Content Header Image

PBCA Update: Court of Appeals Rules Against HUD

by Published On: Jul 01, 2011Updated On: Mar 26, 2014

On March 25, the U.S. Court of Appeals for the Federal Circuit ruled against the U.S. Department of Housing and Urban Development (HUD) in the lawsuit on the Performance-Based Contract Administration (PBCA) case. 

HUD has yet to issue a public statement of its intentions moving forward. 

For now, all existing PBCAs (the 42 and the 11) will remain in place.  

The U.S. Court of Appeals for the Federal Circuit reversed the earlier decision by the U.S. Court of Federal Claims. 

The Court of Appeals agreed with the Appellants that the PBCA Annual Contributions Contracts (ACCs) are procurement contracts and not cooperative agreements because the ACCs' primary purpose is to hire PBCAs to support HUD staff and provide assistance with the oversight and monitoring of Section 8 housing assistance. 

The Court of Appeals did not address the Appellants' argument that the NOFA's provision giving priority to in-state applications is arbitrary and capricious under the Administrative Procedure Act (APA).

Details from the PBCA Court Ruling

The Court of Appeals found that the PBCA ACCs should be awarded through procurement contracts because the ACCs' primary purpose is to hire PBCAs to support HUD staff and provide assistance with the oversight and monitoring of Section 8 housing assistance.  

The court cites as evidence HUD's stated intentions in creating the PBCA program in 1999, as well as more recent HUD statements describing how PBCAs have helped the Department reduce improper payments and improve efficiency. The Court rejected HUD's argument that it was appropriate to use a Notice of Funding Availability and cooperative agreement for the PBCA contracts.

The Court of Appeals decision concludes that because the ACCs are procurement contracts and because HUD did not comply with federal procurement law, the decision of the Court of Federal Claims must be reversed and remanded.  

The Court of Appeals does not address the Appellants' argument that the NOFA's provision giving priority to in-state applications is arbitrary and capricious under the Administrative Procedure Act (APA). 

Stakeholders are awaiting word from HUD on how the agency plans to respond and whether the U.S. Department of Justice plans any further action.  

At earlier public forums, including the LeadingAge annual conference in Dallas, HUD officials indicated that if the Court of Appeals were to rule in favor of procurement, the department would likely extend existing PBCA contracts for 18-24 months while it developed a procurement tool.  

Background (past updates)

U.S. Court Ruling Still Pending: HUD Extends ALL PBCA Contracts for 6 Months,  Moratorium Against PBCA-Initiated MORs Continues

In October 2013, despite the government shutdown going on at the time, the U.S. Court of appeals held a hearing on PBCA issue. A ruling was expected in December. At this time, however, no decision has been issued and it is unclear when one will be forthcoming.

In late February, HUD extended all existing PBCA contracts and obligations  (for the 42 contested states as well as the 11 uncontested ones) through June. Despite HUD's growing concern over the extended gap since the last MOR, there is no mechanism in the current 42 states contracts to reinstate them as previously articulated.  

Therefore, no MORs will be performed by PBCAs in the 42 contested states.  A recent memo from HUD field office contract administration oversight monitors (CAOMs) to PBCA's in their area reiterated the prohibition on such a practice. Even voluntary pre-MORs should not be conducted at this time.

However, MORs are still being conducted in the 11 states not being contested in court, and HUD itself can conduct an MOR at any time, in all states and territories.

Plaintiffs Cases Heard in U.S. Court of Appeals

On August 27, 2013, the United States Court of Appeals granted the Plaintiff-Appellants' motion for a stay pending appeal. Thus, HUD may not execute the new ACCs until the case is resolved. And, no transition activities should occur until further notice.

This means that previously announced plans regarding new awardees and contracts are suspended for now. Additional information will be provided as soon as it is available.

A preliminary hearing is schedule for Oct. 10, 2013. HUD is posting updates on PBCA NOFA.

2012 NOFA Awardee Transition Activity; New Contracts Intended to Take Effect Nationwide January 2014 Now Suspended

As previously announced, on Aug. 6, 2013, HUD posted the list of awardees from the latest Performance Based Contract Administration (PBCA) Notice of Funding Availability (NOFA). And, HUD posted revisions (dated July 30, 2013) to the original PBCA transition guidebook.

The plan was that, beginning January 2014, all contracts for the new 42 state AND the existing 11-state PBCAs (which were not contested under the NOFA and will not change this time either) would follow the NOFA risk-based model of Management Occupancy Reviews.

Any changes that would have occurred,  including the status/timing of new 2-year contracts (initially planned to take effect starting Jan. 1, 2014) are now called into question, pending resolution of the latest appeal.  

For the time being, all current PBCAs (both the 42 states being contested, and the 11 non-contested) continue to be provided 3-mos contract extensions.  

Management Occupancy Review Schedule

Though the most recent MORs in the contested 42 states are several years old now, HUD does not plan to have new inspections conducted to establish a new baseline. Instead HUD has indicated it will keep to the “risk based” management reviews schedule, which means:

  • All properties that last received “below average” or “substandard” shall be inspected annually.
  • Those that most recently scored a “satisfactory” shall be visited once within the initial 2-year total ACC term.
  • Sites that last received “Above Average” or “Superior” shall not be reviewed during the initial 2 year term.

One major exception, however, is that all Mark-to-Market Projects with PBCA Administered HAP Contracts must still be inspected annually.

HUD has posted information regarding current/latest MOR ratings as follows:

  • MOR Ratings for Projects (Excel: sorted by state, this list does include Mark-to-Market Projects: Options 1, 2, 3a and 4) as of June 4, 2012. The following States have been updated: DE, NC, NJ, PA, SC and WV.
  • Mark-to-Market Projects (Excel: sorted by state: Options 3b) updated June 4, 2012. The following States have been updated: DE, NC, NJ, PA, SC and WV.

Historical Timeline

After the 2011 notice of funding availability (NOFA) to solicit bids for performance-based contract administrators (PBCA) contracts was completed, several PBCAs brought a lawsuit against HUD, claiming that the NOFA was not an appropriate vehicle for awarding PBCA contracts.

On April 19, 2013 the U.S. Court of Federal Claims ruled in favor of HUD, upholding its authority to use the NOFA process to select PBCAs. But on May 10, 2013, another appeal was jointly filed by 9 contract administrators.  

And, on June 6, 2013, HUD posted the following statement to the PBCA website: 

"Unless we are prohibited from doing so by the United States Court of Appeals for the Federal Circuit, HUD intends to announce the selection of PBCAs pursuant to the NOFA on August 1, 2013."

In the meantime, contract administration works continued on the same restricted (no MORs) basis under a series of 3-month contract extensions.

The U.S. Court of Federal Claims in Washington, DC, heard additional oral arguments on Feb. 19 about HUD’s use of a NOFA to select PBCA and HUD’s restriction against out-of-state applicants in states where qualified in-state applicants submitted bids.

The judge, Thomas Wheeler, who had previously indicated he expected to decide the case at that time, or by the end of the month, instead requested additional information from all parties and conducted a thorough review of all arguments and what the court itself described as a "morass of arcane housing assistance statutes and regulations."

Although HUD has indicated in several public forums recently that it is ready to announce the successful PBCA bidders, at least 1 of the initial plaintiffs has filed an “emergency” motion for clarification and a request for a stay pending clarification or the outcome of its appeal, so the ultimate outcome is not yet clear.

In the meantime, HUD continues to extend the existing PBCA contracts in 3 month increments. Depending on the end result, HUD may be forced to recompete the contracts altogether, though this is looking increasingly less likely.

Here is what HUD posted on its PBCA website in the interim:

Litigation had been filed in the Court of Federal Claims seeking to enjoin HUD from proceeding with the PBCA NOFA. HUD agreed not to proceed with making the awards until the Court ruled on the matter. A decision was expected to be reached by or before February 22, 2013. Although the court had originally indicated that it would provide a verbal ruling at yesterday’s hearing (February 19, 2013), due to the complexity of the program and issues involved, the court requested more time to consider the arguments. Because the current PBCA contracts have been extended through June 2013, the court stated that it would make a decision before the end of June. The court has also reserved the right to call parties back for a supplemental briefings, though it did not set a definite schedule. The cases have been consolidated under docket number: Fed Cl no. 12-852C.

At recent public meetings, HUD stated that they are prepared (depending on the court ruling), to go forward with public announcement of the PBCA awards as early as September, which would mean a transition period from October to December, and formal commencement of the new 2-year only contracts starting Jan 1,2014. 

While LeadingAge has no particular position or preference in the resolution of this issue, we have repeatedly reached out to HUD staff to urge careful coordination of transition timing, with particular consideration of such things as: 

  • The need for a smooth data transition (and expected implementation of the 202D TRACS changes).
  • Minimized opportunity for funding gaps (given the likelihood of another continuing resolution).
  • Staffing considerations for all stakeholders given the end-of-the-year holidays.

The bottom line, for now, is that owners/agents will continue sending tenant certifications and rental subsidy vouchers as they have been, until they are told to change, and management occupancy review (MOR) activity by the PBCAs remains completely suspended.

Whatever may happen, HUD has expressed an urgent desire to have PBCA's resume Management Occupancy Reviews once new contracts are issued and indicated that they will be conducted according to the risk-based proposal in the NOFA, and based off the last management occupancy review (MOR) scores. 

Background on Performance-Based Contract Administrators Awards Solicitation in 2012, and Earlier

What began in July 2011 continues to be unresolved.  

The U.S. Department of Housing and Urban Development (HUD) was expected to announce 42 state PBCA notice of funding availability (NOFA) awards on Dec. 14, 2012, but due to lawsuits filed in the U.S. Court of Federal Claims by 5 plaintiffs just days prior.

The plaintiffs, many of which filed protests earlier with the Government Accountability Office (GAO), were successful in getting an injunction on HUD's announcing awards under the NOFA and HUD agreed to refrain from implementing any awards, even in those states where HUD received only 1 application and were not contested in the lawsuit.   

These states were: 

  • Arizona
  • Idaho
  • Kansas
  • Kentucky
  • New Mexico
  • Oklahoma
  • Oregon
  • South Carolina

Background on the GAO protest regarding the NOFA

On March 10, 2012, HUD posted the NOFA to restart the competition for the awarding of the outstanding 42 contracts for administration of the project-based Section 8 program.

The NOFA and the new contract reflect a number of significant changes in the manner of selection and the content of expected work, now called “performance-based tasks (PBT).” Among the most significant, in-state applicants will have a distinct advantage over potential out-of-state applicants; and management reviews will no longer be required annually.

Contrasting this NOFA with the contract offered as part of the earlier 2011 procurement process, the main changes are:

  • Introduction of “risk based” management reviews (essentially a tiered process, so that properties with “above average” or “superior” scores the last time they were visited will not have to be visited every year).

  • Reduction in the cap on allowable administrative fees (2011 procurement bids could seek no more than a 2.5% profit margin; this NOFA caps the fee at no more than 2% - and the selection process scoring will awards more points for those willing/able to do the work for less).

  • A preference for applications of in-state entities such that, if there is an eligible applicant from a given state, no out-of-state applicant will be considered; but if no in-state application is made, out-of-state (but still eligible) entities will be considered.

  • Significant changes in the scoring methodology for review of the applications.

There is also a summary of highlights and the latest Q&A document.

Over the summer of 2012, a number of entities filed protests with the GAO as much because of the form of the NOFA as for the restrictions on competition (across state lines) that came along with it.

Applications to be considered for the PBCA program were due June 11. You can check out the full details, including the contract, NOFA and state attorneys general opinions on prior actions.

In August of 2012, the GAO issued a decision that HUD's use of a NOFA to obtain bids for contracts in 42 states was improper and recommended that HUD cancel the NOFA and solicit the contract administration services for the Project-Based Section 8 rental assistance program through a procurement instrument.  Such an action would mean, effectively, a third competition for awards in the contested 42 states.

Though HUD was allowed up to 60 days to advise the GAO whether it will follow the recommendation, HUD advised the GAO in October that it was "still in the process of assessing the [r]ecommendations" of the GAO decision, and on December 3, HUD informed the GAO that is "had decided to move forward with the [NOFA] awards."   

At that time, an orderly timeline for implementation was proposed - but ultimately not carried out.  

PBCA NOFA Timeline for 2012 

  • Published NOFA March 9. 
  • Application Deadline June 11 (initially April 10, changed March 15/6).
  • Award Announcements August 31. 
  • PBCA Transition period September 1 - November 30. 
  • Interim ACC’s will expire September 30. 
  • Interim ACC’s will extend October 1 – November 30. 
  • Effective date of new ACC’s December 1. 

PBCA Contract/Rebid Activity in 2011

The U.S. Department of Housing and Urban Development (HUD) announced July 1, 2011, its selections for the new PBCAs, who were expected to perform Section 8 contract administration duties under a new contract to take effect on Oct. 1, 2011.

HUD received and reviewed a total of 130 applications for the 53 contracts under consideration nation-wide:

 

In August of 2011, HUD withdrew 42 previously announced awards of new performance-based contracts and stated that HUD would re-compete them again shortly under a new NOFA.

Six-month extensions were offered to current contract administrators in the interim.On Aug. 10, the HUD explained that it is withdrawing 42 previously announced awards for new PBCA contracts due to “the large number of protests” filed at the GAO on the awarding of the contracts

HUD said it had plans to re-compete the contracts again shortly under a new notice of funding availability (NOFA), which it hoped to issue within 60 days.

Implementation of New Contracts in 11 Jurisdictions

Implementation of new contracts did move forward in the 9 uncontested states and 2 territories in 2011.  These jurisdictions had only 1 applicant and had no protests were filed. The new contracts became effective Oct. 1, 2011 in:

  • Iowa
  • Maine
  • Minnesota
  • Montana
  • New Hampshire
  • North Dakota
  • South Dakota
  • Vermont
  • Wyoming
  • Puerto Rico
  • The U.S. Virgin Islands

With the exception of the Virgin Islands, which did not previously have a PBCA, this involved no change in selected PBCAs.

PBCA Transition Guidebook

As proposed back in 2011, and continuing now, should future changes occur, HUD has indicated it will stick to the planned 3-month transition period.   Full details are provided in the stakeholder recommendations that were compiled into a PBCA Transition Guidebook, which includes what to expect in terms of communications from new PBCAs to owners, to residents, what steps will be taken to transition work in progress related to management reviews, subsidy payments, contract renewals and more.

[NOTE: All HUD properties with Section 8 rental assistance contracts are impacted, including all Section 202 and Section 208s.  HOWEVER, Section 202/PRAC and Section 811 PRAC properties are not involved in this Section 8 contract administration/rebid initiative. As has been the case with PRAC programs and other non-Section 8 issues, the HUD field offices will continue to do the daily operational oversight including budget and management reviews, subsidy payment authorization, etc.]

 



comments powered by Disqus