Single-Family Housing:

Improvements Needed in HUD's Oversight of Property Management Contractors

RCED-98-65: Published: Mar 27, 1998. Publicly Released: Apr 1, 1998.

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Pursuant to a congressional request, GAO reviewed: (1) whether the Department of Housing and Urban Development (HUD) is ensuring that real estate asset management contractors meet their contractual obligations; and (2) what actions HUD has planned or under way to change its handling and disposition of the single-family properties in inventory.

GAO noted that: (1) HUD does not have an adequate system in place to assess oversight of real estate asset management contractors, and the three HUD field offices that GAO visited varied greatly in their efforts to monitor these contractors' performance; (2) none of the offices adequately performed all of the functions needed to ensure that the contractors meet their contractual obligations to maintain and protect HUD-owned properties; (3) GAO's physical inspection of properties for which the contractors in each location were responsible identified serious problems, including vandalism, maintenance problems, and safety hazards; (4) these included such things as broken windows, graffiti, leaking roofs, and broken steps; (5) these conditions may decrease the marketability of HUD's properties; decrease the value of surrounding homes; increase HUD's holding costs; and, in some cases, threaten the health and safety of neighbors and potential buyers; (6) in connection with HUD's plans to reduce staff by about 29 percent by the year 2002, HUD's single-family property disposition operations, including the real estate asset management function, are in a period of transition; (7) these changes are closely linked to HUD's agencywide 2020 Management Reform Plan; (8) they include: (a) a reduction in property disposition staff and the consolidation of all field offices' single-family housing operations into four homeownership centers; (b) plans to sell the rights to properties before they are assigned to HUD's property disposition inventory so that they can be quickly disposed of once they become available; and (c) to some degree, the use of contracts similar to a pilot program started in September 1996 to test the approach of contracting out all marketing and management functions associated with acquired properties; and (9) while HUD envisions that these changes will eventually limit the need for real estate asset management contractors' services, there will continue to be properties in need of such services for the foreseeable future, even if on a smaller scale.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: In response to the widespread problems with the maintenance of single-family properties in its inventory that GAO and the HUD Office of Inspector General identified, HUD began contracting out the management and marketing of its single family properties in March 1999. The contractors are responsible for inspecting, appraising, securing, maintaining, and selling the properties. HUD also established a new system for monitoring the performance of the management and marketing contractors. Under the system, staff in HUD's Homeownership Centers are responsible for managing and conducting the monitoring process and preparing monthly reports on contractors' performance. Among other things, the system requires that the physical condition of 10 percent of all properties in the inventory be inspected on a monthly basis; 10 percent of contractor case files be audited on a monthly basis; contractor assessment reports be prepared for each contract area, and monthly performance reviews be held with contractors to assess critical performance measures, identify deficiencies and direct corrective actions. Such actions are consistent with the recommendation and have increased HUD's ability to detect problems with contractor performance. However, in a subsequent report, Single Family Housing: Stronger Measures Needed to Encourage Better Performance By Management and Marketing Contractors (GAO/RCED-00-117), GAO noted that improvements are needed in the mix of incentives and penalties HUD uses to ensure that contractors comply with contract requirements.

    Recommendation: So long as contractors are involved in providing asset management services for properties in HUD's single-family inventory, the Secretary of Housing and Urban Development should establish a process for monitoring the administration of such contracts at field offices and homeownership centers. This process should include controls sufficient to ensure that these field locations consistently implement HUD's guidance and effectively oversee contractors' performance. Specifically, these controls should require that: (1) field locations complete performance evaluations of contractors (using the standard monitoring guide in HUD's Property Disposition Handbook) prior to renewing contracts and communicate the results of these evaluations to the contractors in writing in a timely manner; (2) field location program offices maintain files on contractors' performance; (3) HUD staff or contractors hired to perform monitoring duties conduct monthly on-site inspections of a sample of properties in inventory; (4) contracts contain clear and consistent requirements on when contractors' routine inspection reports must be submitted to HUD for review; (5) HUD staff ensure that real estate asset management contractors notify HUD of deteriorated or hazardous conditions at custodial properties; and (6) HUD headquarters obtain sufficient information to monitor homeownership centers' and field offices' administration of the contracts.

    Agency Affected: Department of Housing and Urban Development


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