### To: File From: Michael Jensen, DOE GC-71 Date: August 16, 2010 Re: Ex parte discussion with Michael Lubliner

On July 28, 2010, Michael Jensen (GC-71), Harry Indig (EE-2J), and Bob Lucas (PNL) spoke with Michael Lubliner regarding his views on DOE’s proposed rulemaking to develop energy efficiency standards for manufactured housing.

Mr. Lubliner was supportive of HUD’s initiatives to regulate manufactured housing and was enthusiastic about DOE’s mission to improvethe energy efficiency of homes. He supported the idea, in theory, of having one process—via design approval primary inspection agencies (DAPIAs) and production inspection primary inspection agencies (IPIAs)—to ensure compliance with both the HUD Code and proposed DOE regulations. However, he noted that the HUD process of third-party certification of manufactured homes had room for improvement. He alsonoted the discussions on the manufactured housing consensus committee and at HUD regarding perceptions of inherent conflict of interest in the manufacturer-DAPIA/IPIA relationship (see attached HUD May 20, 2008, memorandum).

Mr. Lubliner suggested that it would be useful for DOE to perform an independent assessment of how well the DAPIA/IPIA process is working for HUD before deciding whether to adopt a similar DOE inspection program. Mr. Lubliner recommended that DOE conduct a random survey of how to adjust the quality assurance (Q/A) process to ensure compliance with DOE’s proposed energy efficiency standards. He identified that the DAPIAs and IPIAs often do not have clear guidance on how to perform inspections (e.g., there currently is no clear guidance on howducts, envelope penetration, etc. should be sealed).

Mr. Lubliner also advocated that DOE implement factory and after set-up Q/A protocols for the testing of manufactured homes, using common building science testing tools employed in DOE and EPA residential energy efficiency programs. Mr. Lubliner noted DOE Building America, NIST, and other research suggesting that implementation of these protocols will help ensure healthier, more durable, and energy efficient homes in accordance with existing and future MHCSS requirements. These tools include:

1) Blower doors and thermal imaging equipment to help confirm the correct installation of insulation and air leakage control systems associated with the home’s thermal envelope.

2) Duct leakage testing equipment to ensure duct tightness Q/A targets are met.

3) HVAC air flow testing/commissioning of mechanical ventilation systems to ensure that Q/A targets for bath and whole house fans air flow rates are met.

### 4) Heating and AC system air flow rate testing to ensure that Q/A targets for return and supply register air flow requirements are met.

He also suggested that DOE consider providing technical as sistance to state administrative agencies responsible for af ter-market consumer complaints on how to check for energy efficiency problems in homes.

Mr. Lubliner also mentioned that DOE consider discussions with HUD’s contractor responsible for DAPIA/IPIA Q/A processes (i.e., IBTS) to oversee certain energyefficiency inspections. He noted that the manufactured housing industry is not selfsupporting, as Congress envisioned, since labeling fees amount only to $39 per floor and there are currently low production rates, hence less revenue to implement all aspects of HUD’s manufactured housing program. He suggested that, if costs were increased, money could be put towards enhancing the Q/A process. Finally, Mr. Lubliner re-stated that he was supportive of the DAPIA/IPIA inspection process in conjunction with DOE performing random third-party and manufacturer audits and inspections.

End of conversation.

### MAY 2 0 2008

OFFICE OF HOUSING



### MEMORANDUM FOR: Committee

FROM: William W. Matchneer III, Associate Deputy Assistant Secretary RegulatoryAffairs and Manufactured Housing



### SUBJECT: PIA Related Issues for the Consensus

Committee

to Consider

In recent months, the program office at HUD has beenanalyzing its working relationships with the various HUD-approved Primary InspectionAgencies (pIAs), especiallythe private PIAs that are in contract with and paid directly by the manufacturers. We believe that the PIAs' performance as inspection agencies for HUD, aswell as HUD's working relationships with these PIAs, could be significantly improved if the regulations regarding PIAs were revised. HUD is asking the committee to consider the following issues

to help it develop potential regulatory changes to address

them. At this time we are not proposing specific regulatory language, only asking that the committee.members think theseissues

through with us.



### Background Summary

As authorized by the National Manufactured Housing Construction and Safety Standards Act of 1974 (the Act), HUD published the procedural and enforcementregulations in 1976 (24 C.F.R. § 3282). These regulations set forth proceduresby which the SecretaryofHUD "conduct[ s] inspectionsand investigationsnecessary to enforce the standards, to detennine that a manufactured home fails to comply with an applicable standardor contains a defect or an imminent safety hazard, and to direct the manufacturer to furnish notification thereof, and in some cases, to remedy the defect or imminent safetyhazard." 24 C.F.R. § 3282.1(b). One of the key listed purposesof the Act is "to ensure uniform and effective enforcement of Federal construction and safety standards

for manufacturedhomes." 42 V.S.C. § 5401(b )(7).

The generalpurpose of the Act is to provide for a single unifonn standardfor manufactured housing safetyand construction throughoutthe United States. Accordingly, HOD published the Manufactured Home Construction and Safety Standards (construction and safety standards) in 1976 (24 C.F.R. § 3282). In the Manufactured Housing hnprovement Act of2000, Congress codified definitions of the two types of "Primary InspectionAgencies" (FlAs) that were originally created by the regulations to perfonn certain regulatory tasks. First, Congress defined "Production Inspection Primary InspectionAgencies" (1PIAs:) as "[ s ]tate agenc[

ies] or private organization[ s] that ha[

ve] been approved by the Secretary to evaluatethe ability of manufactured home manufacturing plants

espanol.hud.gov www.hud.gov u.s. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

WASHINGTON,DC 20410-80002

to comply with approved quality control procedures and with the Federal manufacturedhome construction and safety standards promulgated hereunder,including the inspection of homes in the plant."l Second,Congress defined "Design Approval Primary Inspection Agencies" (DAPIAs) as "[ s ]tate agenc[

ies] or private organization[ s] that ha[

ve] beenapproved by the Secretary to evaluate and either approve or disapprove manufacturedhome designsand quality control procedures.,,2

As mentioned above, PIAs Wt:reoriginally createdby HUD regulations to perform necessary

regulatory tasks that HUD would not have the staff or budgetto perform itself Once approved by HUD, thesethird-party agencies are responsible for day-to-day oversight of design and construction of manufacturedhomes. The regulations allow states to serve as PIAs. The regulations also allow private organizationsto serveas PIAs, and specifically allow manufacturers to hire and pay those organizations without any restrictions. While this delegationof inspection responsibility has reducedprogram costs for the government, it is the program office's opinion that the regulations have also established a system of often conflicting intereststhat in HUD's experiencehave discouraged private PIAs from performing in the best interestof the consumer and prevented private PIAs from providing HUD with inspection information it needs to ensure uniform and effective enforcement of the constructionand safetystandards.



### The Current Regulations

PlAs are specifically responsible to HUD for assuringcompliance with the construction and safetystandards

by: reviewing and approving all manufacturedhome designs; reviewing and approving all plant quality control plans; and performing regular production surveillance of all plants. At the same

time, private PlAs must compete for contracts with severalmanufacturers,and the manufacturershave absolute authority to hire or fire them. It should, perhaps,come as no surprise that no private PIA has ever come forward voluntarily to HUD with information regarding defects in design or production. Furthermore,the direct employment relationship between manufacturers

and PlAs h"as

led some in the industry to believe that the interestsof the PIA and manufacturer are actually joined. For example, some attorneyshave found it acceptable to represent both a manufacturer and its PIA with regard to the samecompliance issue.

Without compliance infoffi1ation from the PlAs, HUD must rely on an independent contractor for most of its fact gatheringand other oversight infoffi1ation. However, this contract is only for monitoring of PIA perfoffi1ance, and the monitoring is only done on an occasionalbasis. The contractor is not in a position to provide HUD with the first-hand compliance infoffi1ation it needs to fully dischargeits statutory r~:sponsibility for industry oversight. HUD has found that, in practice, private PlAs are more likely to act as refereesbetweentheir manufacturersand the contractor than as regulatory inspectors. HUD has also found that some private PlAs believe they have independentdiscretion to decide compliance issues. For example, Section 3282.362(c) allows IPlAs to distribute HUD compliance labels and to make determinationsas to whether a manufacturer is properly perfoffi1ing under its approved quality assurance manual. Some IPlAs



### 142 U.S.C.§ 5402(21). 242 U.S.C.§ 5402(18).

### 3

believe that this authority is independc~nt ofHUD and that HUD cannot direct an IPIA to take specific actions when performing theseduties. While the regulations allow IPIAs to engagein theseactions, the ultimate decision on all compliance issuesplainly remains with HUD asthe statutory regulator.



### Some Possible Revisions

to the Regulations

to Addressthe Concerns

Congress

was obviously concerned aboutthe identification of defective and unsafe homes, as Section621 of the Act establishes civil and criminal penalties for any failure to report violations of the construction and safetystandards. Despite this strong statement from Congress,HUD regulations do not require PlAs to infonn HUD of defects they find in the homes they inspect or deficiencies in a plant's quality control. The only PIA reporting requirement is found in 3282.553( c), which simply requires IPlAs to submit monthly reports of the number of homes with a failure to confonn or an imminent safetyhazard found in each plant.

In order to encourage

PlAs to provide HUD with compliance information, the program office has beenconsidering revisions to the procedural and enforcement regulations to ensure that PlAs both can and will provide HUD with objective and independent evaluationsof a manufacturer's operations without risk of retaliation. Specifically, HUD suggests strengthening 24 C.F.R. §§ 3282.362 and 3282.366(a) to include the requirementthat PlAs provide timely reports of violations of the construction and safetystandards and imminent safetyhazards to HUD.

The program office welcomes recommendations from the Committee with regard to how the regulations can be amended to address

the conflicting interests HUD established in the current system. Options might include new provisions regulating how PIAs can be hired, fired and/or paid by the manufacturers. The regulations could be amended to require the approval ofHUD before a manufacturerhires a new PIA or to place restrictions on the firing ofPIAs by limiting the reasons that a manufacturercan end its emplo:yment relationship with a PIA at a given plant. This second option might require that PIAs can only be fIred for causeon a plant-by-plant basis, and remove the PIAs' concern that they could be fired. in retaliation for reporting violations at one plant.

The program office also sugge:sts amendingthe regulations to impose more stringent reporting requirementsregarding clas~; determinations. Pursuant to 24 C.F.R. § 3282.366(a), IPIAs

are responsible for assistingthe Secretaryin identifying classes of homes that have been affected where the Secretary

makes or may be contemplating making a preliminary detennination with respect to the homes for which the IPIA provided the plant inspections. Additionally, the IPIA is responsible for reviewing manufacturerdetenninations of a classof affected homes when the manufactureracts pursuantto 24 C.F.R. § 3282.404, and the IPIA must concur in the method used to detennine the classof potentially affected homes or statethe reasons for its nonconcurrence.3 In practice, IPIAs generally concur with the class detennination methods of the manufacturer. However, HUD has found that the methods used have frequently been inadequate and that the IPIA had not reviewed the determinations with a critical eye. Though the regulations currently require

3 24 C.F .R. § 3282.366(b).4



### IPIAs to state

why a method

is inadequate

the regulations

couldbe amended

to require

an IPIA to report in detail the reasons

it believes

that a manufacturer's

class determination

method is either adequate or inadequate.

~ addition,

an IPIA couldbe required to concur or non-concur

onthe class of homes identified in addition

to the methods

used to determine

thatclass.

Plant Certification

The regulations set forth the processby which an IPIA perfonns the initial evaluation of the quality control in a plant to detennine whether the manufactureris capableof producing homes in confonnance with the approveddesign and the standards and to detennine whether the manufacturer's quality control procedures will assure

that suchconfonnance continues.4 However, HUD's review of recent plant certifications indicates that IPIAs are focusing their quality control evaluations on a single unit passing through the production processwithout design or production defects being observed. The current regulations recognizethis as only one measurement of a plant's quality control procedures, and HUD believesthe regulationsshould make it clear that IPIAs are required to evaluate all aspects of a plant's quality operations during the certification process.

Once an evaluation is completedto the IPIA' s satisfaction, the regulations require the IPIA to prepare and deliver a "certification report" to the manufacturer, HUD and HUD's monitoring contractor.5 Once this certification report is delivered, ordinary production can begin under the IPIA's surveillance, eventhough HUI) has had no opportunity to review and approvethe certification report or determine if the level of production and staffing under which the certification report was issued have beenincluded. Although some in the industry have interpreted this to mean that IPIAs have independentplant licensing authority, statutory authority for plant licensing is ultimately retained by HUD. While HUD believes that it hasthe inherent right to review and approve certification reports, we would recommend potentially amendingthe regulations to specifically condition plant certification on HUD's review and approval of the certification report. HUD also suggests

amendingthe regulations to clarify that although ordinary production can begin upon the delivery of an IPIA' s certification report, HUD retains the right to review the certification report and conduct an in-plant certification audit. The regulationswould then clearly state that HUD will either approvethe certification or require specific improvements to the plant's quality control. Finally, considerationshould be given to amendingthe regulations to specifically condition plant certification on the level of production and staffing that was in place and observed by the IPIA during the certification process.

4 24 CoF oR. § 3282.362(b )(1). 5 24 C.F .R. § 3282.362(b

)(2).

### 5

Potential RI~medies

for Underperforming PIAs

Under the Regulations, if an IPIA or DAPIA is underperforming, HUD can revoke its certification and prohibit it from participating in the Manufactured Housing Program. However, if

an IPIA is only performing poorly at one or two manufacturing plants, or a DAPIA is performing poorly on only one or two design paclcages, it may not always be prudent to revoke that PIA's approval to participate in the program. Not only would this require all manufacturers to hire new PlAs, but it would also require manufacturers to bear the expense

of recertifying all affected plants and/or design packages.HUD would prefer to hold PlAs accountablefor the individual plants and design packagesfor which they are responsible. HUD alreadyhas broad authority to monitor a PIA's performance and determine whetherthe PIA should be disqualified from the program or that the PIA make specific improvementsto their operations in order to continue to be approved. Though HUD believes this authority is inherentto the Act and current regulations, consideration should be given to amendingthe regulations to set forth the specific actions that HUD could take againstan underperforming IPIA or DAPIA. Examples of specific forms of action could include: assessment

of civil penalties; restriction on client growth; requiring IPlAs to perform increased inspections in problem plants; removal ofDAPlAs from specific design packages that contain

numerouserrors; and removal oflPIAs from specific plants where their production oversight is ineffective.



### Label Recovery

The regulations currently have no procedures assigning responsibility for the recovery of HUD labels. This recently becamea problem when several new manufacturedhomes that were severelydamagedby flooding causedby Hurricane Katrina were purchasedfrom insurancesalvage and sold as used homesto unwary purchasers. Though the manufacturer was on notice that the homes had been severelydamaged and treatedastotal lossesby the insurancecarrier, the regulations did not require the labels be removed. The program office suggests amendingthe regulations to stipulate that retailers, distributors, or other parties cannot sell suchhomes and that to do so would subjectthe party to civil and criminal penalties underthe Act. This would include homes that are known to be severely damaged

in a natural disasteror during transportationand cannot be repaired, and homes from manufacturers who have lost their plant certifications or gone out of business. Manufacturers, retailers, or distributors should be required to notify HUD and the IPIA that issuedthe label that it has a home or group of homes in its possession that meetsthe above criteria. The IPIA or its designee would then be required to remove the label and return it to HUD

or to HUD's agent.