GAO Says HUD Deals Wrongly Ignored Pandemic's Impact

By Daniel Wilson
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Law360 (October 27, 2020, 7:45 PM EDT) -- The Government Accountability Office has backed three protests over U.S. Department of Housing and Urban Development contracts to manage and sell foreclosed properties, saying the agency should have taken the impact of COVID-19 into account.

HUD should have adjusted its solicitation for "asset management" contracts to account for market, policy and statutory changes related to the coronavirus pandemic and asked for new proposals instead of pushing forward with its original plan, the GAO said in an Oct. 1 decision released Monday, sustaining protests by Chronos Solutions LLC, Inside Realty LLC and BLB Resources Inc.

"In our view, the changing circumstances resulting from the COVID‑19 pandemic, as evidenced in part by the enactment of the CARES Act and HUD's own policies on the single-family mortgage insurance program, represent a material departure from the assumptions set forth in the solicitation," the GAO said. "These circumstances should have prompted the agency to make a reasonable effort to reconsider its needs and estimates."

HUD, under the Federal Housing Administration's mortgage insurance program, holds an inventory of houses at any given time that have been foreclosed on and conveyed to the agency after it pays out to the lender, according to the decision.

It uses contractors to manage and sell those properties, and issued a procurement in June 2019 for those services, split across 11 geographic regions. The contract for each region had a ceiling ranging from $39 million to $141 million, and would run for up to five years, the GAO said.

After HUD was hit with a protest over setting aside several regions for small businesses, it took corrective action, finalizing a market research report regarding the availability of small-business contractors on March 19, according to the watchdog.

Before it could amend the solicitation, Congress passed the Coronavirus Aid, Relief and Economic Security on March 27, which forbid foreclosures and related evictions on properties with federally insured mortgages for 60 days, and mandated up to 360 days of mortgage forbearance for those facing financial hardship. HUD itself also announced mortgage payment relief options for people with federally insured mortgages on April 1, beyond those included in the CARES Act.

But HUD in its April 27 amended solicitation, although changing all contracts to small-business set-aside deals, otherwise made few changes and did not mention COVID-19 or any related policy, the GAO said. Chronos, Inside Realty and BLB protested, arguing that the amended deal no longer accurately reflected HUD's needs.

There would likely be a reduced number of properties to be managed or sold during the forbearance period mandated by the CARES Act, and then a significant increase in foreclosures once that period expires, as occurs during every economic downturn, the companies said.

Among other issues, that made it unlikely that small businesses would be able to handle the heavy volume of work that would likely follow the end of the forbearance period, Chronos and BLB said in their protests.

HUD argued that it was not required to consider COVID-19-related changes when amending the solicitation and that any future fluctuation in the volume of work was speculative, with the indefinite-delivery, indefinite-quantity, or IDIQ, nature of the contracts able to account for that fluctuation anyway, according to the decision.

But although IDIQ contracts allow for some flexibility when an agency can't predict its exact needs, they still have to have minimums and maximums that are "realistic and based on the most current information available," allowing bidders to appropriately calculate risks "and compete on a reasonable basis," the GAO said.

That means that when requirements change significantly before a contract is awarded, the agency needs to amend its solicitation and give bidders a chance to submit revised proposals, according to the GAO.

And the passage of the CARES Act, HUD's own mortgage relief program, and changing economic conditions related to COVID-19 were all significant changes "directly applicable to the program under this procurement," the GAO said.

The GAO recommended that HUD reconsider its needs based on those changes, including whether a small-business set-aside program is still appropriate in the circumstances.

Representatives for HUD and for the protesters did not immediately respond to requests for comment Tuesday.

GAO attorneys April Y. Shields and Christina Sklarew participated in the preparation of the decision.

Chronos is represented by Justin A. Chiarodo, Stephanie M. Harden and Michael J. Montalbano of Blank Rome LLP

Inside Realty is represented by David S. Cohen, John J. O'Brien and Daniel J. Strouse of Cordatis LLP.

BLB is represented by Matthew T. Schoonover and John M. Mattox II of Schoonover & Moriarty LLC.

HUD is represented by in-house counsel Jonathan E. English, William J. Selinger and Julie K. Cannatti.

The case is Matter of: Chronos Solutions LLC; Inside Realty LLC; BLB Resources Inc., file numbers B-417870.2 through B-417870.4, before the U.S. Government Accountability Office.

--Editing by Aaron Pelc.

For a reprint of this article, please contact reprints@law360.com.

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