B-127428, APR. 5, 1956

B-127428, APR. 5, 1956

TO MR. LESTER H. THOMPSON, AUTHORIZED CERTIFYING OFFICER, FEDERAL HOUSING ADMINISTRATION:

REFERENCE IS MADE TO YOUR LETTER OF MARCH 23, 1956, YOUR REFERENCE AC-C, TRANSMITTING VOUCHER AND SCHEDULE OF PAYMENTS (STANDARD FORM NO. 1166; BUREAU SCHEDULE NO. 2987) AND ACCOMPANYING PAPERS, INCLUDING EIGHT BUREAU VOUCHERS IN THE AGGREGATE AMOUNT OF $2,382.31 PAYABLE TO W. W. CHART ON, 4219 WEST 23D STREET, LITTLE ROCK, ARKANSAS, AND REQUESTING A DECISION AS TO WHETHER THE VOUCHER PROPERLY MAY BE CERTIFIED FOR PAYMENT. YOU TRANSMITTED ALSO PHOTOSTATS OF FOUR CERTIFIED VOUCHERS DRAWN IN FAVOR OF H. O. DANIEL PLUMBING AND HEATING COMPANY, REQUESTING A DECISION AS TO WHETHER THEY WERE ERRONEOUSLY CERTIFIED FOR PAYMENT AND, IF SO, WHAT CORRECTIVE ACTION SHOULD BE TAKEN.

THE VOUCHERS RELATE TO REPAIR AND RECONDITIONING OF FEDERAL HOUSING ADMINISTRATION PROPERTIES IN THE NORTH SHORE HOMES PROJECT, LITTLE ROCK, ARKANSAS. YOUR DOUBT IN THE MATTER ARISES FROM THE FACT THAT THERE WAS NO ADVERTISING AND COMPETITIVE BIDDING FOR THE WORK INVOLVED.

THE EIGHT VOUCHERS PAYABLE TO W. W. CHART ON ARE DESCRIBED AS FOLLOWS:

CHART VOUCHER NUMBER F.H.A. CASE NUMBER ADDRESS AMOUNT 38605 082-30001-16 NO. 16 WRIGHT CIRCLE $ 432.37 (PAINTING AND

REPAIRING) 38607 082-30001-16 NO. 16 WRIGHT CIRCLE 164.35 (FLOORS AND

VENETIAN

BLINDS) 38608 082-30001-22 NO. 16 QUILLEN DRIVE 461.02 (PAINTING AND

REPAIRING) 38609 082-30001-22 NO. 16 QUILLEN DRIVE 152.79 (FLOORS AND

VENETIAN

BLINDS) 38610 082-30001-21 NO. 18 QUILLEN DRIVE 413.67 (PAINTING AND

REPAIRING) 38611 082-30001 21 NO. 18 QUILLEN DRIVE 165.67 (FLOORS AND

VENETIAN

BLINDS) 38612 082-30001-17 NO. 32 WRIGHT CIRCLE 153.42 (FLOORS AND

VENETIAN

BLINDS) 38613 082-30001-17 NO. 32 WRIGHT CIRCLE 439.02 (PAINTING AND

REPAIRING)

$2,382.31

ALL OF THE PERTINENT INVITATIONS AND ORDERS AND THE CONTRACTOR'S SUBMISSIONS OF QUOTATIONS BEAR THE DATE AUGUST 28, 1955. THE INDICATED DATE OF ACCEPTANCE OF TWO OF THE PROPOSALS IS NOVEMBER 2, 1955, AND THE DATE OF ACCEPTANCE OF THE OTHER SIX IS NOVEMBER 8, 1955. ALL EIGHT CONTRACTS WERE MADE BY NEGOTIATION PURSUANT TO PARAGRAPH 1725C (1) OF THE PROPERTY MANAGEMENT HANDBOOK, WHICH AUTHORIZES NEGOTIATION OF REPAIR CONTRACTS IN AMOUNTS NOT OVER $500.

THE FOUR VOUCHERS IN FAVOR OF H. O. DANIEL PLUMBING AND HEATING COMPANY, ALL COVERING REPAIRS TO PLUMBING, HEATING, AND ELECTRICAL SYSTEMS, ARE DESCRIBED AS FOLLOWS:

TABLEVOUCHER NUMBER F.H.A. CASE NUMBER ADDRESS AMOUNT 38614 082-30001-17 NO. 32 WRIGHT CIRCLE$137.50 38615 082-30001-21 NO. 18 QUILLEN DRIVE 117.50 38616 082-30001-22 NO. 16 QUILLEN DRIVE 122.50 38617

082-30001-16 NO. 16 WRIGHT CIRCLE 125.00

ALL OF THE INVITATIONS AND ORDERS AND SUBMISSIONS OF PROPOSALS PERTAINING TO THESE FOUR VOUCHERS ALSO ARE DATED AUGUST 28, 1955. THE INDICATED DATE OF ACCEPTANCE OF THE PROPOSAL IN CONNECTION WITH ONE OF THE PROPERTIES IS NOVEMBER 2, 1955, AND THE DATE OF ACCEPTANCE IN CONNECTION WITH THE OTHER THREE PROPERTIES IS NOVEMBER 8, 1955. ALL FOUR OF THESE CONTRACTS ALSO WERE MADE BY NEGOTIATION PURSUANT TO PARAGRAPH 1725C (1) OF THE FIELD OPERATING MANUAL.

IN HIS REPORT DATED MARCH 20, 1956, THE DIRECTOR OF THE PROPERTY MANAGEMENT DIVISION RECOMMENDS THAT THE VOUCHERS BE CERTIFIED AND STATES HIS VIEW THAT ACTION IN THE MATTER WAS IN COMPLIANCE WITH PERTINENT REGULATIONS. HE STATES FURTHER THAT THE CONTRACTS IN QUESTION WERE INCIDENTAL TO THE SALE OF THE FOUR REFERRED-TO PARCELS OF REAL ESTATE. THE REPORT IT IS STATED:

"EACH SALES TRANSACTION REPRESENTS A SEPARATE NEGOTIATION WITH THE PURCHASER WHICH INVOLVED A MEETING OF MINDS WITH THE PURCHASER, NOT ONLY AS TO PRICE AND MORTGAGE TERMS, BUT ALSO AS TO THE PHYSICAL CONDITION OF THE PROPERTY AND THE REPAIRS TO BE PERFORMED BY FHA, THE SELLER. AFTER THERE HAD BEEN A MEETING OF THE MINDS RESPECTIVELY WITH EACH PURCHASER, THE BROKER, AGAIN AS A SEPARATE TRANSACTION, SET OUT TO NEGOTIATE WITH A REPAIR CONTRACTOR FOR THE REPAIRS REQUIRED BY EACH SALE. AS A PRELIMINARY TO THESE NEGOTIATIONS, AND AT THE DIRECTION OF THE LITTLE ROCK OFFICE, THE PROGRAM OF REPAIRS FOR EACH PROPERTY WAS SEPARATED INTO COMPONENT PARTS OF PLASTERING, PAINTING, ETC. (THE CHARTEN WORK), AND PLUMBING, HEATING AND ELECTRICAL (THE DANIEL WORK), JUST AS PROVIDED FOR SPECIFICALLY IN PROPERTY MANAGEMENT HANDBOOK 1725A. EACH OF THESE NEGOTIATIONS WITH THE REPAIR CONTRACTOR WAS A SEPARATE NEGOTIATION, EACH ONE BEING CARRIED ON AND COMPLETED AS SUCH, AND AT DIFFERENT TIMES. SUBSEQUENT TO THE COMPLETION RESPECTIVELY OF THESE DIFFERENT NEGOTIATIONS FOR THE SAID REPAIRS, THE NEGOTIATED UNDERSTANDINGS WERE FORMALIZED BY THE USE OF FHA FORM 2513. AT THE TIME OF SUCH FORMALIZATION, ALL OF THE SEVERAL FORMS W513 WERE PREPARED BY THE BROKER. THE DATE OF SUCH FORMALIZATION WAS OCTOBER 28, 1955, WHICH DATE WAS TYPED ON THE FORM RESPECTIVELY IN THE BLOCK FOR SIGNATURES THAT ARE PROVIDED FOR (1) THE BROKER (COLLINS AND COMPANY), AND (2) THE CONTRACTOR (W. W. CHARTEN OR H. O. DANIEL). THIS IS THE BASIS UPON WHICH TO YOU, AS PER YOUR MEMORANDUM OF FEBRUARY 2,"IT APPEARS THAT ALL THE WORK WAS DONE, ETC., ETC.'

"IT WILL BE NOTED ALSO AS TO ALL OF THE FORMS 2513 THAT THE AWARD DATE FOR THE PERFORMANCE OF THE WORK IS NOVEMBER 8, 1955 IN SOME INSTANCES, AND NOVEMBER 2, 1955 IN OTHERS. COMPLETION OF THE WORK IS SHOWN ON THE VOUCHERS AS DECEMBER 1, 1955. ACTUALLY THE WORK WAS COMPLETED PRIOR TO DECEMBER 1, AND ON DIFFERENT DATES AS TO EACH CONTRACT WITH THE COMPLETION BEING FORMALIZED SUBSEQUENTLY BY THE PREPARATION OF THE VOUCHER.

"IT IS SUBMITTED THAT, IN SPITE OF THE PAPER WORK TO THE CONTRARY, EACH OF THESE TRANSACTIONS DID REPRESENT A SEPARATE TRANSACTION NEGOTIATED AT A DIFFERENT TIME UNDER CIRCUMSTANCES WHICH PREVENTED CONSOLIDATING THE TRANSACTIONS.

"THE LIQUIDATION NOW BEING CARRIED ON IN THE NORTH SHORE HOMES PROJECT, NORTH LITTLE ROCK, ARKANSAS, OUT OF WHICH THESE TRANSACTIONS HAVE COME, IS TYPICAL OF ONE OFTEN REPEATED WHEREIN FHA AT A PARTICULAR TIME ACQUIRES A NUMBER OF PARCELS OF REAL ESTATE GROUPED SOMEWHAT TOGETHER SO AS TO FORM A "PROJECT.'

"UNDER SUCH CIRCUMSTANCES, A LOCAL OFFICE IS CONFRONTED WITH AN ACTIVITY INVOLVING A SERIES OF INDIVIDUAL SALES, NONE OF WHICH ARE PREDICTABLE BY REASONABLE FORESIGHT AND PLANNING. THE FIELD OFFICE HAS THREE AVENUES OF APPROACH IN PROVIDING THE SEVERAL PURCHASERS WITH THE PERFORMANCE REQUIRED IN ORDER TO RETAIN THE INTEREST OF SUCH PURCHASERS. I AM SURE YOU WILL AGREE THAT IN A SOMEWHAT SATURATED MARKET IN PARTICULAR, IT IS ESSENTIAL THAT WE PROCEED PROMPTLY, AND THAT ANY UNDUE DELAY WILL RESULT IN EITHER THE LOSS OF THE SALE IN QUESTION OR IN THE DEVELOPMENT OF AN UNFAVORABLE REPUTATION IN THE LOCAL MARKET DETRIMENTAL TO THE PRODUCTION OF FUTURE SALES. CERTAINLY OUR EXPERIENCE SUPPORTS THIS VIEW.'

IT IS UNDERSTOOD FROM YOUR LETTER THAT THE PROPERTIES INVOLVED WERE ACQUIRED BY THE COMMISSIONER PURSUANT TO THE PROVISIONS OF SECTION 207, TITLE II, OF THE NATIONAL HOUSING ACT OF JUNE 27, 1934, 48 STAT. 1252, AS AMENDED, SUBSECTION (2) OF WHICH --- ADDED BY THE ACT OF AUGUST 23, 1938, 52 STAT. 21--- PROVIDES THAT SECTION 3709 OF THE REVISED STATUTES (41 U.S.C. 5) SHALL NOT BE CONSTRUED TO APPLY TO "ANY PURCHASE OR CONTRACT FOR SERVICES OR SUPPLIES ON ACCOUNT OF SUCH PROPERTY IF THE AMOUNT THEREOF DOES NOT EXCEED $1,000.'

SINCE IT DOES NOT APPEAR THAT THE AGGREGATE AMOUNT OF THE SEVERAL CONTRACTS WITH RESPECT TO ANY ONE OF THE INDIVIDUAL BUILDINGS WAS IN EXCESS OF $1,000, THE QUESTION, SO FAR AS THE APPLICABILITY OF SECTION 3709 IS CONCERNED, IS MERELY WHETHER IT WAS PROPER TO CONTRACT FOR REPAIRS TO EACH BUILDING AS A SEPARATE UNIT, OR WHETHER REPAIRS TO ALL BUILDINGS TO BE REPAIRED AT APPROXIMATELY THE SAME TIME SHOULD HAVE BEEN COMBINED. IN VIEW OF THE FACTS, AS REPORTED BY THE DIRECTOR, THAT REPAIRS WERE REQUIRED AND UNDERTAKEN ONLY IN CONNECTION WITH SALES OF INDIVIDUAL BUILDINGS, IN THE COURSE OF LIQUIDATION OF THE PROJECT, AND WERE MADE ONLY AS CONTRACTS FOR SALE WERE MADE WITH PURCHASERS, WE SEE NO BASIS FOR DISAGREEMENT WITH THE ADMINISTRATIVE VIEW THAT THE COMBINING OF REPAIRS TO SEVERAL BUILDINGS INTO SINGLE CONTRACTS MIGHT INVOLVE CONSEQUENCES WHICH WOULD INTERFERE WITH OR UNDULY DELAY THE ORDERLY LIQUIDATION OF THE PROJECT.

THE REPORT SUFFICIENTLY SHOWS A VALID AND REASONABLE BASIS FOR HANDLING EACH BUILDING AS A SEPARATE UNIT, AND DOES NOT FURNISH ANY GROUND FOR CONCLUDING THAT THIS PROCEDURE WAS ADOPTED FOR THE PURPOSE OF CIRCUMVENTING THE STATUTORY LIMITATIONS REFERRED TO. WE ACCORDINGLY FIND NO VIOLATION OF SECTION 3709.

WITHIN THE $1,000 STATUTORY LIMITATION REFERRED TO, IT APPEARS THAT THE ADMINISTRATION HAS PROMULGATED REGULATIONS PRESCRIBING PROCEDURES TO BE FOLLOWED IN THE PROCUREMENT OF REPAIRS, ONE OF WHICH--- PARAGRAPH 1725C, PROPERTY MANAGEMENT HANDBOOK--- IN EFFECT AUTHORIZES INFORMAL NEGOTIATION OF CONTRACTS UNDER $500, BUT REQUIRES THE COGNIZANT FIELD OFFICE TO CONDUCT COMPETITIVE BIDDING ON CONTRACTS IN EXCESS OF $500 AND NOT OVER $1,000. IN EXPLANATION OF THE GENERAL PRINCIPLES TO BE FOLLOWED IN DETERMINING THE EXTENT TO WHICH REPAIRS MAY BE DIVIDED FOR CONTRACTING PURPOSES, PARAGRAPH 1725A STATES AS FOLLOWS:

"* * * COMPLIANCE WITH THE LAW DOES NOT PERMIT THE UNNATURAL DIVISION OF A REPAIR PROGRAM INTO SEVERAL OPERATIONS UNDER CONTRACTS WITH SEVERAL SUPPLIES, OR UNDER CONTRACTS WITH THE SAME SUPPLIER AT DIFFERENT DATES, AS A MEANS OF CIRCUMVENTION; NOR DOES IT CONDONE THE SUBTERFUGE OF SEPARATING ITEMS WHICH BY CUSTOM, TIMING OR BOTH ARE RELATED AND SHOULD BE COMBINED INTO A SINGLE CONTRACT. BY THE SAME REASONING COMPLIANCE WITH THE LAW DOES NOT COMPEL THE CONSOLIDATION INTO A SINGLE CONTRACT OF TWO OR MORE SPECIALIZED REPAIR OPERATIONS WHICH COULD BE ACCOMPLISHED MORE EFFICIENTLY BY SEPARATION, NOR IS IT CONTEMPLATED THAT ITEMS INVOLVING FUTURE NEEDS WILL BE PROVIDED FOR BY CONSOLIDATION INTO A SINGLE CONTRACT EXCEPT TO THE EXTENT THAT SUCH FUTURE NEEDS MAY BE DETERMINED UPON BY REASONABLE FORESIGHT AND PLANNING. CERTAIN ITEMS OF RECONDITIONING, OR REPAIR, OR IMPROVEMENT, TEND TO BE RELATED BY THEIR NATURE, SUCH AS ALL FORMS OF DECORATIVE WORK BOTH EXTERIOR OR INTERIOR. BUT SUCH CLOSELY ASSOCIATED OPERATIONS MAY BE COMPLETELY DISASSOCIATED AND LOSE RELATIONSHIP, FOR EXAMPLE, IN AN AREA WHERE ALL FLOOR FINISHING OPERATIONS ARE CUSTOMARILY HANDLED BY CONTRACT WITH FIRMS SPECIALIZING IN THIS WORK. OR IN ANY AREA THE RELATIONSHIP MAY BE LOST THROUGH THE NECESSITIES OF TIMING WHEN, FOR EXAMPLE, IT MIGHT BE FOUND ADVISABLE TO COMPLETE EXTERIOR PAINTING AND TO DEFER THE INTERIOR WORK UNTIL VACATED. OR, IN TREATING WITH SEVERAL PROPERTIES IN THE SAME COMMUNITY (WHETHER A PROJECT OPERATION OR NOT), THE NEED FOR CARPENTRY REPAIRS AS TO ALL OR SEVERAL OF THE PROPERTIES MIGHT BE SIMULTANEOUSLY APPARENT TO THE DEGREE THAT SUCH REPAIRS SHOULD BE TREATED WITH AS RELATED AND UNDER A SINGLE CONTRACT, BUT THE NECESSITY FOR REPLACING COOKING RANGES, OR HOT WATER HEATERS MIGHT APPEAR SO INTERMITTENTLY THAT THE ITEMS COULD NOT BE RELATED AND TREATED WITH UNDER A SINGLE CONTRACT EVEN THOUGH THE EQUIPMENT TO BE PURCHASED IS IDENTICAL.'

WHILE THIS STATEMENT ON ITS FACE WOULD APPEAR TO JUSTIFY THE NEGOTIATION OF SEPARATE CONTRACTS WITH MR. CHART ON ON EACH BUILDING, ONE FOR PAINTING AND DECORATING, AND ONE FOR FLOOR FINISHING, IT MIGHT BE OPEN TO QUESTION WHETHER THE ITEM OF INSTALLING VENETIAN BLINDS SHOULD NOT MORE PROPERLY HAVE BEEN INCLUDED IN THE PAINTING AND DECORATING CONTRACT RATHER THAN THAT FOR FLOOR FINISHING. IT ALSO SEEMS DUBIOUS WHETHER IT WAS INTENDED TO AUTHORIZE THE INFORMAL NEGOTIATION OF SEPARATE CONTRACTS, EVEN FOR WORK OF CLEARLY UNRELATED KINDS, WITH THE SAME CONTRACTOR, WHERE THE AGGREGATE AMOUNT WOULD EXCEED THE $500 LIMITATION PRESCRIBED BY THE ADMINISTRATIVE REGULATION. HOWEVER, THE MATTERS INVOLVED IN THIS INSTANCE HAVE BEEN REVIEWED BY THE DIRECTOR OF THE PROPERTY MANAGEMENT DIVISION, AND HE HAS STATED HIS CONCLUSION "THAT IN THE NEGOTIATION OF THE WORK COVERED BY THESE VOUCHERS, THERE HAD BEEN ADEQUATE COMPLIANCE WITH PERTINENT REGULATIONS.' IN VIEW OF HIS DETERMINATION, AND OF THE FACT THAT THE $500 LIMITATION IS A PURELY ADMINISTRATIVE REQUIREMENT RATHER THAN ONE IMPOSED BY STATUTE, WE WILL NOT QUESTION THE PROPRIETY OF THE CERTIFICATION AND PAYMENT OF THE VOUCHERS SUBMITTED, WHICH ARE RETURNED HEREWITH, WITH THE PAPERS ATTACHED.