? Wouldn’t the cost savings justify obtaining comprehensive, detailed costs? Based upon the $37,500,000 committed by the city to these developments the savings would range from $1,875,000 to $3,750,000.
Isn’t Augusta in danger of having to repay hundreds of thousands of dollars, if HUD finds the City out of compliance with its payment of the Neighborhood Stabilization Program contracts?
If Augusta’s contractor’s can save money by changing suppliers and methods, isn’t it worthwhile to help them do so under the cost reimbursable contracts?
More to come.
– Al Gray
Below are the pdf documents referenced in this story:
Below are the pdf documents referenced in this story: