Skip to content

Newly Named Housing Secretary Needs to Clean Up Contracting | Commentary

As President Obama’s nominee for secretary of Housing and Urban Development begins his confirmation process in the Senate this week, San Antonio Mayor Julian Castro has the opportunity to bring a fresh perspective and embrace policies that save money, improve services and set a positive example for the entire federal government.

Once confirmed, Castro can make a big difference from day one by announcing that HUD will obey a US federal appeals court ruling restoring fairness to federal contracting policies in a leading housing program for needy families.

At issue is how HUD selects contractors to administer the Section 8 Project-Based Rental Assistance program, which provides more than $9 billion in rental subsidies to 1.2 million low-income families in communities across the country.

Here’s what’s at stake — and why it’s so important:

For more than a dozen years, through 2011, HUD successfully contracted with public housing agencies to administer the Section 8 housing program. HUD used a competitive process that ensured the lowest-priced, most qualified bidders secured the contracts.

That common sense, competitive approach was good for tenants and good for taxpayers. It helped to make HUD a leader among federal agencies in reducing improper payments under the Section 8 program. In fact, this policy lifted HUD out of the “high-risk” category into which it had been placed by the Government Accountability Office, the respected, nonpartisan investigative arm of Congress.

But in 2012, abruptly and without explanation, HUD Secretary Shaun Donovan (whom Mayor Castro has been nominated to replace) changed the rules of the game. In place of competitive bidding, HUD set up an anti-competitive preferential system. State housing authorities – many of which farm out the work to subcontractors – were given priority consideration, and in many cases sole source consideration, over public housing agencies for contracts with HUD to support HUD in administering the Section 8 housing program.

This practice clearly violated federal procurement law. To get around competition requirements, HUD simply relabeled the procurement contracts as “cooperative agreements.” The difference is the statutes and regulations governing procurement contracting are far stricter in their competition requirements and more transparent than those covering cooperative agreements (a form of grant). And cooperative agreements, unlike procurement awards, cannot be challenged before the GAO or at the Court of Federal Claims.

The public housing agency that I head, Navigate Affordable Housing Partners, competed for and won contracts with HUD in four states under the old competitive system, and we have successfully performed those contracts for more than a decade. However, when Navigate sought to apply for new contracts in 2012, HUD refused even to consider our applications and instead announced it would enter into sole source awards with its preferred applicants. In every case, these applicants proposed higher prices than we did.

Lowest bid? Best record? Best references? These were no longer the standards by which to win contracts.

That was why several public housing authorities, including Navigate, filed a lawsuit against HUD challenging its new, unexplained policy. In March, the U. S. Court of Appeals for the Federal Circuit ruled in our favor, ruling that HUD had acted illegally and improperly by issuing the contracts as “cooperative agreements.” The court’s ruling was not only correct, it was predictable. In 2012, the GAO reached the same conclusion. While the GAO’s rulings are non-binding, agencies nearly always adhere to its expert advice. In this case, HUD simply ignored it.

Despite adverse rulings from the two foremost procurement bodies in the land, HUD remains entrenched in its position. In two recent testimonies before a House Appropriations Subcommittee, Donovan declared that the federal appeals court was wrong and that HUD does not have to follow the same competitive contracting rules as other federal agencies. What’s more, Donovan suggested HUD would seek a change in federal law in order to go its own way.

I find that both confusing and troubling.

Mayor Castro went before the Senate Banking, Housing and Urban Affairs Committee on Tuesday. As his nomination moves forward in the Senate and he prepares to take over at HUD, I hope he takes a new look at the crisis in contracting at HUD. By doing an end-run around competition, quality and accountability, HUD’s actions threaten the credibility and solvency of the entire program. Contracts are now being extended on a short-term basis at higher fees. HUD has directed a halt of regular, quality-control site visits, known as management and occupancy reviews. Millions of taxpayer dollars are being wasted.

I’m hopeful Secretary-designate Castro will follow the federal court’s ruling and return to policies that embrace competition, quality and fairness. It’s not only good government; it’s good for the American public. For the sake of the taxpayers and the tenants, the new HUD secretary should make a fresh start.

Eric Strong is the CEO of Navigate Affordable Housing Partners, which provides administrative services to HUD in support of the Section 8 program in Alabama, Virginia, Mississippi and Connecticut.