HUD Use of Reservation and Notification Letters for Obligating Contract Authority

GAO was asked to provide a more definitive ruling on the use of reservation and notification letters for obligating contract authority under various federally assisted housing programs. GAO was concerned at what point the Department of Housing and Urban Development (HUD) considers the contract authority obligated for the purpose of reporting it to Congress. By obligating contract authority in advance of a project's approval and funding, the potential is created for presenting to Congress a misleading picture as to the amount of contract authority actually committed to authorized projects. Congress, relying on the HUD reports of obligated contract authority, could be induced to authorize significant amounts of additional contract authority. HUD, by deobligating large amounts of previously obligated authority, could then have available for reobligation to new projects amounts in excess of what Congress intended it to have when it provided the additional authority. Therefore, Congress might reduce or eliminate any authorization of new contract authority other than that already granted to HUD. It is this possibility that makes the timing of the HUD obligation of contract authority important. HUD used reservation and notification letters as obligating documents. This was originally addressed in a 1980 report which recommended that HUD record obligations at a later time. The agency argued that, from both a legal and programmatic position, these letters were allowed to stand as the obligating documents in its housing assistance programs. The main programmatic objection was that, if GAO ruled that HUD could not tell prospective contractors that it was legally obligated to them, HUD would have difficulty getting developers to proceed with projects. HUD contended that the Public Housing Development Phase reservations were valid obligations pursuant to an applicable statute. GAO held that HUD use of reservation and notification letters under various housing assistance programs was inappropriate since, at the time of their issuance, HUD had taken no actions which would impose a legal liability upon the Government. Accordingly, the recommendation from the 1980 report was reaffirmed.