U. S. Department of Housing and Urban Development 

Office of Inspector General 

Progress Payments for Construction at Savoy Place 

New Orleans, Louisiana 

Kenneth M. Donohue, Sr. 

Inspector General 

October 2008 

IED-08-006
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Executive Summary 

The Office of Inspector General, Inspections and Evaluations Division, conducts 

independent, objective examinations of U. S. Department of Housing and Urban 

Development (HUD) activities, programs, operations, and organizational issues. 

We completed an inspection of HUD funds drawn from the Line of Credit Control 

System (LOCCS) to pay for construction at Savoy Place, the last phase of the Desire 

Development at The Housing Authority of New Orleans (HANO). The Desire 

Development is a three-phase HOPE VI development, comprising of Abundance, Treasure, 

and Savoy Place. 

The objective of the inspection was to determine whether HUD funds drawn from 

LOCCS for Savoy Place before Hurricane Katrina corresponded with the cost of 

construction. To satisfy this objective, we compared progress payments HANO made to 

the developer, Michaels Development Company, with documentation of construction 

work performed. In addition, we discussed the records with key contractor personnel at 

HANO. We performed the fieldwork during July and August 2008. 

We determined that the progress payments to Michaels were used for construction work 

completed at Savoy Place and that HUD funds drawn corresponded with the progress 

payments made. 

 

If you have any questions concerning this report, please call Kenneth R. Taylor, Jr., 

Special Agent in Charge, at (202) 402-8416. 
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Table of Contents 

 

• Introduction .................................................................................................. 1 

• Scope and Methodology ............................................................................... 1 

• Observation 1: Progress Payments for Construction at Savoy Place Were 

Paid for Work Performed ................................................... 1 

• Observation 2: HUD Funds Drawn by HANO Corresponded with Progress 

Payments through August 29, 2005 ..................................... 2 

• Recommendations ........................................................................................ 2 

• Acknowledgements ...................................................................................... 2 
1 

Introduction 

The Desire Development of The Housing Authority of New Orleans (HANO) is a threephase HOPE VI development. The first two phases, Abundance and Treasure, were 

completed by late 2004. Construction on Savoy Place, the third phase, began in early 

2005 and was under construction when Hurricane Katrina hit the city on August 29, 

2005. 

Our concern was whether U.S. Department of Housing and Urban Development (HUD) 

funds drawn from the Line of Credit Control System (LOCCS) for Savoy Place 

corresponded with the cost of construction through August 29, 2005. Therefore, we 

wanted to determine whether the funds were used for that purpose. 

The Desire Development was devastated by Hurricane Katrina. Treasure and Abundance 

have already been reconstructed. Demolition of Savoy Place was completed in June 

2008, and reconstruction is in progress. 

Scope and Methodology 

To achieve our objective, we identified the HUD funds drawn by HANO from LOCCS. 

We identified HANO’s payments to the developer, Michaels Development Company 

(Michaels). Then we obtained records from IMS-Falcon, L.L.C., HANO’s contractor for 

monitoring contract performance, to inspect progress payments claimed by and made to 

Michaels doing business as Savoy Place Associates, L.P. These records included the 

application and certification for payment, commonly called “pay apps,” in addition to 

supporting financial records, inspections, and correspondence. 

We performed our detailed analysis as follows: (1) we compared the payments to 

Michaels with the LOCCS draws, (2) we confirmed whether HANO inspected the 

construction progress and certified delivery of services, (3) we analyzed the relevant pay 

app for percentage of completion and compared it with construction estimates found in 

the post-Katrina correspondence, (4) we reviewed the support for HANO approved 

payments and confirmed approval of the pay apps, and (5) we summarized all LOCCS 

draws and payments to the developer. Throughout the process, we reviewed other related 

documents, such as inspections and correspondence, and discussed all documents with 

IMS-Falcon’s senior consultant responsible for monitoring the project. 

We conducted the inspection in accordance with the Quality Standards for Inspections 

issued by the President’s Council on Integrity and Efficiency. 

Observation 1: Progress Payments for Construction at Savoy Place Were 

Paid for Work Performed. 

Our inspection disclosed that construction effort at Savoy Place was generating the 

progress payments claimed. Greystar Development and Construction (Greystar) 

performed the construction services at Savoy Place. Greystar submitted pay apps to 
2 

Michaels for construction costs less 10 percent retainage. Michaels then invoiced HANO 

with the pay apps as support for the construction costs. IMS-Falcon monitored 

construction performance through site inspections and reviewing the pay apps. As a 

result, it certified delivery of services for each pay app. We reviewed the documents and 

photographs provided by IMS-Falcon and consider them reliable. 

Observation 2: HUD Funds Drawn by HANO Corresponded with Progress 

Payments for Work Completed through August 29, 2005. 

Our inspection disclosed that the funds HANO drew down corresponded with the 

progress payments for construction underway on Savoy Place before Hurricane Katrina. 

We compared the funds drawn from LOCCS with the progress payments to Michaels. 

HANO drew down $11.7 million from LOCCS and made payments of $11.9 million. 

Therefore, the progress payments were within 2 percent of the amount drawn for those 

payments. 

Additionally, the progress payments to Michaels computed to 36.9 percent of contract 

completion. IMS-Falcon confirmed that 36.9 percent was a reasonable estimate of the 

overall construction completed before Hurricane Katrina. 

Construction work was performed before Hurricane Katrina. Therefore, we relied on the 

documents and statements provided by IMS-Falcon to support our observations. In 

addition, IMS-Falcon provided digital photographs of Savoy Place before and after 

Hurricane Katrina to corroborate its statements and estimates. 

Recommendation 

We recommend that the Deputy Assistant Secretary for the Office of Public Housing 

Investments ensure that HANO follows standard closeout procedures when the Desire 

HOPE VI development is completed. These procedures include preparing a financial 

status report and obtaining an independent audit in accordance with 24 CFR (Code of 

Federal Regulations) 85.26. Savoy Place is the third and final phase of the HOPE VI 

portion of Desire. Therefore, completion of Savoy Place requires HANO to initiate 

HUD’s standard closeout procedures for the Desire HOPE VI development. 

Acknowledgements 

This inspection was conducted and the report prepared under the responsibility of Ruth 

A. Ritzema, Deputy Assistant Inspector General for Investigations, Office of 

Investigation. 

The fieldwork was supervised by Windell Durant, Supervisory Forensic Auditor. Leighton 

Eaves, Forensic Auditor, conducted the fieldwork.