> **Chapter 10. Miscellaneous Requirements**

1.  Contract Pricing and Types

This chapter includes miscellaneous procurement requirements.

> **A. General Guidance.** A wide selection of contract types is
> available to PHAs to provide needed flexibility in acquiring supplies
> and services.
>
> 1\. Contract types vary according to: (a) the degree and timing of the
> responsibility assumed by the contractor for the costs of performance;
> and (b) the amount and nature of the profit incentive offered to the
> contractor for achieving or exceeding specified standards or goals.
>
> 2\. The contract types are grouped into two broad categories:
> fixed-price contracts and cost-reimbursement contracts. The specific
> contract types range from firm-fixed-price, in which the contractor
> has full responsibility for the performance costs and resulting profit
> (or loss), to cost-plus-fixed-fee, in which the contractor has minimal
> responsibility for the performance costs and the negotiated fee
> (profit) is fixed. In between are the various incentive contracts, in
> which the contractor's responsibility for the performance costs and
> the profit or fee incentives offered are tailored to the uncertainties
> involved in contract performance.
>
> 3\. Contracts resulting from sealed bidding shall be firm-fixed-price
> contracts or fixed-price contracts with economic price adjustment.
>
> 4\. Contracts resulting from competitive proposals may be of any type
> or combination of types.
>
> 5\. In accordance with **24 CFR 85.36(f)(4)**, the use of the
> following types of contracts is prohibited:
>
> a\. **Cost-plus-percentage-of-cost.** This type of contract is
> prohibited because it obligates the PHA to pay all costs incurred
> throughout the contract, plus a commission based on the percentage of
> future costs. In this type of pricing arrangement, the contractor's
> profit increases in proportion to its costs incurred in the
> performance of the contract. The contractor has a clear incentive to
> increase costs.

b.  **Cost-plus-percentage-of-construction-cost**. The cost for
    individual construction-related services is determined by applying a
    percentage of actual construction costs as a fee, such as an A/E
    contract in which the fee is determined based on the total
    construction cost. Such an arrangement allows the possibility of the
    contractor designing an overly expensive construction project in
    order to increase profits.

# B. Selecting Contract Type. There are many factors that the Contracting Officer should consider in selecting and when appropriate (e.g., using competitive proposals), negotiating the contract type. They include:

# 1. Price competition. Normally, effective price competition results in realistic pricing, and a fixed-price contract is ordinarily in the PHA's interest. 

# 2. Price analysis. Price analysis, with or without competition, may provide a basis for selecting the contract type. The degree to which price analysis can provide a realistic pricing standard should be carefully considered. 

# 3. Cost analysis. In the absence of effective price competition and if price analysis is not sufficient, the cost estimates of the offeror and the PHA provide the bases for negotiating contract pricing arrangements. It is essential that the uncertainties involved in performance and their possible impact upon costs be identified and evaluated, so that a contract type that places a reasonable degree of cost responsibility upon the contractor can be negotiated.

# 4. Type and complexity of the requirement. Complex requirements, particularly those unique to the PHA, usually result in greater risk assumption by the PHA. This situation is especially true for complex development contracts, when performance uncertainties or the likelihood of changes makes it difficult to estimate performance costs in advance. As a requirement recurs or as quantity production begins, the cost risk should shift to the contractor, and a fixed-price contract should be considered.

# 5. Urgency of the requirement. If urgency is a primary factor, the PHA may choose to assume a greater proportion of risk or it may offer incentives to ensure timely contract performance.

# 6. Period of performance. In times of economic uncertainty, contracts extending over a relatively long period may require economic price adjustment terms.

# 7. Contractor's technical capability and financial responsibility.

# 8. Adequacy of the contractor's accounting system. Before agreeing on a contract type other than firm-fixed-price, the Contracting Officer should ensure that the contractor's accounting system will permit timely development of all necessary cost data in the form required by the proposed contract type. This factor may be critical when the contract type requires price revision while performance is in progress, or when a cost-reimbursement contract is being considered and all current or past experience with the contractor has been on a fixed-price basis.

# 9. Concurrent contracts. If performance under the proposed contract involves concurrent operations under other contracts, the impact of those contracts, including their pricing arrangements, should be considered.

# 10. Extent and nature of proposed subcontracting. If the contractor proposes extensive subcontracting, a contract type reflecting the actual risks to the prime contractor should be selected.

# 11. Procurement history. Contractor risk usually decreases as the requirement is repetitively acquired. Also, product descriptions or descriptions of services to be performed can be defined more clearly. 

# C. Contract Types

The following types are the most commonly used by PHAs. They are ranked
in order of risk to the PHA, from lowest to highest. Other types and
variations on these types may be used as appropriate in accordance with
the limitations set forth in this section 10.3.

> 1\. **Fixed-Price.** Fixed-price types of contracts provide for a firm
> price or, in appropriate cases, an adjustable price. Fixed-price
> contracts providing for an adjustable price may include a ceiling
> price, a target price (including target cost), or both. Unless
> otherwise specified in the contract, the ceiling price or target price
> is subject to adjustment only by operation of contract clauses
> providing for equitable adjustment or other revision of the contract
> price under stated circumstances.
>
> a\. **Firm fixed-price**. This contract type requires the delivery of
> products or services at a specified price, fixed at the time of
> contract award and not subject to any adjustment on the basis of the
> contractor's cost experience in performing the contract. It is
> appropriate for use when fair and reasonable prices can be established
> at time of award, definite design or performance specifications are
> available, products are off-the-shelf or modified commercial products
> or services for which realistic prices can be offered, and any
> performance uncertainties can be identified and reasonable cost
> estimated in advance. Its advantages are that it encourages contractor
> efficiency and places total responsibility and risk on the contractor.
> Its disadvantages are that it lacks flexibility in pricing and
> performance. It is the most preferred type of contract and the most
> commonly used, requiring the least amount of contract administration.
> However, as discussed below under other types, it is not always
> possible to use firm fixed-price contracts.
>
> b\. **Fixed-price with economic price adjustment**. In cases where the
> market for a particular supply or service is especially volatile, and
> the PHA needs a contract for a term greater than just an initial
> quantity, this contract type allows for adjustment in the contract
> price based upon the occurrence of specified contingencies stated in
> the contract (e.g., changes in market conditions, the Consumer Price
> Index, or other commodity price indices that are not controlled by the
> contractor). The contract contains initial firm fixed prices that may
> be adjusted upward or downward during the performance period. The
> contract must contain a clause explaining how the price adjustment
> will be made, identifying the price index to be used, the frequency of
> adjustment, and any overall ceiling price. A fixed-price contract with
> economic price adjustment may be used when:
>
> i\. There is serious doubt concerning the stability of market or labor
> conditions that will exist during an extended period of contract
> performance; and,
>
> ii\. Contingencies that would otherwise be included in the contract
> price can be identified and covered separately in the contract. Price
> adjustments based on established prices should normally be restricted
> to industry-wide contingencies. Price adjustments based on labor and
> material costs should be limited to contingencies beyond the
> contractor's control.
>
> 2\. **Cost-reimbursement**. Cost-reimbursement types of contracts
> provide for payment of allowable incurred costs, to the extent
> prescribed in the contract. These contracts establish an estimate of
> total cost for the purpose of obligating funds and establishing a
> ceiling that the contractor may not exceed (except at its own risk)
> without the approval of the contracting officer. Cost-reimbursement
> contracts are suitable for use only when uncertainties involved in
> contract performance do not permit costs to be estimated with
> sufficient accuracy to use any type of fixed-price contract. A
> cost-reimbursement contract may be used only when: the contractor's
> accounting system is adequate for determining costs applicable to the
> contract; and, appropriate surveillance during performance will
> provide reasonable assurance that efficient methods and effective cost
> controls are used.
>
> a\. **Cost contract (no fee)**. This is a cost-reimbursement contract
> under which the contractor receives no fee. This type is often used
> when contracting with nonprofit organizations that may not receive any
> fee or profit.
>
> b\. **Cost-plus-fixed-fee**. This is a type of cost-reimbursement
> contract that provides for payment to the contractor of a negotiated
> fee (profit) that is fixed at the time of contract award. The fixed
> fee does not vary with the contract's actual costs (e.g., the
> contractor will not receive a greater fee for incurring less cost),
> but may be adjusted as a result of changes in the work to be performed
> under the contract (e.g., as a result of a change order). This
> contract type permits contracting for efforts that might otherwise
> present too great a risk to contractors (e.g., there is a high degree
> of uncertainty in, or the ultimate costs of, accomplishing the
> contract's requirements). A cost-plus-fixed-fee contract presents the
> greatest risk to the PHA because it provides the contractor only a
> minimum incentive to control the costs of contract performance.
> Therefore, it should be used only when no other type is feasible. Like
> all cost-reimbursement contracts it requires a significant amount of
> monitoring by the PHA to ensure contractor compliance.
>
> i\. There are two forms of cost-plus-fixed-fee contracts:
>
> \(A\) The completion form describes the scope of work by stating a
> definite goal or target and specifying an end product. This form of
> contract normally requires the contractor to complete and deliver the
> specified end product (*e.g.*, a final report of research
> accomplishing the goal or target) within the estimated cost, if
> possible, as a condition for payment of the entire fixed fee.
>
> \(B\) The term form describes the scope of work in general terms and
> obligates the contractor to devote a specified level of effort for a
> stated time period. Under this form, if the Contracting Officer
> considers the contractor's performance to be satisfactory, the fixed
> fee is payable at the expiration of the agreed-upon period.
>
> ii\. Because of the differences in obligation assumed by the
> contractor, the completion form is preferred over the term form
> whenever the work, or specific milestones for the work, can be defined
> well enough to permit development of estimates within which the
> contractor can be expected to complete the work. The term form should
> not be used unless the contractor is obligated by the contract to
> provide a specific level of effort within a definite time period.

# 3. Indefinite-delivery contracts

> a\. There are three types of indefinite-delivery contracts:
> definite-quantity contracts, requirements contracts, and
> indefinite-quantity contracts. The appropriate type of
> indefinite-delivery contract may be used to acquire supplies and/or
> services when the exact times and/or exact quantities of future
> deliveries are not known at the time of contract award.
>
> i\. **Definite-quantity** contracts provide for delivery of a definite
> quantity of specific supplies or services for a fixed period of time
> (e.g., one year), with deliveries or performance to be scheduled at
> designated locations upon order. A definite-quantity contract may be
> used when it can be determined in advance that:
>
> \(A\) A definite quantity of supplies or services will be required
> during the contract period; and,
>
> \(B\) The supplies or services are regularly available or will be
> available after a short lead time.
>
> ii\. **Requirements** contracts provide for filling *all* of the PHA's
> purchase requirements for the supplies or services specified in the
> contract during a fixed period of time. The PHA may not buy the
> supplies or services from another source during the period of the
> contract. A requirements contract may be appropriate for acquiring any
> supplies or services when the PHA anticipates recurring requirements
> but cannot predetermine the precise quantities of supplies or services
> that it will need during a definite period.
>
> iii\. **Indefinite-quantity** contracts provide for delivery of an
> indefinite quantity, within stated limits (a minimum and maximum
> quantity), of supplies or services during a fixed period. Quantity
> limits may be stated in the contract as number of units or as dollar
> values. PHAs may use an indefinite-quantity contract when they cannot
> predetermine, above a specified minimum, the precise quantities of
> supplies or services that they will require during the contract
> period, and it is inadvisable to commit itself for more than a minimum
> quantity. PHAs should use an indefinite-quantity contract only when a
> recurring need is anticipated.
>
> \(A\) The contract must require the PHA to order and the contractor to
> furnish at least a stated minimum quantity of supplies or services. In
> addition, if ordered, the contractor must furnish any additional
> quantities, not to exceed the stated maximum. The Contracting Officer
> should establish a reasonable maximum quantity based on market
> research, trends on recent contracts for similar supplies or services,
> survey of potential users, or any other rational basis.
>
> \(B\) To ensure that the contract is binding, the minimum quantity
> must be more than a nominal quantity, but it should not exceed the
> amount that the PHA is fairly certain to order.
>
> \(C\) The contract may also specify maximum or minimum quantities that
> the PHA may order under each task or delivery order and the maximum
> that it may order during a specific period of time. This ensures that
> the contractor knows what the potential maximum number of deliveries
> he/she may have to make and allows him/her to adequately prepare.
>
> \(D\) The solicitation and resulting contract for an
> indefinite-quantity contract should:
>
> \(1\) Specify the period of the contract, including the number of
> options and the period for which the PHA may extend the contract under
> each option;
>
> \(2\) Specify the total minimum and maximum quantity of supplies or
> services the PHA will acquire under the contract. This may be
> expressed in units (e.g., number of items) or total dollar amount;
>
> \(3\) Include a statement of work, specifications, or other
> description, that reasonably describes the general scope, nature,
> complexity, and purpose of the supplies or services the PHA will
> acquire under the contract in a manner that will enable a prospective
> offeror to decide whether to submit an offer;
>
> \(4\) State the procedures that the PHA will use in issuing orders,
> including the ordering media (fax, email, etc.) and whether oral
> orders may be placed; and,
>
> \(5\) Identify the PHA personnel who are authorized to issue orders.
>
> b\. Indefinite-delivery contracts:

i.  Specify the prices for the supplies or services, the period under
    which the PHA may place orders with the contractor, the ordering
    procedures, and the contract terms and conditions that govern the
    orders;

ii. Provide for obtaining the supplies or services when needed by
    placing orders with the contractor within the time period stated in
    the contract (e.g., one year);

iii. May be awarded using sealed bidding or competitive proposals as
     appropriate. Indefinite-delivery purchase orders should not be used
     unless the PHA knows that multiple orders for items or services
     will be needed, and the total amount of all orders will not exceed
     the PHA's small purchase threshold; and,

iv. May use any type of pricing arrangement (e.g., fixed-price) as
    appropriate to the supplies and/or services being purchased.

> c\. Orders placed under indefinite-delivery contracts are not
> considered purchase orders. Since the indefinite-delivery contracts
> are awarded competitively, no further competition is required for
> individual orders placed under it.
>
> 4\. **Time and materials and labor-hour**.
>
> a\. A time-and-materials contract provides for acquiring supplies or
> services on the basis of:
>
> i\. Direct labor hours at specified fixed hourly rates that include
> wages, overhead, general and administrative expenses, and profit; and,
>
> ii\. Materials at cost, including, if appropriate, material handling
> costs as part of material costs.
>
> b\. In accordance with **24 CFR 85.36(b)(10)** a time-and-materials
> contract may be used only when the Contracting Officer has determined
> that no other type of contract is suitable (i.e., it is not possible
> at the time of placing the contract to estimate accurately the extent
> or duration of the work or to anticipate costs with any reasonable
> degree of confidence), and the contract includes a ceiling price that
> the contractor exceeds at his/her own risk. The contracting officer
> shall document the contract file to justify the reasons for and amount
> of any subsequent change in the ceiling price.
>
> c\. A time-and-materials contract provides no positive profit
> incentive to the contractor to control cost or labor use. The more the
> contractor's labor force works, the more profit the contractor
> realizes. Therefore, appropriate PHA surveillance of contractor
> performance is required to ensure that efficient methods and effective
> cost controls are being used.
>
> d\. A labor-hour contract is a variation of the time-and-materials
> contract. The only difference is that the contractor provides only
> labor and no materials.
>
> 5\. **Letter contract**. A letter contract is a written preliminary
> contractual instrument that authorizes the contractor to begin
> immediately performing services or delivering supplies while the
> contract terms are negotiated. A letter contract is a form of
> negotiated contract (i.e., not sealed bidding) and may result in any
> contract type (e.g., fixed-price, cost-reimbursement, etc.). It should
> be used only in exceptional circumstances, and is most appropriate for
> emergency work, or other urgent and compelling needs. The single
> advantage of this method is that it expedites the procurement process.
> The contractor may begin performance on urgent requirements before the
> full requirements of the contract are made final, or "definitized."
> The disadvantage is that it provides no incentive for cost control by
> the contractor, and the PHA is in a very weak bargaining position at
> the time the final contract is negotiated. The contractor is already
> performing the work, and the work is usually critical.
>
> a\. A letter contract may be used when:
>
> i\. The PHA's interests demand that the contractor be given a binding
> commitment so that work can start immediately; and,
>
> ii\. Negotiating a definitive contract is not possible in sufficient
> time to meet the requirement. However, a letter contract should be as
> complete and definite as feasible under the circumstances. Letter
> contracts that are subject Davis-Bacon or HUD-determined wage rate
> requirements shall so state, and where feasible, the applicable wage
> determination shall be attached.
>
> b\. When a letter contract award is based on price competition, the
> contracting officer should include an overall price ceiling in the
> letter contract.
>
> c\. Each letter contract should contain a negotiated definitization
> schedule including:
>
> i\. Dates for submission of the contractor's price proposal;
>
> ii\. A date for the start of negotiations; and,
>
> iii\. A target date for definitization. PHA's may establish maximum
> periods for negotiating final contracts (e.g., no more than 90 days
> after the issuance of the letter contract) in their Procurement
> Policies.
>
> d\. The maximum liability of the PHA under a letter contract should be
> the estimated amount necessary to cover the contractor's requirements
> for funds before definitization. PHAs should establish limits on
> letter contract liability in their Procurement Policies (e.g., no more
> than 50% of the total estimated contract price).
>
> e\. A letter contract should be used only after the Contracting
> Officer, or another official as designated in the PHA's Procurement
> Policy, determines in writing that no other contract is suitable.
> Letter contracts should not:
>
> i\. Commit the PHA to a definitive contract in excess of the funds
> available at the time the letter contract is executed;
>
> ii\. Be entered into without competition unless infeasible (see **24
> CFR 85.36(c)**); or,
>
> iii\. Be amended to satisfy a new requirement unless that requirement
> is inseparable from the existing letter contract. Any such amendment
> should be subject to the same requirements and limitations as a new
> letter contract.
>
> f\. A letter contract is not a letter of intent. A letter contract is
> a bona fide obligation on the part of the PHA. A letter of intent is a
> non-binding statement to a contractor about an intended future
> contract. Since a letter of intent has no legal effect, it should not
> be used as a form of contract.

**10.2 Contractor Responsibility**

> A. **General Requirements and Definition**. PHAs shall not award any
> contract until the prospective contractor, i.e., low responsive bidder
> or successful offeror, has been determined to be responsible. A
> responsible bidder/offeror must:
>
> 1\. Have adequate financial resources to perform the contract, or the
> ability to obtain them;
>
> 2\. Have the necessary organization, experience, accounting and
> operational controls, and technical skills, or the ability to obtain
> them;
>
> 3\. Have the necessary production, construction, and technical
> equipment and facilities, or the ability to obtain them;
>
> 4\. Be able to comply with the required or proposed delivery or
> performance schedule, taking into consideration all the
> bidder's/offeror's existing commercial and governmental business
> commitments;
>
> 5\. Have a satisfactory performance record;
>
> 6\. Have a satisfactory record of integrity and business ethics; and
>
> 7\. Be otherwise qualified and eligible to receive an award under
> applicable laws and regulations, including not be suspended, debarred
> or under a HUD-imposed LDP.
>
> B. **Acceptable Evidence of Responsibility**
>
> It is incumbent upon bidders/offerors to provide acceptable evidence
> of their ability to meet the requirements in paragraph 10.2.A(1)
> through 10.2(A)(3). Acceptable evidence normally consists of a
> commitment or explicit arrangement that will be in existence at the
> time of contract award to rent, purchase, or otherwise acquire the
> needed facilities, equipment, financing, personnel, or other
> resources.
>
> C. **Researching Responsibility**. The Contracting Officer will need
> to conduct research to determine that a prospective contractor is
> responsible. The size and complexity of the contract, the degree of
> prior experience of the PHA or the Contracting Officer with the
> offeror, and the extent to which the PHA can cancel the contract and
> install a replacement vendor will all influence the extent of research
> required. For example, a \$150,000 requirements contract for supplying
> appliances may require minimal research in that the vendor may be
> well-known. It is also the case that there are multiple alternate
> vendors in the event that the initial supplier were to be replaced due
> to non-performance. On the other hand, more research would be required
> of a vendor to design a new accounting software program for the
> agency. Only that information deemed necessary to determine the
> offeror's responsibility should be requested, obtained, and reviewed.
> Some methods include:
>
> 1\. **Financial Capability**. Obtain financial information and credit
> bureau reports; require the offeror to provide information on and then
> verify their lines of credit and account balances with the financial
> institution officer servicing their account;
>
> 2\. **Compliance with Delivery and Performance Schedules**. Request
> information on all other active contracts the offeror is performing
> and verify their status with those buyers;
>
> 3\. **Performance Record**. Require offerors to submit contact
> information for recent contracts they have performed for other
> customers and contact them to ascertain the offeror's quality of
> performance, including timeliness of delivery/completion, quality of
> work, compliance with terms and conditions of the contract, and cost
> control, if applicable. Inquire of past customers whether or not they
> would contract with the offeror again and why. Research the offeror's
> performance history with the PHA;
>
> 4\. **Integrity and Business Ethics**. Contact the offeror's previous
> and current customers to verify their dealings with the offeror. Check
> with the local Better Business Bureau, local offices of Code
> Compliance and Business Licenses, or other regulatory agencies for
> business ethics record and compliance with public policy. Verify the
> offeror's compliance with payments, wage rates, and affirmative action
> requirements with other customers and with applicable State and
> Federal Government offices, e.g., DOL Wage and Hour Division;
>
> 5\. **Necessary Organization, Experience, Accounting and Operational
> Controls, and Technical Skills**. Verify experience with other
> customers. Request copies of any audits. Verify that necessary
> personnel will be available to work on the PHA's contract;
>
> 6\. **Necessary Production, Construction, and Technical Equipment and
> Facilities**. Request evidence that the offeror has all the equipment
> and facilities he/she will need or the capability to obtain them.
> Visit the offeror's place of business or other job sites to verify
> equipment and facilities. Contact equipment dealers and/or facility
> owners from whom the offeror indicates that he/she will rent or lease
> equipment or space; and
>
> 7\. **Eligible to Receive a PHA Contract**. Verify that the offeror
> has not been suspended, debarred or is under a HUD LDP (see paragraph
> H below).

D. **Responsible at Time of Award**. Bidders/offerors must be determined
to be responsible at the time of award. For sealed bidding this means at
the point where the low, responsive bidder has been determined. For the
competitive proposal method, this means after the successful offeror has
been selected for award. Bidders/offerors may be afforded the
opportunity to provide acceptable evidence of their ability to meet the
stated requirements after bid opening (sealed bidding) or contractor
selection (competitive proposal method) in accordance with the PHA's
written procurement policy and procedures and applicable State or local
law or regulation. The Contracting Officer must clearly indicate to
potential bidders/offerors the time frame in which they are required to
submit evidence that they meet the above requirements.

E. **Determination of Non-Responsibility**. With the exception of a
finding that a bidder/offeror is suspended, debarred or under a HUD LDP,
a determination of non-responsibility will be a matter of judgment on
the part of the PHA, given the preponderance of the evidence. If the
facts indicate that the bidder/offeror fails to meet the requirements
for responsibility, the Contracting Officer shall document the findings
of fact that led him/her to make the determination (see paragraph G
below).

F. **Notifying Bidders/Offerors of Non-Responsibility**. The Contracting
Officer should notify low bidders or otherwise successful offerors who
are determined to be non-responsible. Some States require a hearing
before a bidder or offeror may be determined to be non-responsible. The
PHA should include guidance on any applicable hearing procedures in its
solicitations.

G. **Documenting the Responsibility Determination**. After all research
is completed, the Contracting Officer shall document the results in the
procurement file. Any determination of non-responsibility must be signed
by the authorized official (if not the Contracting Officer) designated
in the PHA's written procurement policy and procedures. A sample
checklist format is provided in **Appendix 10**.

H. **Limited Denials of Participation and Debarments and Suspensions**.
PHAs should determine whether contractors have been restricted from
participation in HUD or Government Services Administration (GSA)
contracts.

> 1\. **LDP.** HUD may impose an administrative sanction against a
> contractor known as a LDP. It is a temporary restriction on a
> contractor and is narrower in scope and effect than either suspension
> or debarment as prescribed in **24 CFR 24.700 - 24.713** and discussed
> below.
>
> Reasons that HUD may impose an LDP include irregularities in a
> contractor's past performance, failure to honor contractual
> obligations, deficiencies in ongoing construction projects, false
> certifications or statements, or any other cause prescribed in **24
> CFR 24.305**.
>
> When HUD has issued an LDP, the contractor or firm becomes ineligible
> for participation in HUD programs (Multifamily or Public Housing) in
> which the violation occurred. The LDP is limited to the geographic
> jurisdiction of the office that imposed it. An LDP remains in effect
> until the causes for which it was imposed are eliminated and the
> action is withdrawn, or until the life of the sanction has lapsed (up
> to 12 months).

2.  **Suspensions and Debarment**. The PHA shall not make an award to
    any contractor or individual who has been suspended or debarred and
    whose name appears on the GSA List of Parties Excluded from
    Procurement and Non-procurement Programs, i.e., debarred and
    suspended.

> Debarment is an exclusion from participation in all Federal programs
> for a reasonable and specified time-period commensurate with the
> seriousness of the violation or failure to perform on other contracts.
> Debarment may be imposed for violation of contract clauses, including
> equal employment opportunity provisions, acceptance of contingent
> fees, or other serious contract violations. The Secretary of Labor may
> also debar a contractor based on violation of the labor standards
> regulations.
>
> Suspension means a disqualification from all Federal programs for a
> temporary time-period because of adequate evidence that the contractor
> engaged in criminal, fraudulent, or other very serious misconduct. A
> contractor is suspended pending investigation and appropriate action.
> All suspensions are temporary, pending the completion of an
> investigation and such legal proceedings as may ensue.
>
> 3\. **PHA Responsibility in LDPs, Debarment, and Suspension**. Before
> a contact is awarded, the PHA shall check to determine if HUD has
> issued an LDP or if a contractor has been debarred or suspended. A
> list of persons and contractors for which LDPs have been issued may be
> found on the Internet at: [www.hud.gov/enforce]{.underline}. All
> persons or contractors that have been suspended or debarred from
> Federal programs will show up on the GSA website:
> [http://epls.arnet.gov]{.underline}. It is recommended that PHAs also
> check with their State agencies regarding debarred or suspended\
> contractors.
>
> Prime contractors are responsible for determining that potential
> subcontractors are not on any of the above lists precluding
> participation in a PHA project. The PHA should advise potential
> contractors of their responsibility to confirm in their proposals the
> acceptability of their subcontractors. The PHA should also advise
> potential contractors of their responsibility to provide evidence that
> a check has occurred on each proposed subcontractor before the award
> is made or before new subcontractors will be allowed to participate in
> the contract. The PHA may check the subcontractor references if they
> so desire. If a subcontractor is found to be under sanctions, the
> prime contractor must be notified that the subcontractor may not
> participate in the work.
>
> 4\. **Enforcement**. If a PHA materially fails to comply with any term
> of an award whether stated in a Federal statute or regulation, an
> assurance, in a State plan or application, a notice of award, or
> elsewhere, there are a number of enforcement actions that HUD may
> exercise, including those listed at **24 CFR 85.43(a)**.

**10.3 Evaluating Cost and Price (For Purchases above the Federal Small
Purchase Threshold)**

> A. **General**. For every procurement, PHAs are required to perform a
> cost or price analysis to determine that the price is reasonable. In
> competitive procurements, the force of competition is usually adequate
> to allow the PHA to make a price reasonableness determination based
> simply on a comparison of the offered prices.
>
> 1\. PHAs should always compare the prices offered with the ICE. While
> this initial cost estimate may not be sufficient for price
> reasonableness, it can assist the Contracting Officer in determining
> the extent to which the offerors understand the PHA's requirements.
> Sometimes, the comparison of prices may point out the need for
> verification of bids (in sealed bid procurements) or negotiations (in
> the competitive proposals methods) if prices of the different offerors
> vary widely or seem unusually high (or low) compared to the ICE.
>
> 2\. If adequate competition does not exist, including sole source
> procurements or noncompetitive proposals, the PHA must perform a cost
> analysis, except as provided in 10.3.B. A cost analysis is an
> evaluation of the separate elements that make up a contractor's total
> cost proposal or price to determine if they are allowable, directly
> related to the requirement, and reasonable.
>
> 3\. The number of times that a PHA will need to conduct a cost
> analysis will be limited given that most purchases will be of a
> commercial nature and based on adequate competition.
>
> B. **Alternative Methods of Determining that a Price is Reasonable
> (Other than Cost Analysis)**. A comparison of proposed prices received
> in response to the solicitation to each other is generally sufficient
> to establish price reasonableness, assuming a sufficient number of
> competitive offers are received to constitute competitive pricing from
> the marketplace. If, after appropriate solicitation efforts, the PHA
> does not receive an adequate number of responses, the PHA may use one
> of the following alternative methods of establishing price
> reasonableness without having to conduct a formal cost analysis. In
> all such cases, the PHA should appropriately support and document its
> actions in the procurement file.
>
> 1\. Comparison to prior proposed prices and contract prices with
> current proposed prices for the same or similar items/services. The
> PHA should factor in any market changes, e.g., commodity price changes
> or inflation, since the last time the item or service was purchased.
>
> 2\. In comparison to competitive price lists, published catalog or
> market prices of commodities and products, similar indices and
> discount or rebate arrangements. The Contracting Officer should
> analyze the offered price in terms of its commerciality. This involves
> examining any catalog used by the contractor to ensure that catalog
> prices are bona fide prices charged to commercial customers. Any
> discounts offered to commercial customers should be offered to the
> PHA; however, consideration must be given to differing terms and
> conditions of commercial contracts as compared with public contracts.
> There may be justification for paying more than the catalog or market
> price if the PHA's contracts demand more of the contractor (such as
> services, warranties, etc.) than do those of commercial customers.
>
> In some cases, there may be no catalog prices, but the offered price
> may qualify as a market price, meaning a price paid by buyers and
> sellers free to bargain. As with a catalog price, a market price
> should be verified independently before it is accepted as reasonable.
> The bidder should be asked to provide evidence of recent sales at the
> market price to the general public or provide a justification for not
> charging the PHA the same price or better. The volume of sales should
> be significant compared to the PHA's procurement to ensure that
> commercial sales are sufficient to establish a bona fide catalog or
> market price. The goal should be to ensure that the PHA does not pay
> more than other buyers, particularly commercial customers, normally
> pay for the same item.
>
> 3\. Professional estimate, either one prepared by the PHA or outside
> party. The level of analysis should be commensurate with the extent
> and complexity of the procurement.
>
> C. **Situations Requiring a Cost Analysis**. A cost analysis must be
> conducted if one or more of the following conditions apply:
>
> 1\. All sole source and non competitive proposals. In noncompetitive
> situations, no incentive exists for an offeror to submit a low price,
> and no price competition exists for determining the reasonableness of
> the price.
>
> 2\. If, after soliciting bids/proposals, the PHA receives only one
> bid/proposal that it finds unreasonable and decides to cancel the
> solicitation and negotiate a contract price with the sole bidder
>
> 3\. If, under sealed bidding or competitive proposals, a sufficient
> number of bids were not received and the PHA cannot establish price
> reasonableness through alternative means.
>
> 4\. If, under competitive proposals, the PHA requested that bidders
> provide separate elements of their costs, e.g., labor, materials,
> overhead, profit, etc. (Note: it will not be necessary in most
> competitive procurements to ask for bidders to submit separate
> elements of their costs. For example, if a PHA is soliciting property
> management services, the PHA should not need to request a break-out of
> costs since one can generally evaluate the reasonableness of
> management fees without such break-down.)
>
> 5\. When there is a contract modification. When negotiating a
> modification to any contract (even if the basic contract was awarded
> competitively through sealed bidding) that changes the scope of work
> previously authorized and impacts the price or estimated cost, the PHA
> must use cost analysis to arrive at a reasonable cost. The only
> exception to this rule is a contract modification based on pricing
> terms already established in the contract document, e.g., exercising
> an option to buy additional items at preset prices. It is important to
> note that changes in a contract's scope do not always result in
> increased costs. Elimination or reduction of contract work may result
> in a decrease in the contract price. Regardless of the direction of
> the price change, these modifications require cost analysis using the
> cost principles to determine that the price change is fair and
> reasonable.
>
> 6\. When making contract termination payments. When terminating a
> contract of any type (fixed-price or cost-reimbursement) for
> convenience, or terminating a cost-reimbursement contract for cause,
> the PHA must use cost analysis - and the appropriate cost principles -
> to negotiate the final amount of the termination settlement.
>
> 7\. When awarding any construction contracts that were obtained
> through means other than sealed bidding. Construction contracts
> awarded using any method other than sealed bidding and modifications
> to construction contracts require cost analysis.
>
> D. **Cost Analysis Technologies**. Where a formal cost analysis is
> required, PHAs should follow the instructions in this section. As
> indicated, the number of instances where a PHA will be required to
> conduct a formal cost analysis will be limited.
>
> 1\. **Commercial Yardsticks**. Where available, a PHA may use
> commercial yardsticks in lieu of a formal cost analysis. Since the
> overall purpose of a cost analysis is to settle on total prices that
> are fair and reasonable, these yardsticks provide a measure of that
> overall price reasonableness. The following examples illustrate this
> point.
>
> a\. A PHA is negotiating A/E fees with the architect for additional
> work pursuant to the changes clause in the contract. The PHA would not
> need to request that the A/E firm break out its hourly fees in terms
> of profit, overhead, etc., provided that the overall hourly fee was
> reasonable; vis-à-vis fees normally charged in that community.
>
> b\. A PHA has a 6-unit scattered site project that is adjacent to its
> HOPE VI development. The HOPE VI development is operated by a private
> management company. The PHA determines that it is in the best interest
> of the PHA that the HOPE VI development and the scattered site project
> be managed jointly and is negotiating a sole source procurement with
> the HOPE VI management company. The PHA would not need to request that
> the management company break out its proposed management fee in terms
> of profit, overhead, etc., provided that the overall management fee
> was reasonable vis-à-vis fees normally charged in that community.
>
> c\. The PHA has a security guard contract for its high-rise
> properties. The rates charged are \$14/hour for non-armed guards.
> Because of a recent rise in security incidents, the agency is
> negotiating a change order to increase the coverage under the
> contract. The PHA would not need to request that the security company
> break out its proposed cost fee in terms of profit, overhead, etc.,
> provided that the overall hourly rate was reasonable vis-à-vis rates
> normally charged in that community.
>
> 2\. **Level of Detail and Analysis**. The level of detail and
> complexity of the cost analysis should be commensurate with the dollar
> value and complexity of the contract. For example, in a construction
> change order proposal for \$30,000, where the PHA's changes to the
> specifications only result in added labor hours for three skill
> categories, and the wage rates are at the Davis-Bacon wages, the PHA's
> cost analysis may be limited to determining the reasonableness of the
> number of hours proposed. If, however, the change order proposal was
> for \$250,000 and included added material, new subcontracts, and other
> items, the PHA should evaluate whether the costs proposed are
> allowable, allocable, and reasonable, using the more detailed
> techniques described below.
>
> 3\. **Conducting a Cost Analysis**. When conducting a cost analysis,
> PHAs should generally proceed in accordance with the following (see
> also **Appendix 12** for a guideline).
>
> a\. Verify the cost and pricing information submitted and evaluate the
> following:
>
> i\. The necessity for, and reasonableness of, proposed costs,
> including allowances for contingencies. Proposed costs must meet three
> critical tests. The costs must be:
>
> • *Allowable*. The applicable cost principles (see discussion below)
> will usually state whether a type of cost is allowable or not.
>
> • *Allocable*. This means that the costs are logically related to or
> required in the performance of the contract. Many costs may be
> allowable but not related to the work required under the contract.
>
> • *Reasonable*. This term is generally defined as what a prudent
> business would pay in a competitive marketplace. A cost can be
> allowable, allocable and still not be what a prudent businessperson
> would pay.
>
> ii\. The projection of the contractor's cost trends. Are his/her costs
> likely to increase or decrease?
>
> iii\. The assessment of proposed direct cost elements by a technical
> expert, e.g., engineer, architect, etc., to determine their necessity
> to perform the contract and reasonableness, e.g., in comparison to
> market rates.
>
> iv\. The application of audited or pre-negotiated, e.g., by the
> Federal Government, indirect cost, e.g., overhead rates, labor and
> fringe benefit rates, or other factors.
>
> v\. The effect of the contractor's current practices on future costs.
> Does the contractor have a track record of containing costs
> (completing contracts at or "under cost")? Does he/she overrun costs?
>
> b\. Compare costs proposed by the offeror with:
>
> i\. Actual costs previously incurred by the same offeror. If it is a
> repetitive type of work or service, how much has it cost in the past?
> Apply any appropriate inflation factors for past work.
>
> ii\. Costs proposed by other offerors. This comparison may point out
> the need for negotiations if prices of the different offerors vary
> widely or seem unusually high (or low) compared to the ICE.
>
> iii\. Previous cost estimates from the offeror or other offerors for
> the same or similar items.
>
> iv\. The methods proposed by the offeror with the requirements of the
> solicitation (i.e., do the costs reflect the technical approach
> proposed and the work required, and are they cost efficient?).
>
> v\. The PHA's ICE.
>
> c\. Verify that the offeror's cost submissions comply with the
> appropriate set of cost principles.
>
> i\. When performing a cost analysis, PHAs shall use the applicable set
> of cost principles, which have been issued by the Federal Government,
> to determine the allowability of proposed costs. (Note that cost
> principles are not used when performing a price analysis.) These cost
> principles set the standards for the allowability of a wide range of
> costs (e.g., salaries, travel, advertising, etc.). Each set applies to
> contracts with a specific group or type of organizations, so one set
> will not work for all contracts.
>
> ii\. The cost principles and the type of contractor entity to which
> they apply are as follows:
>
> • OMB Circular A-87, for contracts with State, local or Indian tribal
> governments.
>
> • OMB Circular A-122 for contracts with most non-profit organizations.
>
> • OMB Circular A-21 for educational institutions.
>
> • **FAR 48 CFR Chapter 1**, **Subpart 31.2** for profit-making
> entities (e.g., commercial business concerns) and certain nonprofit
> organizations listed in Attachment C of OMB Circular A-122.
>
> **E. Documentation.** With respect to price reasonableness, the
> procurement file should be documented to support the actions taken. In
> the case of sealed bids where there was adequate competition, no
> additional documentation is required in that the bid tabulation sheet,
> or equivalent, will serve as the test of price reasonableness.
> Similarly, in the case of competitive proposals where (1) there was
> adequate competition, (2) the scope of work was not complex (easy to
> evaluate competing bids), and (3) the PHA did not ask the vendor to
> break out elements of costs separately, no additional documentation is
> required for price reasonableness other than the comparison of prices
> offered. However, documentation is required to demonstrate price
> reasonableness, including any cost analyses, whenever (1) adequate
> competition did not exist, (2) adequate competition existed but the
> PHA received only one bid/proposal, or (3) the price obtained varied
> significantly from the ICE, in which case the Contracting Officer
> should notate/explain the reasons for the difference, e.g., poor
> estimate, etc.
>
> **F. Audit.**
>
> 1\. When cost analysis is required, and the usual means of analysis
> (e.g., comparison historical cost data) are insufficient, the PHA may
> need to audit or review the contractor's/offeror's financial records.
> Such a review should be limited to the needs of the immediate
> procurement action (new contract award, modification, etc.) and not be
> overly broad in scope or intrusive. The audit should provide an
> independent verification that the costs proposed by the contractor are
> legitimate. The PHA may conduct the audit using its own employees,
> obtain the services of other governmental agencies to perform the
> audit, or contract with a private firm for audit services.
>
> 2\. The audit should examine each element of cost relevant to the
> procurement action, indicating whether it should be accepted,
> questioned, or further documented. The audit should also analyze the
> contractor's accounting system to ensure that it is adequate to
> properly allocate costs in accordance with the applicable cost
> principles, and in the case of new contract awards or significant
> modifications, will permit timely development of all necessary cost
> data in the form required by the contract type contemplated.
>
> 3\. Audit reports should always be written and maintained in the
> contract file.
>
> 4\. The Contracting Officer's cost analysis shall document how and the
> degree to which the audit results were relied upon.

5.  In accordance with **24 CFR 85.36(i)(10)**, contractors (i.e., firms
    under contract to the PHA) may not deny access to their records for
    the purpose of audits. A competing offeror's denial of access may
    disqualify it from contract award. In the case of competitive
    proposals, offerors may withdraw their offer, unless they have been
    notified that they have been selected for award. Then it is up to
    the PHA's discretion to permit the withdrawal. In the case of a
    single bid received under the sealed bidding method (the most likely
    scenario under which cost analysis would be needed), the bidder may
    not withdraw his/her bid once it has been opened. The Contracting
    Officer s should seek advice from legal counsel when a contractor or
    offeror denies access to records.

    4.  **Protests (24 CFR 85.36(b)(12))**

> Disagreements over the award of a PHA contract, referred to as
> protests, may occasionally arise between the PHA and an offeror.
> Usually, the protestor asserts that he/she should have received the
> contract award and alleges that the PHA did not conduct the
> competition appropriately. (Note: While protests are commonly referred
> to as "bid protests," any type of contract award, including small
> purchase, competitive proposal, or sealed bid, may be protested by an
> unsuccessful offeror.) For small purchase procedures see Chapter 5.
>
> A. **Responsibility**. PHAs, in accordance with sound business
> judgment, are responsible for the settlement of protests arising from
> the procurement process.
>
> B. **Written Protest Procedures**. Providing a formal, objective means
> for offerors to receive an unbiased hearing of their concerns is
> critical to preserving the integrity and confidence in the PHA's
> procurement operations. Therefore, PHAs shall have written procedures
> for handling and resolving protests against their contract awards.
> These may be included in the PHA's procurement policy. The procedures
> should include:
>
> 1\. **Designation of Protest Officials**. The procedure should
> identify:
>
> a\. The PHA employee responsible for receipt of protests (e.g.
> Contracting Officer), This information should be included in written
> solicitations;
>
> b\. The PHA employee or a designee (e.g., an independent third party
> who can render an impartial opinion) who will decide the protest; and
>
> c\. The official or third party who will hear any appeal of the
> initial protest decision.
>
> 2\. **Requirement for written protests**. Protestors should be
> required to submit protests in writing, clearly stating the basis for
> their protest. Protests should include, at a minimum, the following
> information:
>
> a\. Name, address, and phone number(s) of the protestor;
>
> b\. Solicitation number and project title;
>
> c\. A detailed statement of the basis for the protest;
>
> d\. Supporting evidence or documents to substantiate any arguments;
> and
>
> e\. The form of relief requested (e.g., reconsideration of their
> offer).
>
> 3\. **Submission Time Period**. The procedure shall state the time
> period during which a protest must be submitted. Generally, the time
> period should begin on the date that the protestor has knowledge, or
> may be presumed to have knowledge, of the basis for his/her protest
> (e.g., the date the solicitation was issued, or the date he/she
> receives notification from the PHA that his/her proposal did not win).
> The protest submission period must be stated in solicitations.
> Protests against the terms of a solicitation should be considered late
> if submitted after the due date for offers.
>
> 4\. **Remedial Action**. The PHA's procedures shall provide remedies
> when a protest is decided in favor of the protestor, and the PHA must
> take appropriate action in accordance with those procedures.
>
> For example, if the contract has not been awarded, the PHA may cancel
> or revised the solicitation or proposed contract award, or if the
> contract has been awarded, the contract may be terminated for
> convenience and awarded to the protestor, or the procurement may be
> canceled and offers resolicited.
>
> 5\. **Emergencies or Unusual and Compelling Circumstances.** PHA
> protest procedures should provide for allowing contracts to remain in
> place despite a successful protest in cases of emergency or unusual
> and compelling need for the supplies or services. However, if the PHA
> determines, based on compelling circumstances such as an emergency or
> serious disruption of the PHA's operations, that termination or
> re-solicitation would not be in the best interest of the PHA, the PHA
> may allow the award to stand and pay the successful protestor costs
> associated with preparing the bid along with the cost of filing and
> pursuing the protest and other damages determined.
>
> 6\. **Denials**. The PHA's protest procedures shall require the
> Contracting Officer to notify the protestor in writing of the PHA's
> decision and state the basis for the denial. The notification shall
> apprise the protestor of any appeal rights in accordance with the
> PHA's protest procedures.
>
> 7\. **Appeal Procedures.** The PHA's protest procedures shall provide
> for hearing appeals by unsuccessful protestors including, but not
> limited to: requirements for written appeals, designation of appeal
> official(s) and timeframes for submitting and resolving appeals.
> Appeals should contain a statement of the factual and legal grounds on
> which reversal or modification of the decision is deemed warranted,
> specifying any errors of law made or information not previously
> considered.
>
> C. **Documentation**. The Contracting Officer shall fully document the
> protest decision in writing in the contract file. The PHAs protest
> procedures should describe the requirements for such documentation.
>
> D. **Informal Resolution Processes.** PHAs are encouraged to resolve
> potential and actual protests outside of the formal protest process or
> litigation (e.g., through mediation).
>
> E. **HUD Review 24 CFR 85.36(b)(12)(i) & (ii).** Review by HUD of a
> protest will be limited to:
>
> 1\. Violations of Federal law or regulations. The protest should cite
> the specific Federal or HUD regulation that has been violated.
> Violations of State or local laws should be referred to the State or
> local entity having jurisdiction over such matters.
>
> 2\. Violation of the PHA's protest procedures for failure to review a
> complaint or protest. The PHA shall submit a copy of the protest to
> the HUD Field Office having jurisdiction over the PHA.
>
> HUD will refer any protests other than those specified above back to
> the PHA for action.

**10.5 Mandatory Contract Clauses (For purchases above the Federal Small
Purchase Threshold)**

> A. **Mandatory Requirements for [Construction/Development Contracts
> greater than \$100,000]{.underline}**. PHAs must incorporate the
> clauses contained in form HUD-5370, General Conditions of the Contract
> for Construction, and the applicable Davis-Bacon wage decision.
>
> B. **Mandatory Requirements for [Non-Construction Contracts (without
> maintenance work) greater than \$100,000]{.underline}.** PHAs must
> incorporate the clauses contained in Section I of form HUD-5370-C,
> General Conditions for Non-Construction Contracts.
>
> C. **Mandatory Requirements for [Maintenance Contracts (including
> non-routine maintenance work) greater than \$100,000]{.underline}.**
> PHAs must incorporate the clauses contained in Sections I and II of
> form HUD-5370-C, General Conditions for Non-Construction Contracts.
>
> D. **Acceptable Methods of Incorporation**. PHAs may utilize any one
> or any combination of the following methods to incorporate mandatory
> clauses and applicable wage decisions into bid specifications and
> contracts. PHAs may:

1.  Attach the HUD form(s), and/or wage decisions, as printed;

> 2\. Incorporate the clauses/text of the applicable HUD form and wage
> decision into other documents (e.g., into the PHA's own forms) that
> are bound/attached to the contract (and bid specifications, if
> applicable) or incorporated by reference (see paragraph 3, below).
>
> 3\. Incorporate the clauses or HUD forms and/or any applicable
> Davis-Bacon or HUD wage decision by reference. The reference must be
> specific as to the exact clauses or form(s) that are incorporated, and
> where the clauses or forms(s) may be accessed or obtained (e.g.,
> HUDClips, PHA web site). A Davis-Bacon wage decision (applicable to
> construction/development work) may be incorporated by reference to
> [www.wdol.gov]{.underline} and to the specific number, modification
> number, and date of the wage decision. HUD wage decisions (applicable
> to maintenance work) are not available at HUD's web site; however, a
> PHA may post any applicable HUD wage decision to its own web site and
> reference that site. PHAs must provide hard-copies of any referenced
> clauses, forms, and/or wage decisions on request.

**10.6 Prohibited Clauses-Project Labor Agreements.** HUD regulations at
**24 CFR 5.108** implement Executive Order 13202, Preservation of Open
Competition and Government Neutrality Towards Government Contractors'
Labor Relations on Federal and Federally Funded Construction Projects.
Under this regulation, to the extent permitted by law, the bid
specifications, project agreements, or other controlling documents for a
constructions contract awarded by a HUD grantee or recipient of
financial assistance for a construction project (or a construction
manager acting on their behalf) shall not:

1.  Require or prohibit bidders, offerors, contractors, or
    subcontractors to enter into or adhere to agreements with one or
    more labor organizations on the same or other related federally
    funded construction project; or

2.  Otherwise discriminate against bidders, offerors, contractors, or
    subcontractors, for becoming or refusing to become or remain
    signatories, or otherwise adhere to agreements with one or more
    labor organizations, on the same or other related federally funded
    construction project.

Accordingly, documents pertaining to a construction contract awarded by
a PHA or other recipient of HUD financial assistance shall not contain
the above-prohibited provisions. HUD may exempt a particular
construction project or contract from these requirements in special
circumstances specified in Section 5.108. Contractors and subcontractors
are not prohibited from voluntarily entering into project labor
agreements.

**10.7 Performance Standards**

It is possible to use performance, delivery, or cost incentives to
motivate the contractor to achieve realistic, measurable targets set
forth in the specification, purchase description, or statement of work.
Performance standards may be used to determine the degree to which the
desired results are achieved. Performance incentives increase the
efficiency of contractor performance. For example, there could be a
monetary bonus for early delivery. Cost incentives are used to motivate
the contractor to manage costs effectively, but cost incentives should
not be used if a large number of technical changes in the project are
expected. As for all contracts, PHA personnel should closely monitor
contractor performance.

**10.8 Use of Options**

> A. **General**. In many cases, the PHA may have a recurring need for
> specific supplies or services. One method of obtaining firm
> commitments from contractors for additional quantities or longer
> time-periods is to include an option clause in the contract. The
> advantage of awarding a contract with options is that it gives the PHA
> a continued source of supply or services under contract at known
> prices.
>
> B. **Definition**. The option to extend the term of the contract or to
> order additional supplies or services is the [unilateral right of the
> PHA]{.underline}. The additional supplies or services are ordered at
> the prices specified in the original contract. A clause that allows an
> option to be exercised by the contractor is not a legitimate option
> clause.
>
> C. **Limitations.**
>
> 1\. **Price**. The option to extend the term of the contract or to
> order additional quantities may only be exercised if the contract
> contained an options clause and if a price for the additional supplies
> or services was included. An unpriced option is considered a new
> procurement and, therefore, may not be used. In the case of a
> cost-reimbursement contract, an estimated cost for the option periods
> or additional quantities must be negotiated and included in the
> contract award; otherwise, the option will need to be treated either
> as a change order or a new contract.
>
> 2\. **Time and Quantity**. Contracts shall not exceed a period of five
> years, including options for renewal or extension. (For PHAs still
> operating under the "old" ACC -- form HUDs-53010 and 53011 -- the
> maximum contract term is two years.) Contracts, other than energy
> performance contracts, with terms, plus extensions, that exceed a
> total of five years are viewed as restrictive of competition and in
> violation of **24 CFR 85.36(c)**. A Field Office may approve contracts
> in excess of five years if it determines there is no practical
> alternative. Energy performance contracts may be for a period not to
> exceed 20 years in accordance with **24 CFR Part 990** and PIH Notice
> 2006-6. A PHA must also follow its own procurement policy and any
> applicable local or State laws and regulations. There must be a finite
> period for a contract, including all options, and a specific limit on
> the total quantity or maximum value of items to be purchased under an
> option.
>
> 3\. **Option to Extend.**
>
> a\. Any contract containing options must specify the timeframe within
> which the option to extend the term of the contract must be exercised.
>
> b\. If the PHA decides to include options in a solicitation, the
> pricing of the options should be evaluated as part of the overall
> contract award.
>
> c\. Contractors should be notified of the PHA's likely intention to
> exercise the option to extend the term of the contract approximately
> 90 days before the expiration date of the contract. This notice does
> not obligate the PHA to extend the contract; however, it allows PHA
> staff time to assess the need for and advisability of extending the
> contract. It also makes the contractor aware of the potential
> extension.
>
> d\. The Contracting Officer should notify the contractor at least 30
> days before the contract expiration date of the specific intention to
> exercise the option, and then issue a formal modification extending
> the contract.
>
> e\. Options may not be exercised after the term of the contract has
> expired; technically, there is no longer a legal and binding contract
> to extend.
>
> D. **Exercising Options**. Before exercising an option, the PHA should
> document the contract file with a written determination. At least the
> following items should be included:
>
> 1\. Fund availability;
>
> 2\. Statement that the option was included in and evaluated as part of
> the basic contract;
>
> 3\. A brief review of market prices to justify price reasonableness,
> indicating whether the option is still economical for the PHA; and
>
> 4\. Any other factors that support the PHA's decision to exercise the
> option. For example, the PHA avoids the cost of a new procurement and
> ensures continuity in service.

**10.9 Federal Labor Standards and Wage Rates - Construction**

A.  **General**. All laborers and mechanics (including apprentices and
    other workers trained by PHAs, Resident Management Corporations
    (RMCs), or other contractors under HUD's "Step-Up" or similarly
    approved training initiatives) involved in construction contracts in
    excess of \$2,000 must be paid wages in accordance with Federal
    labor standards issued pursuant to the Davis-Bacon Act by the
    Department of Labor (DOL). In addition, the overtime requirements of
    the Contract Work Hours and Safety Standards Act are applicable to
    construction contracts in excess of \$100,000. See, also, DOL
    regulations at **29 CFR Parts 1, 3 and 5**. Additional information
    about labor standards administration and enforcement is contained in
    HUD Handbook 1344.1, REV 1, Chg 1.

B.  **Solicitations and Contracts.** Solicitations (e.g., Invitations
    for Bids) and contracts subject to Davis-Bacon wage requirements
    must contain the applicable wage decision and labor standards
    provisions. Davis-Bacon Wage Decisions can be obtained at no charge
    from a DOL-approved web site at:
    [www.wdol.gov](http://www.wdol.gov/)

C.  **Reporting**. As provided by DOL regulations (**29 CFR Parts 3 and
    5**), each construction employer (the contractor and any/all
    subcontractors) shall submit a payroll report and statement of
    compliance to the PHA for each week during which work is performed
    under the contract. Such reports may be submitted on the DOL Payroll
    Form (WH-347), which includes on its reverse side the required
    Statement of Compliance. These forms, WH-347 and instructions, may
    be obtained from HUD's Labor Relations field staff and are also
    available in "fillable" Portable Document Format (PDF) on-line
    through HUDClips or directory at the DOL web site at this address:
    [www.dol.gov/esa/programs/dbra/forms.htm](http://www.dol.gov/esa/programs/dbra/forms.htm)

> Employers are not required to use the form WH-347 and may substitute
> other payroll formats, including computer-generated forms, *provided*
> that all of the required information and the exact language of the
> Statement of Compliance (reverse side of the WH-347) is included.

D.  **Compliance.** The contractor and any/all subcontractors are
    responsible, on no less than a weekly basis, for paying not less
    than the applicable wage rates to all laborers and mechanics in
    their employ and engaged in work under the contract. The contractor
    is responsible for its own full compliance, and for the full
    compliance of any/all subcontractors, with all wage, overtime and
    reporting requirements included in the contract.

E.  **Enforcement**. The PHA is responsible for the administration and
    enforcement of labor standards requirements as provided in HUD
    Handbook 1344.1, REV 1, Chg 1 and as required by DOL regulations
    applicable to Davis-Bacon covered work (**29 CFR Part 5**). These
    activities include:

    1.  **Posting Wage Rates**. The PHA must ensure that a copy of the
        applicable Davis-Bacon wage decision and the DOL poster *Notice
        to All Employees* (WH-1321) are displayed at the job site in a
        place accessible to all laborers and mechanics and placed in an
        area that is protected from inclement weather. The WH-1321
        poster is available through HUDClips or directory at DOL's web
        site at:
        [www.dol.gov/esa/programs/dbra/forms.htm](http://www.dol.gov/esa/programs/dbra/forms.htm)

    2.  **On-site Interviews**. The PHA is responsible for conducting
        interviews with the laborers and mechanics on the jobsite to
        determine if the work performed and wages received are
        consistent with the job classifications and wage rates contained
        in the applicable wage determination and the classifications and
        wages reported by the employer on certified payrolls. On-site
        interviews are documented on form HUD-11, Record of Employee
        Interview, which can be found at HUDClips.

    3.  **Certified Payroll Review**. The PHA must review the certified
        payroll reports submitted by the contractor for itself and any
        subcontractors to ensure that all laborers and mechanics are
        classified and paid in accordance with the applicable wage
        determination and must compare information collected during
        on-site interviews to ensure consistency with such interview
        data. Any discrepancies found must be corrected and wage
        restitution must be required wherever underpayments are
        disclosed.

F.  **Recordkeeping.** The PHA shall retain all payroll reports and
    statements of compliance for three years from the date of contract
    completion and acceptance by the PHA, or from the date of resolution
    of any standards issues outstanding at contract completion.

**10.10 Federal Labor Standards and** **Wage Rates - Maintenance**

A.  **General**. All maintenance laborers and mechanics employed under
    contracts in excess of \$2,000 for the operation of public housing
    must be paid no less than prevailing wages determined or adopted by
    HUD. In addition, the overtime requirements of the Contract Work
    Hours and Safety Standards Act are applicable to maintenance
    contracts in excess of \$100,000.

B.  **Employment of apprentices or trainees**. PHAs, RMCs, or other
    contractors on work subject to HUD-determined wage rates may employ
    apprentices or trainees. Apprentices and trainees may be compensated
    at less than the prevailing wage rate for their craft, provided that
    they are individually registered in an apprenticeship or trainee
    program that has been approved by HUD, the DOL's Bureau of
    Apprenticeship and Training (BAT), or a BAT-recognized state
    apprenticeship agency. PHAs, RMCs, or other contractors who wish to
    discuss the development of such training programs may contact HUD
    Labor Relations Staff for assistance. Unless otherwise directed,
    RMCs and other contractors should submit all requests to develop
    approved training/apprenticeship programs and proposed program
    descriptions to the HUD Labor Relations field staff with
    jurisdiction over the PHA.

C.  **Exclusions for professional service contracts**. Contracts for
    certain professional services are excluded from coverage by
    HUD-determined (or HUD-adopted) prevailing wage rates. These
    exclusions include: Periodic inspections or testing of equipment
    without repairs; testing for lead-based paint; warranty inspections;
    installation, service or maintenance of leased equipment, fixtures
    or appliances; and installation, inspections, maintenance or service
    on equipment or fixtures which are owned by a utility. Examples
    include, but are not limited to, local code or performance
    inspections of elevators or escalators, gas lines or equipment, or
    fire hydrants or water lines; inspections or routine servicing of
    fire extinguishers, smoke detectors, security systems, boilers,
    heating systems, water heaters, air conditioners, water testing or
    treatment; soil testing or treatment; energy use or conservation
    analyses; routine garbage removal; and pest control (without
    attendant repairs).

D.  **Solicitations and Contracts.** Solicitations (e.g., Invitations
    for Bids) and contracts for all maintenance services subject to HUD
    wage rates must contain the applicable HUD wage decision and labor
    standards provisions.

    1.  HUD wage decisions are obtained from the HUD Labor Relations
        staff. A list of the Labor Relations staff, their contact
        information, and the jurisdictions they cover can also be found
        at the HUD web site:
        [www.hud.gov/offices/olr](http://www.hud.gov/offices/olr)

    2.  For all maintenance contracts of more than \$2,000, but less
        than the Federal small purchase threshold, PHAs should use the
        clauses found in Table 5.1 and the clauses in Section II of form
        HUD-5370-C. For all maintenance contracts of more than the
        Federal small purchase threshold, PHAs should use the clauses in
        Sections I and II of form HUD-5370-C.

E.  **Reporting**. Unlike construction contracts subject to Davis-Bacon
    wage provisions, maintenance contracts subject to HUD-determined
    wage rates do *not* require the submission of payroll reports.
    Contractors and subcontractors are still required to maintain
    payroll records and must make such records available to the PHA
    and/or to HUD, on request (see Labor Relations Letter No. LR
    2004-01).

F.  **Compliance**. The contractor and any/all subcontractors are
    responsible, on no less than a *semi-monthly* basis, for paying not
    less than the applicable wage rates to all maintenance laborers and
    mechanics in their employ and engaged in work under the contract.
    The contractor is responsible for its own full compliance, and for
    the full compliance of any/all subcontractors, with all wage,
    overtime and record keeping requirements included in the contract.

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G.  **Enforcement**. The PHA is responsible for the administration and
    enforcement of labor standards requirements as provided in Labor
    Relations Letter LR-2004-01. These activities include:

    1.  **Posting Wage Rates**. The PHA must ensure that a copy of the
        applicable HUD wage decision is displayed at the job site in a
        place accessible to all laborers and mechanics and placed in an
        area that is protected from inclement weather.

    2.  **On-site Interviews**. The PHA is responsible for conducting
        interviews with the laborers and mechanics on the jobsite to
        determine if the work performed and wages received are
        consistent with the job classifications and wage rates contained
        in the applicable wage determination and the classifications and
        wages reported by the employer on certified payrolls. On-site
        interviews are documented on form HUD-11, Record of Employee
        Interview, which can be found at HUDClips.

    3.  **Enforcement**. The PHA must perform contractor compliance
        monitoring with such frequency and depth as appropriate (based
        upon the scope and duration of the contract involved) to ensure
        that all laborers and mechanics are paid no less than the HUD
        prevailing wage rate for the type of work they perform.

H.  **Recordkeeping.** The PHA shall retain all compliance monitoring
    records, including employee interview records, for three years from
    the date of contract completion and acceptance by the PHA, or from
    the date of resolution of any labor standards issues outstanding at
    contract completion.

**10.11 Guidance on Federal Labor Standards Requirements**

Additional guidance on Federal labor standards is available on the
Office of Labor Relations web site at:
[www.hud.gov/offices/olr](http://www.hud.gov/offices/olr)

> This web site offers the latest in HUD policy guidance and
> instructional materials regarding labor standards, including two
> guides concerning Davis-Bacon, *Making Davis-Bacon Work: A Practical
> Guide for States, Indian Tribes and Local Agencies* and *A
> Contractor's Guide to Prevailing Wage Requirements*, and Labor
> Relations Letters. The web site also includes HUD's Regional and Field
> Office Labor Relations Staff as well as links to other related web
> sites.
>
> **10.12** **Procurement of Recovered Materials**

PHAs must give preference to EPA-listed recovered materials in their own
procurement practices, in accordance with the provisions in Section 6002
of the Solid Waste Disposal Act. See EPA regulations in **40 CFR Part
247**. Required language relating to procurement of recovered materials
is included with the mandatory contract clauses/forms.