The Puerto Rico Department of Housing’s Contracting Method for Program Management Services for the R3 program

We audited the Puerto Rico Department of Housing’s (PRDOH) Home Repair, Reconstruction, or Relocation (R3) program. We initiated this audit as part of our commitment to helping the U.S. Department of Housing and Urban Development (HUD) support effectiveness and accountability in long-term disaster recovery. Our objective was to determine whether PRDOH followed applicable program requirements when spending R3 program funds. During our audit of PRDOH’s R3 program funds, we determined that PRDOH generally followed applicable program requirements; however, we identified four contracts where PRDOH may have used the prohibited cost plus a percentage of cost (CPPC) contracting method to acquire program management services. Specifically, there were multiple indicators that all four of its program management services contracts could be considered CPPC contracts. PRDOH itself was concerned that these agreements were prohibited CPPC contracts and amended three of the contracts “in order to clarify that the agreement is not a ‘cost-plus-percentage-of-cost’ contract.” However, we believed that the amendments did not completely remove the question of whether these agreements violate the CPPC contracting prohibition. At our request, HUD obtained a legal opinion from its Office of General Counsel which opined that the contracts in question did not constitute a CPPC contract. This report contains no recommendations. However, we are troubled by the manner in which PRDOH handled these four contracts, especially in their formation and administration prior to HUD’s 2019 monitoring review. We believe additional monitoring of PRDOH’s contracting actions is prudent to ensure they are compliant with HUD requirements.