Wednesday, May 16, 2012
Augusta, GA
By Al Gray
Within the last three years the Housing
Department of the City of Augusta has contracted for the construction of
multiple new housing units throughout the city, most prominently in the
Laney-Walker Community. Questions in the community, city, and area abound. Are
taxpayer funds being used wisely? Are the funds being disbursed according to
governing regulations? How do costs compare with similar new homes in the city
or in Columbia County?
The question of whether the home
building funds were dispersed properly within the terms of the governing
contracts and regulations has been reviewed. Augusta Today contributor Dee
Mathis submitted a Georgia Open Records Request Act on February 23, 2012 to the
Augusta Richmond County Law Department requesting:
“Plans
and Specifications for the two units built under contract with the City of
Augusta at 1120 and 1122 Florence Street; Payments made under the contract for
the construction of these units, including invoices, payroll registers, and
any other documents substantiating the costs reimbursed or paid to the
contractor.”
As background, it is noted that Dee
Mathis has exhibited keen interests in the real estate developments and
revitalization efforts in the Laney-Walker neighborhood, having previously
appeared before the city commission in opposition to the Laney-Walker overlay
zoning ordinance. **(See CS Article: Dee Mathis Wins Overlay Fight Here)
The housing constructed was a duplex of
two stories built by designated Laney Walker contractor J&B Construction
and Services, Inc. The contract for it was dated June 22, 2010 and it was
completed before, October 2011, when the final payment was made by the City of
Augusta. J&B
Construction is a designated Development Partner for the City's Laney Walker
Bethlehem improvement district.There
are other development partners who have similar contracts and this review is
not intended to single out this contractor but to address the City's
performance in administering similar contracts.
On March 6, 2012, Ms. Mathis received a
two page response from Kenneth Bray of the Augusta Law Department accompanied
by 60 pages of documents. This report summarizes the key points of the
resulting review and commentary. **(
The nature of the contract is that it
provides for construction costs to be reimbursable up to a Not-to-Exceed
(Maximum) Price This is established by the language
throughout the contract **(to view, click--> here) including the following provisions:
The
stated amount of the contract was stated in Article 1, Section A, paragraph 1
as “an amount not to exceed $272,681.00 shall be expended …..
from NSP Program funds for construction costs related to the
development of an affordable multi-family housing unit as part of the Florence
Street Project.”
Then
the contract states in Article II,
Section A, paragraph 2: “The method of payment shall be on a
reimbursement basis.....For invoicing, J&B Construction and
Services, Inc. will include documentation showing proof of payment in the form
of a canceled check or check register and completed reimbursement form that
includes the amount requested, amount remaining and specific line items that
relate to contract Budget.....”
Article
V, Section F. states that “Requests for payment shall be accompanied by
proper documentation....For purposes of this section, proper
documentation includes: “Reimbursement Request Form supplied by HCD, copies
of invoices, receipts, other evidence of indebtedness, budget
itemization and description of specific activities undertaken”
Article
V, Section H, states “Unexpended funds shall be retained by Augusta.”
This supports the nature of the contract as being cost reimbursable because
had the contract been a Lump Sum, the full contract price payment would have
precluded the existence of any unexpended funds.
Appendix
B, Reporting Requirements, contains this statement: “Report will contain actual/estimated
costs/date, issues and concerns”
**Payments were made based upon the
Maximum price, instead of reimbursable costs
The progress payments made against the
contract were based upon the original estimate, plus 3 change orders, and less
contingency allowances, resulting in a total contract adjustment of $1,874.28,
so that the total contract payments were $270,806.74. **(View Final Payments Document Here)
In response to Ms. Mathis' Georgia Open
Records Request Act inquiry, The Augusta Housing Department provided no billing
support that evidenced that the billed costs were actual costs as defined by
check stubs, check registers, paid vendor and subcontractor invoices, or
payroll registers for contractor employee-performed work.
When this writer contacted Mr. Shawn
Edwards, Neighborhood Stabilization Program Manager for the City of Augusta to
inquire about the required billing support, he initially indicated that the
City was only getting the reimbursement form from the contractor and was making
payments based upon the agreed-upon contract price, contending that the
contract price was the proper basis for payment, not reimbursable costs. A follow up request is in process for
Augusta to provide the actual cost back-up it might possess. This report will
be updated if contradictory data is provided.
**The Federal Department of Housing and
Urban Development has already cited Augusta for deficiencies like those in
evidence for 1120 Florence Street.
James D. McKay, Regional
Inspector General for Audit, Atlanta Region, issued an audit
report in 2010 which included the following: During the review, we identified
two concerns regarding internal controls and entering obligations before
contracts were fully executed.
The City
did not have internal controls in place to perform continuous and routine
monitoring of its obligation process to ensure that its obligations were
processed as intended and were valid. We discussed this matter
with the City during the review, and the City agreed to develop monitoring
procedures.
The City
entered its NSP1 obligations into the DRGR database in June 2010 for its LH25
set-aside activities. At that time, the obligations were not valid because the
contracts for those obligations had not been signed by all parties. However,
the City obtained the required signatures and fully executed the contracts in
August 2010, ahead of the September 5, 2010, deadline. We discussed this matter
with the City, and it agreed that its obligations were not valid until the
contracts were fully signed and executed by all parties.
The
failure to secure evidence of reimbursable costs, while paying out contracts
based upon the maximum price, would appear to be a 1120 Florence Street
manifestation of the first exception that HUD
noted.
The
second failure is definitely found to exist with the 1120 Florence Street
units, as the contract was signed in June, 2011 **(View Signature Page Document Here), three months after the initial contract
payment. **(View Line to Draw Document Here)
The
Office of Management and Budget circulars governing the NSP1 funds include the
following.
OMB
Circular A-87, Cost Principles for State, Local and
Indian Tribal Governments (05/10/2004) HTML or PDF (58 pages, 216 kb),
OMB Circular A-110, Uniform Administrative Requirements for Grants and Other
Agreements with Institutions of Higher Education, Hospitals and Other
Non-Profit Organizations (11/19/1993) (further amended 09/30/1999, Relocated
to 2 CFR, Part 215
OMB
Circular A-133, Audits of States, Local Governments and Non-Profit Organizations
There are
indications that the reimbursable cost could be materially less than the
maximum price in the estimate and adjusted contract price.
The
contract pricing detail on page 4 shows a charge for a central air system with
a 15 Standard Energy Efficiency Rating (SEER). **(View NTE Estimate Document Here) The unit installed was observed to be a Nutone Model NT4BD.This
model is shown by the manufacturer as a 13 SEER Heat pump, capable of reaching
a 14 SEER if paired with a variable speed air handler. The cost differential between a 13 SEER and
15 SEER is significant, because of the rigorous ductwork, blower, and air
handler upgrades to achieve the higher rating. Having the HVAC contractor
invoice, as required by this contract, and inspection of the installed system
would settle this question.
The
paid-out contract price included a line item entitled “Administration.” In the absence of clarification,
“Administration” would be an indirect cost which would be covered by the 15%
Overhead and Profit allocation against all of the direct cost in the estimate,
meaning that inclusion as a marked-up direct cost overstates “costs.” The overage
would be $13,800, according to page 2 of the price estimate. **(See NTE Price Estimate Document Here) This single
factor would be 5% of the total contract value.
Using
prices from Lowes in comparison to the estimate provides a mixed picture. The
estimate prices for bricks and blocks would be a savings, but the prices of
wallboard, lumber, mortar mix, concrete, roofing felt, and access doors seem to
indicate losses. (These are current prices and can only be used as points of
reference, as the actual contractor costs would govern.)
The
contract estimate shows the “cost” per square foot on page 6 to be $79.73 **(See NTE Estimate Document Here), exclusive of
land costs. Review of the real estate transfer shows the lot to have cost
Augusta $12,000, taking the total square foot “cost” to $83.24. By comparison
the sales prices of new homes in Grovetown, which include the developers
overhead and profit on top of construction costs, are in the $76 to $82 range. This would
indicate as much as 10% savings could be had by complying with the reimbursable
cost standards of Augusta's contracts.
KEY
QUESTIONS - Since there are dozens of similar Augusta contracts within the
Laney Walker Bethlehem development project, wouldn't the savings from enforcing
the contracts as written save between 5% and 10% of construction costs?
Wouldn't the cost savings justify obtaining comprehensive, detailed costs?
Based upon the $37,500,000 committed by the city to these developments the
savings would range from $1,875,000 to $3,750,000.
Isn't
Augusta in danger of having to repay $100,000's of thousands of dollars, if HUD
finds the city out of compliance with its payment of the Neighborhood
Stabilization Program contracts?
If
Augusta's contractor's can save money by changing suppliers and methods, isn't
it worthwhile to help them do so under the cost reimbursable contracts?
More to come.
- Al Gray
Below are the pdf documents referenced in this story:
Dee Mathis 1120 Florence GORA Request
1120 Florence Street NTE Price Estimate
1120 Florence Street Contract
1120 Florence Signature Page
1120 Florence Final Payment
1120 Florence Draw 1Below are the pdf documents referenced in this story:
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