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HUD Procurement Handbook 7460.8 REV 2
This handbook is originally from the U.S. Department of Housing and Urban Development (HUD)

                                                      Handbook No. 7460.8 REV 2


10.1 Contract Pricing and Types

This chapter includes miscellaneous procurement requirements.  

	A.	General Guidance.  A wide selection of contract types is available 
	to PHAs to provide needed flexibility in acquiring supplies and services.  

		1.	Contract types vary according to:  (a) the degree and 
			timing of the responsibility assumed by the contractor 
			for the costs of performance; and (b) the amount and 
			nature of the profit incentive offered to the 
			contractor for achieving or exceeding specified 
			standards or goals.

		2.	The contract types are grouped into two broad 
			categories: fixed-price contracts and 
			cost-reimbursement contracts.  The specific contract 
			types range from firm-fixed-price, in which the 
			contractor has full responsibility for the 
			performance costs and resulting profit (or loss), to 
			cost-plus-fixed-fee, in which the contractor has 
			minimal responsibility for the performance costs and 
			the negotiated fee (profit) is fixed.  In between are 
			the various incentive contracts, in which the 
			contractor’s responsibility for the performance costs 
			and the profit or fee incentives offered are tailored 
			to the uncertainties involved in contract performance.

		3.	Contracts resulting from sealed bidding shall be 
			firm-fixed-price contracts or fixed-price contracts 
			with economic price adjustment.

		4.	Contracts resulting from competitive proposals may be 
			of any type or combination of types. 

		5.	In accordance with 24 CFR 85.36(f)(4), the use of the 
			following types of contracts is prohibited:

			a.	Cost-plus-percentage-of-cost.  This type of 
			contract is prohibited because it obligates the 
			PHA to pay all costs incurred throughout the 
			contract, plus a commission based on the 
			percentage of future costs. In this type of 
			pricing arrangement, the contractor’s profit 
			increases in proportion to its costs incurred in 
			the performance of the contract.  The contractor 
			has a clear incentive to increase costs.

			b.	Cost-plus-percentage-of-construction-cost.  The 
			cost for individual construction-related services is 
			determined by applying a percentage of actual 
			construction costs as a fee, such as an A/E contract 
			in which the fee is determined based on the total 
			construction cost.  Such an arrangement allows the 
			possibility of the contractor designing an overly 
			expensive construction project in order to increase 



                                                          Handbook No. 7460.8 REV 2
	B.	Selecting Contract Type.  There are many factors that the 
		Contracting Officer should consider in selecting and when 
		appropriate (e.g., using competitive proposals), 
		negotiating the contract type.  They include:

		1. 	Price competition.  Normally, effective price competition 
			results in realistic pricing, and a fixed-price contract 
			is ordinarily in the PHA’s interest. 

		2.	Price analysis.  Price analysis, with or without 
			competition, may provide a basis for selecting the 
			contract type.  The degree to which price analysis can 
			provide a realistic pricing standard should be carefully 

		3.	Cost analysis.  In the absence of effective price 
			competition and if price analysis is not sufficient, the 
			cost estimates of the offeror and the PHA provide the 
			bases for negotiating contract pricing arrangements.  It 
			is essential that the uncertainties involved in performance 
			and their possible impact upon costs be identified and 
			evaluated, so that a contract type that places a reasonable 
			degree of cost responsibility upon the contractor can be 

		4.	Type and complexity of the requirement.  Complex 
			requirements, particularly those unique to the PHA, usually 
			result in greater risk assumption by the PHA.  This 
			situation is especially true for complex development 
			contracts, when performance uncertainties or the likelihood 
			of changes makes it difficult to estimate performance costs 
			in advance.  As a requirement recurs or as quantity 
			production begins, the cost risk should shift to the 
			contractor, and a fixed-price contract should be 

		5.	Urgency of the requirement.  If urgency is a primary factor, 
			the PHA may choose to assume a greater proportion of risk 
			or it may offer incentives to ensure timely contract 

		6.	Period of performance.  In times of economic uncertainty, 
			contracts extending over a relatively long period may 
			require economic price adjustment terms.

		7.	Contractor’s technical capability and financial 

		8.	Adequacy of the contractor’s accounting system.  Before 
			agreeing on a contract type other than firm-fixed-price, 
			the Contracting Officer should ensure that the contractor’s 
			accounting system will permit timely development of all 
			necessary cost data in the form required by the proposed
			contract type.  This factor may be critical when the 
			contract type requires price revision while performance 
			is in progress, or when a cost-reimbursement contract is 
			being considered and all current or past experience with 
			the contractor has been on a fixed-price basis.

		9.	Concurrent contracts.  If performance under the proposed 
			contract involves concurrent operations under other 
			contracts, the impact of                                                          



                                                          Handbook No. 7460.8 REV 2 
			those contracts, including their pricing arrangements, 
			should be considered.
		10.	Extent and nature of proposed subcontracting.  If the 
			contractor proposes extensive subcontracting, a contract 
			type reflecting the actual risks to the prime contractor 
			should be selected.

		11.	Procurement history.  Contractor risk usually decreases as 
			the requirement is repetitively acquired.  Also, product 
			descriptions or descriptions of services to be performed 
			can be defined more clearly. 

	C.	Contract Types

		The following types are the most commonly used by PHAs.  They are 
		ranked in order of risk to the PHA, from lowest to highest.  Other 
		types and variations on these types may be used as appropriate in 
		accordance with the limitations set forth in this section 10.3.

		1.	Fixed-Price.  Fixed-price types of contracts provide for a 
			firm price or, in appropriate cases, an adjustable price. 
			Fixed-price contracts providing for an adjustable price may 
			include a ceiling price, a target price (including target 
			cost), or both. Unless otherwise specified in the contract, 
			the ceiling price or target price is subject to adjustment 
			only by operation of contract clauses providing for 
			equitable adjustment or other revision of the contract 
			price under stated circumstances.

			a.    Firm fixed-price. This contract type requires the 
			      delivery of products or services at a specified 
			      price, fixed at the time of contract award and not 
			      subject to any adjustment on the basis of the 
			      contractor’s cost experience in performing the 
			      contract.  It is appropriate for use when fair and 
			      reasonable prices can be established at time of 
			      award, definite design or performance specifications 
			      are available, products are off-the-shelf or 
			      modified commercial products or services for which 
			      realistic prices can be offered, and any performance 
			      uncertainties can be identified and reasonable cost 
			      estimated in advance.  Its advantages are that it 
			      encourages contractor efficiency and places total 
			      responsibility and risk on the contractor.  Its 
			      disadvantages are that it lacks flexibility in 
			      pricing and performance.  It is the most preferred 
			      type of contract and the most commonly used, 
			      requiring the least amount of contract 
			      administration.  However, as discussed below under 
			      other types, it is not always possible to use firm 
			      fixed-price contracts.
			b.    Fixed-price with economic price adjustment.  In 
			      cases where the market for a particular supply or 
			      service is especially volatile, and the PHA needs a 
			      contract for a term greater than just an initial 
			      quantity, this contract type allows for adjustment in 
			      the contract price based upon the occurrence of 



                                                          Handbook No. 7460.8 REV 2
			      contingencies stated in the contract (e.g., changes 
			      in market conditions, the Consumer Price Index, or 
			      other commodity price indices that are not 
			      controlled by the contractor).  The contract 
			      contains initial firm fixed prices that may be 
			      adjusted upward or downward during the performance 
			      period.  The contract must contain a clause 
			      explaining how the price adjustment will be made, 
			      identifying the price index to be used, the 
			      frequency of adjustment, and any overall ceiling 
			      price.  A fixed-price contract with economic price 
			      adjustment may be used when:
			      i.    There is serious doubt concerning the 
			            stability of market or labor conditions 
			            that will exist during an extended period 
			            of contract performance; and,
			      ii.   Contingencies that would otherwise be 
			            included in the contract price can be 
			            identified and covered separately in the 
			            contract.  Price adjustments based on 
			            established prices should normally be 
			            restricted to industry-wide contingencies.  
			            Price adjustments based on labor and 
			            material costs should be limited to 
			            contingencies beyond the contractor’s 

		2.	Cost-reimbursement.  Cost-reimbursement types of contracts 
			provide for payment of allowable incurred costs, to the 
			extent prescribed in the contract.  These contracts 
			establish an estimate of total cost for the purpose of 
			obligating funds and establishing a ceiling that the 
			contractor may not exceed (except at its own risk) without 
			the approval of the contracting officer.  
			Cost-reimbursement contracts are suitable for use only when 
			uncertainties involved in contract performance do not 
			permit costs to be estimated with sufficient accuracy to 
			use any type of fixed-price contract.  A cost-reimbursement 
			contract may be used only when: the contractor’s accounting 
			system is adequate for determining costs applicable to the 
			contract; and, appropriate surveillance during performance 
			will provide reasonable assurance that efficient methods 
			and effective cost controls are used.

			a.    Cost contract (no fee).  This is a 
			      cost-reimbursement contract under which the 
			      contractor receives no fee.  This type is often 
			      used when contracting with nonprofit 
			      organizations that may not receive any fee or 

			b.    Cost-plus-fixed-fee.  This is a type of 
			      cost-reimbursement contract that provides for payment 
			      to the contractor of a negotiated fee (profit) that 
			      is fixed at the time of contract award.  The fixed 
			      fee does not vary with the contract’s actual costs 
			      (e.g., the contractor will not receive a greater fee 
			      for incurring less                                                           



                                                          Handbook No. 7460.8 REV 2 
			      cost), but may be adjusted as a result of changes in 
			      the work to be performed under the contract (e.g., as 
			      a result of a change order).  This contract type 
			      permits contracting for efforts that might otherwise 
			      present too great a risk to contractors (e.g., there 
			      is a high degree of uncertainty in, or the ultimate 
			      costs of, accomplishing the contract’s requirements).  
			      A cost-plus-fixed-fee contract presents the greatest 
			      risk to the PHA because it provides the contractor 
			      only a minimum incentive to control the costs of 
			      contract performance.  Therefore, it should be used 
			      only when no other type is feasible.  Like all 
			      cost-reimbursement contracts it requires a 
			      significant amount of monitoring by the PHA to ensure 
			      contractor compliance.

			      i.  There are two forms of cost-plus-fixed-fee 

			        (A) The completion form describes the scope 
			            of work by stating a definite goal or 
			            target and specifying an end product. 
			            This form of contract normally requires 
			            the contractor to complete and deliver 
			            the specified end product (e.g., a final 
			            report of research accomplishing the 
			            goal or target) within the estimated 
			            cost, if possible, as a condition for 
			            payment of the entire fixed fee. 

			        (B) The term form describes the scope of work in 
			            general terms and obligates the contractor to 
			            devote a specified level of effort for a stated 
			            time period. Under this form, if the 
			            Contracting Officer considers the contractor’s 
			            performance to be satisfactory, the fixed fee 
			            is payable at the expiration of the agreed-upon 

			      ii. Because of the differences in obligation assumed 
			          by the contractor, the completion form is 
			          preferred over the term form whenever the work, 
			          or specific milestones for the work, can be 
			          defined well enough to permit development of 
			          estimates within which the contractor can be 
			          expected to complete the work.  The term form 
			          should not be used unless the contractor is 
			          obligated by the contract to provide a specific 
			          level of effort within a definite time period.
		3.	Indefinite-delivery contracts

			a.    There are three types of indefinite-delivery 
			      contracts: definite-quantity contracts, 
			      requirements contracts, and indefinite-quantity 
			      contracts.  The appropriate type of 
			      indefinite-delivery contract may be used to 
			      acquire supplies and/or services when the exact                                                                                                                   



                                                          Handbook No. 7460.8 REV 2
			      times and/or exact quantities of future deliveries 
			      are not known at the time of contract award.

			      i.   Definite-quantity contracts provide for 
			           delivery of a definite quantity of specific 
			           supplies or services for a fixed period of 
			           time (e.g., one year), with deliveries or 
			           performance to be scheduled at designated 
			           locations upon order. A definite-quantity 
			           contract may be used when it can be 
			           determined in advance that:

			        (A) A definite quantity of supplies or services 
			            will be required during the contract period; 

			        (B) The supplies or services are regularly 
			            available or will be available after a short 
			            lead time.
			      ii.  Requirements contracts provide for filling 
			           all of the PHA’s purchase requirements for the 
			           supplies or services specified in the contract 
			           during a fixed period of time.  The PHA may 
			           not buy the supplies or services from another 
			           source during the period of the contract.  A 
			           requirements contract may be appropriate for 
			           acquiring any supplies or services when the 
			           PHA anticipates recurring requirements but 
			           cannot predetermine the precise quantities of 
			           supplies or services that it will need during 
			           a definite period.
			      iii. Indefinite-quantity contracts provide for 
			           delivery of an indefinite quantity, within 
			           stated limits (a minimum and maximum quantity), 
			           of supplies or services during a fixed period.  
			           Quantity limits may be stated in the contract 
			           as number of units or as dollar values.  PHAs 
			           may use an indefinite-quantity contract when 
			           they cannot predetermine, above a specified 
			           minimum, the precise quantities of supplies or 
			           services that they will require during the 
			           contract period, and it is inadvisable to 
			           commit itself for more than a minimum quantity.  
			           PHAs should use an indefinite-quantity contract 
			           only when a recurring need is anticipated.

			        (A) The contract must require the PHA to order and 
			            the contractor to furnish at least a stated 
			            minimum quantity of supplies or services. In 
			            addition, if ordered, the contractor must 
			            furnish any additional quantities, not to 
			            exceed the stated maximum.  The Contracting 
			            Officer should establish a reasonable maximum 
			            quantity based on market research, trends on 
			            recent contracts for similar supplies or                                                           



                                                          Handbook No. 7460.8 REV 2   
			            services, survey of potential users, or any 
			            other rational basis.

			        (B) To ensure that the contract is binding, the 
			            minimum quantity must be more than a nominal 
			            quantity, but it should not exceed the amount 
			            that the PHA is fairly certain to order.

			        (C) The contract may also specify maximum or 
			            minimum quantities that the PHA may order under 
			            each task or delivery order and the maximum 
			            that it may order during a specific period of 
			            time.  This ensures that the contractor knows 
			            what the potential maximum number of deliveries 
			            he/she may have to make and allows him/her to 
			            adequately prepare.

			        (D) The solicitation and resulting contract for an 
			            indefinite-quantity contract should:

			          (1) Specify the period of the contract, including 
			              the number of options and the period for 
			              which the PHA may extend the contract under 
			              each option;

			          (2) Specify the total minimum and maximum 
			              quantity of supplies or services the PHA will 
			              acquire under the contract.  This may be 
			              expressed in units (e.g., number of items) 
			              or total dollar amount;

			          (3) Include a statement of work, specifications, 
			              or other description, that reasonably 
			              describes the general scope, nature, 
			              complexity, and purpose of the supplies or 
			              services the PHA will acquire under the 
			              contract in a manner that will enable a 
			              prospective offeror to decide whether to 
			              submit an offer;

			          (4) State the procedures that the PHA will use in 
			              issuing orders, including the ordering media 
			              (fax, email, etc.) and whether oral orders 
			              may be placed; and,

			          (5) Identify the PHA personnel who are authorized 
			              to issue orders.

			b.    Indefinite-delivery contracts: 

			      i.   Specify the prices for the supplies or services, 
			           the period under which the PHA may place orders 



                                                          Handbook No. 7460.8 REV 2
			           the contractor, the ordering procedures, and the 
			           contract terms and conditions that govern the 
			      ii.  Provide for obtaining the supplies or services 
			           when needed by placing orders with the 
			           contractor within the time period stated in the 
			           contract (e.g., one year);  

			      iii. May be awarded using sealed bidding or 
			           competitive proposals as appropriate.  
			           Indefinite-delivery purchase orders should not 
			           be used unless the PHA knows that multiple 
			           orders for items or services will be needed, 
			           and the total amount of all orders will not 
			           exceed the PHA’s small purchase threshold; 

			      iv.  May use any type of pricing arrangement 
			           (e.g., fixed-price) as appropriate to the 
			           supplies and/or services being purchased.

			c.    Orders placed under indefinite-delivery contracts 
			      are not considered purchase orders.  Since the 
			      indefinite-delivery contracts are awarded 
			      competitively, no further competition is required 
			      for individual orders placed under it.

		4.	Time and materials and labor-hour. 

			a.    A time-and-materials contract provides for acquiring 
			      supplies or services on the basis of:

			      i.   Direct labor hours at specified fixed 
			           hourly rates that include wages, overhead, 
			           general and administrative expenses, and 
			           profit; and,

			      ii.  Materials at cost, including, if appropriate, 
			           material handling costs as part of material 
			b.    In accordance with 24 CFR 85.36(b)(10) a 
			      time-and-materials contract may be used only when the 
			      Contracting Officer has determined that no other type 
			      of contract is suitable (i.e., it is not possible at 
			      the time of placing the contract to estimate 
			      accurately the extent or duration of the work or to 
			      anticipate costs with any reasonable degree of 
			      confidence), and the contract includes a ceiling 
			      price that the contractor exceeds at his/her own 
			      risk.  The contracting officer shall document the 
			      contract file to justify the reasons for and amount 
			      of any subsequent change in the ceiling price.



                                                          Handbook No. 7460.8 REV 2   
			c.    A time-and-materials contract provides no positive 
			      profit incentive to the contractor to control cost 
			      or labor use.  The more the contractor’s labor force 
			      works, the more profit the contractor realizes.  
			      Therefore, appropriate PHA surveillance of contractor 
			      performance is required to ensure that efficient 
			      methods and effective cost controls are being used.

			d.    A labor-hour contract is a variation of the 
			      time-and-materials contract.  The only difference is 
			      that the contractor provides only labor and no 

		5.	Letter contract.  A letter contract is a written 
			preliminary contractual instrument that authorizes 
			the contractor to begin immediately performing 
			services or delivering supplies while the contract 
			terms are negotiated.  A letter contract is a form of 
			negotiated contract (i.e., not sealed bidding) and 
			may result in any contract type (e.g., fixed-price, 
			cost-reimbursement, etc.).  It should be used only in 
			exceptional circumstances, and is most appropriate 
			for emergency work, or other urgent and compelling 
			needs.  The single advantage of this method is that 
			it expedites the procurement process.  The contractor 
			may begin performance on urgent requirements before the 
			full requirements of the contract are made final, or 
			“definitized.”  The disadvantage is that it provides no 
			incentive for cost control by the contractor, and the 
			PHA is in a very weak bargaining position at the time 
			the final contract is negotiated.  The contractor is 
			already performing the work, and the work is usually 

			a.    A letter contract may be used when:

			      i.   The PHA’s interests demand that the contractor 
			           be given a binding commitment so that work can 
			           start immediately; and,

			      ii.  Negotiating a definitive contract is not 
			           possible in sufficient time to meet the 
			           requirement. However, a letter contract should 
			           be as complete and definite as feasible under 
			           the circumstances. Letter contracts that are 
			           subject Davis-Bacon or HUD-determined wage 
			           rate requirements shall so state, and where 
			           feasible, the applicable wage determination 
			           shall be attached.

			b.    When a letter contract award is based on price 
			      competition, the contracting officer should include 
			      an overall price ceiling in the letter contract.



                                                          Handbook No. 7460.8 REV 2
			c.    Each letter contract should contain a negotiated 
			      definitization schedule including:

			      i.   Dates for submission of the contractor’s price 

			      ii.  A date for the start of negotiations; and,

			      iii. A target date for definitization.  PHA’s may 
			           establish maximum periods for negotiating final 
			           contracts (e.g., no more than 30 days after the 
			           issuance of the letter contract) in their 
			           Procurement Policies. 

			d.    The maximum liability of the PHA under a letter 
			      contract should be the estimated amount necessary 
			      to cover the contractor’s requirements for funds 
			      before definitization.  PHAs should establish 
			      limits on letter contract liability in their 
			      Procurement Policies (e.g., no more than 50% of the 
			      total estimated contract price). 

			e.    A letter contract should be used only after the 
			      Contracting Officer, or another official as 
			      designated in the PHA’s Procurement Policy, 
			      determines in writing that no other contract is 
			      suitable.  Letter contracts should not:

			      i.   Commit the PHA to a definitive contract in 
			           excess of the funds available at the time the 
			           letter contract is executed;

			      ii.  Be entered into without competition unless 
			           infeasible (see 24 CFR 85.36(c)); or,

			      iii. Be amended to satisfy a new requirement unless 
			           that requirement is inseparable from the 
			           existing letter contract.  Any such amendment 
			           should be subject to the same requirements 
			           and limitations as a new letter contract.

			f.    A letter contract is not a letter of intent.  A 
			      letter contract is a bona fide obligation on the part 
			      of the PHA.  A letter of intent is a non-binding 
			      statement to a contractor about an intended future 
			      contract.  Since a letter of intent has no legal 
			      effect, it should not be used as a form of contract.
10.2 Contractor Responsibility

	A.	General Requirements and Definition. PHAs shall not award any 
		contract until the prospective contractor, i.e., low responsive 
		bidder or successful                                                          



                                                          Handbook No. 7460.8 REV 2 
		offeror, has been determined to be responsible. A responsible 
		bidder/offeror must:

		1.	Have adequate financial resources to perform the contract, 
			or the ability to obtain them;

		2.	Have the necessary organization, experience, accounting and 
			operational controls, and technical skills, or the ability 
			to obtain them;

		3.	Have the necessary production, construction, and technical 
			equipment and facilities, or the ability to obtain them;

		4.	Be able to comply with the required or proposed delivery or 
			performance schedule, taking into consideration all the 
			bidder’s/offeror’s existing commercial and governmental 
			business commitments;

		5.	Have a satisfactory performance record;

		6.	Have a satisfactory record of integrity and business 
			ethics; and

		7.	Be otherwise qualified and eligible to receive an award 
			under applicable laws and regulations, including not be 
			suspended, debarred or under a HUD-imposed LDP.

	B.  Acceptable Evidence of Responsibility

	It is incumbent upon bidders/offerors to provide acceptable evidence of 
	their ability to meet the requirements in paragraph 10.2.A(1) through 
	10.2(A)(3). Acceptable evidence normally consists of a commitment or 
	explicit arrangement that will be in existence at the time of contract 
	award to rent, purchase, or otherwise acquire the needed facilities, 
	equipment, financing, personnel, or other resources. 

	C. Researching Responsibility. The Contracting Officer will need to 
	conduct research to determine that a prospective contractor is responsible. 
	The size and complexity of the contract, the degree of prior experience of 
	the PHA or the Contracting Officer with the offeror, and the extent to 
	which the PHA can cancel the contract and install a replacement vendor will 
	all influence the extent of research required. For example, a $150,000 
	requirements contract for supplying appliances may require minimal research 
	in that the vendor may be well-known. It is also the case that there are 
	multiple alternate vendors in the event that the initial supplier were to 
	be replaced due to non-performance. On the other hand, more research would 
	be required of a vendor to design a new accounting software program for the 
	agency. Only that information deemed necessary to determine the offeror’s 
	responsibility should be requested, obtained, and reviewed. Some methods 

		1.	Financial Capability. Obtain financial information and 
			credit bureau reports; require the offeror to provide 
			information on and then verify their lines of credit 
			and account balances with the financial institution 
			officer servicing their account;


                                                          Handbook No. 7460.8 REV 2
		2.	Compliance with Delivery and Performance Schedules. 
			Request information on all other active contracts the 
			offeror is performing and verify their status with 
			those buyers; 

		3.	Performance Record. Require offerors to submit contact 
			information for recent contracts they have performed for 
			other customers and contact them to ascertain the 
			offeror’s quality of performance, including timeliness of 
			delivery/completion, quality of work, compliance with 
			terms and conditions of the contract, and cost control, 
			if applicable. Inquire of past customers whether or not 
			they would contract with the offeror again and why. 
			Research the offeror’s performance history with the PHA;

		4.	Integrity and Business Ethics. Contact the offeror’s 
			previous and current customers to verify their dealings 
			with the offeror. Check with the local Better Business 
			Bureau, local offices of Code Compliance and Business 
			Licenses, or other regulatory agencies for business ethics 
			record and compliance with public policy. Verify the 
			offeror’s compliance with payments, wage rates, and 
			affirmative action requirements with other customers and 
			with applicable State and Federal Government offices, 
			e.g., DOL Wage and Hour Division;

		5.	Necessary Organization, Experience, Accounting and 
			Operational Controls, and Technical Skills. Verify 
			experience with other customers. Request copies of any 
			audits. Verify that necessary personnel will be available 
			to work on the PHA’s contract;

		6.	Necessary Production, Construction, and Technical Equipment 
			and Facilities. Request evidence that the offeror has all 
			the equipment and facilities he/she will need or the 
			capability to obtain them. Visit the offeror’s place of 
			business or other job sites to verify equipment and 
			facilities. Contact equipment dealers and/or facility 
			owners from whom the offeror indicates that he/she will 
			rent or lease equipment or space; and

		7.	Eligible to Receive a PHA Contract. Verify that the offeror 
			has not been suspended, debarred or is under a HUD LDP (see 
			paragraph H below).

	D.	Responsible at Time of Award. Bidders/offerors must be determined 
	to be responsible at the time of award. For sealed bidding this means 
	at the point where the low, responsive bidder has been determined. For 
	the competitive proposal method, this means after the successful 
	offeror has been selected for award. Bidders/offerors may be afforded 
	the opportunity to provide acceptable evidence of their ability to meet 
	the stated requirements after bid opening (sealed bidding) or 
	contractor selection (competitive proposal method) in accordance with 
	the PHA’s written procurement policy and procedures and applicable 
	State or local law or regulation. The Contracting Officer must clearly 
	indicate to potential bidders/offerors the time frame in which they are 
	required to submit evidence that they meet the above requirements.

	E.	Determination of Non-Responsibility. With the exception of a 
	finding that a bidder/offeror is suspended, debarred or under a HUD 
	LDP, a determination of non-responsibility will be a matter of 
	judgment on the part of the PHA, given the preponderance of the 
	evidence. If the facts indicate that the bidder/offeror fails to                                                           



                                                          Handbook No. 7460.8 REV 2  
	meet the requirements for responsibility, the Contracting Officer shall 
	document the findings of fact that led him/her to make the determination 
	(see paragraph G below). 

	F.	Notifying Bidders/Offerors of Non-Responsibility. The Contracting 
	Officer should notify low bidders or otherwise successful offerors who 
	are determined to be non-responsible. Some States require a hearing 
	before a bidder or offeror may be determined to be non-responsible. The 
	PHA should include guidance on any applicable hearing procedures in its 

	G.	Documenting the Responsibility Determination.  After all research 
	is completed, the Contracting Officer shall document the results in the 
	procurement file. Any determination of non-responsibility must be 
	signed by the authorized official (if not the Contracting Officer) 
	designated in the PHA’s written procurement policy and procedures. A 
	sample checklist format is provided in Appendix 10.

	H.	Limited Denials of Participation and Debarments and Suspensions. 
	PHAs should determine whether contractors have been restricted from 
	participation in HUD or Government Services Administration (GSA) contracts.

		1.	LDP. HUD may impose an administrative sanction against a 
			contractor known as a LDP. It is a temporary restriction 
			on a contractor and is narrower in scope and effect than 
			either suspension or debarment as prescribed in 24 CFR 
			24.700 - 24.713 and discussed below. 

			Reasons that HUD may impose an LDP include irregularities 
			in a contractor’s past performance, failure to honor 
			contractual obligations, deficiencies in ongoing 
			construction projects, false certifications or statements, 
			or any other cause prescribed in 24 CFR 24.305. 

			When HUD has issued an LDP, the contractor or firm becomes 
			ineligible for participation in HUD programs (Multifamily 
			or Public Housing) in which the violation occurred. The 
			LDP is limited to the geographic jurisdiction of the 
			office that imposed it. An LDP remains in effect until the 
			causes for which it was imposed are eliminated and the 
			action is withdrawn, or until the life of the sanction has 
			lapsed (up to 12 months).

		2.	Suspensions and Debarment. The PHA shall not make an award 
			to any contractor or individual who has been suspended or 
			debarred and whose name appears on the GSA List of Parties 
			Excluded from Procurement and Non-procurement Programs, 
			i.e., debarred and suspended.

			Debarment is an exclusion from participation in all 
			Federal programs for a reasonable and specified 
			time-period commensurate with the seriousness of the 
			violation or failure to perform on other contracts. 
			Debarment may be imposed for violation of contract 
			clauses, including equal employment opportunity 
			provisions, acceptance of contingent fees, or other 
			serious contract violations. The Secretary of Labor 
			may also debar a contractor based on violation of the 
			labor standards regulations. 

			Suspension means a disqualification from all Federal 
			programs for a temporary time-period because of 
			adequate evidence that the contractor engaged in 
			criminal, fraudulent, or other very serious misconduct. 
			A contractor is suspended pending investigation and 
			appropriate action. All                                                                                                                   



                                                          Handbook No. 7460.8 REV 2
			suspensions are temporary, pending the completion of an 
			investigation and such legal proceedings as may ensue.

		3.	PHA Responsibility in LDPs, Debarment, and Suspension. 
			Before a contact is awarded, the PHA shall check to 
			determine if HUD has issued an LDP or if a contractor has 
			been debarred or suspended. A list of persons and 
			contractors for which LDPs have been issued may be found 
			on the Internet at: All persons or 
			contractors that have been suspended or debarred from 
			Federal programs will show up on the GSA website: It is recommended that PHAs also 
			check with their State agencies regarding debarred or 
			suspended contractors.

			Prime contractors are responsible for determining that 
			potential subcontractors are not on any of the above lists 
			precluding participation in a PHA project. The PHA should 
			advise potential contractors of their responsibility to 
			confirm in their proposals the acceptability of their 
			subcontractors. The PHA should also advise potential 
			contractors of their responsibility to provide evidence 
			that a check has occurred on each proposed subcontractor 
			before the award is made or before new subcontractors will 
			be allowed to participate in the contract. The PHA may 
			check the subcontractor references if they so desire. If a 
			subcontractor is found to be under sanctions, the prime 
			contractor must be notified that the subcontractor may not 
			participate in the work. 

		4.	Enforcement. If a PHA materially fails to comply with any 
			term of an award whether stated in a Federal statute or 
			regulation, an assurance, in a State plan or application, 
			a notice of award, or elsewhere, there are a number of 
			enforcement actions that HUD may exercise, including those 
			listed at 24 CFR 85.43(a). 
10.3 Evaluating Cost and Price (For Purchases above the Federal Small Purchase Threshold)

	A.	General. For every procurement, PHAs are required to perform a cost 
		or price analysis to determine that the price is reasonable. In 
		competitive procurements, the force of competition is usually 
		adequate to allow the PHA to make a price reasonableness 
		determination based simply on a comparison of the offered prices. 

		1.	PHAs should always compare the prices offered with the ICE. 
			While this initial cost estimate may not be sufficient for 
			price reasonableness, it can assist the Contracting Officer 
			in determining the extent to which the offerors understand 
			the PHA’s requirements. Sometimes, the comparison of prices 
			may point out the need for verification of bids (in sealed 
			bid procurements) or negotiations (in the competitive 
			proposals methods) if prices of the different offerors vary 
			widely or seem unusually high (or low) compared to the ICE. 

		2.	If adequate competition does not exist, including sole 
			source procurements or noncompetitive proposals, the PHA 
			must perform a cost analysis, except as provided in 10.3.B.  
			A cost analysis is an evaluation of the separate elements 
			that make up a contractor’s total cost proposal or price to 
			determine if they are allowable, directly related to the 
			requirement, and reasonable. 



                                                          Handbook No. 7460.8 REV 2  
		3.	The number of times that a PHA will need to conduct a cost 
			analysis will be limited given that most purchases will be 
			of a commercial nature and based on adequate competition.

	B.	Alternative Methods of Determining that a Price is Reasonable (Other 
		than Cost Analysis). A comparison of proposed prices received in 
		response to the solicitation to each other is generally sufficient 
		to establish price reasonableness, assuming a sufficient number of 
		competitive offers are received to constitute competitive pricing 
		from the marketplace. If, after appropriate solicitation efforts, 
		the PHA does not receive an adequate number of responses, the PHA 
		may use one of the following alternative methods of establishing 
		price reasonableness without having to conduct a formal cost 
		analysis. In all such cases, the PHA should appropriately support 
		and document its actions in the procurement file.

		1.	Comparison to prior proposed prices and contract prices 
			with current proposed prices for the same or similar 
			items/services. The PHA should factor in any market 
			changes, e.g., commodity price changes or inflation, 
			since the last time the item or service was purchased.

		2.	In comparison to competitive price lists, published 
			catalog or market prices of commodities and products, 
			similar indices and discount or rebate arrangements. 
			The Contracting Officer should analyze the offered 
			price in terms of its commerciality. This involves 
			examining any catalog used by the contractor to 
			ensure that catalog prices are bona fide prices 
			charged to commercial customers. Any discounts 
			offered to commercial customers should be offered to 
			the PHA; however, consideration must be given to 
			differing terms and conditions of commercial 
			contracts as compared with public contracts. There 
			may be justification for paying more than the catalog 
			or market price if the PHA’s contracts demand more of 
			the contractor (such as services, warranties, etc.) 
			than do those of commercial customers. 

			In some cases, there may be no catalog prices, but the 
			offered price may qualify as a market price, meaning a 
			price paid by buyers and sellers free to bargain. As 
			with a catalog price, a market price should be verified 
			independently before it is accepted as reasonable. The 
			bidder should be asked to provide evidence of recent 
			sales at the market price to the general public or 
			provide a justification for not charging the PHA the 
			same price or better. The volume of sales should be 
			significant compared to the PHA’s procurement to ensure 
			that commercial sales are sufficient to establish a bona 
			fide catalog or market price. The goal should be to 
			ensure that the PHA does not pay more than other buyers, 
			particularly commercial customers, normally pay for the 
			same item.

		3.	Professional estimate, either one prepared by the PHA or 
			outside party. The level of analysis should be commensurate 
			with the extent and complexity of the procurement.

	C.	Situations Requiring a Cost Analysis. A cost analysis must be 
		conducted if one or more of the following conditions apply:



                                                          Handbook No. 7460.8 REV 2
		1.	All sole source and non competitive proposals. In 
			noncompetitive situations, no incentive exists for an 
			offeror to submit a low price, and no price 
			competition exists for determining the reasonableness 
			of the price.
		2.	If, after soliciting bids/proposals, the PHA receives only 
			one bid/proposal that it finds unreasonable and decides to 
			cancel the solicitation and negotiate a contract price with 
			the sole bidder.  
		3.	If, under sealed bidding or competitive proposals, a 
			sufficient number of bids were not received and the PHA 
			cannot establish price reasonableness through alternative 
		4.	If, under competitive proposals, the PHA requested that 
			bidders provide separate elements of their costs, e.g., 
			labor, materials, overhead, profit, etc. (Note: it will 
			not be necessary in most competitive procurements to ask 
			for bidders to submit separate elements of their costs. 
			For example, if a PHA is soliciting Property management 
			services, the PHA should not need to request a break-out 
			of costs since one can generally evaluate the 
			reasonableness of management fees without such break-down.)
		5.	When there is a contract modification. When negotiating a 
			modification to any contract (even if the basic contract 
			was awarded competitively through sealed bidding) that 
			changes the scope of work previously authorized and 
			impacts the price or estimated cost, the PHA must use 
			cost analysis to arrive at a reasonable cost. The only 
			exception to this rule is a contract modification based on 
			pricing terms already established in the contract 
			document, e.g., exercising an option to buy additional 
			items at preset prices. It is important to note that 
			changes in a contract’s scope do not always result in 
			increased costs. Elimination or reduction of contract work 
			may result in a decrease in the contract price. Regardless 
			of the direction of the price change, these modifications 
			require cost analysis using the cost principles to 
			determine that the price change is fair and reasonable. 
		6.	When making contract termination payments. When 
			terminating a contract of any type (fixed-price or 
			cost-reimbursement) for convenience, or terminating a 
			cost-reimbursement contract for cause, the PHA must use 
			cost analysis - and the appropriate cost principles - to 
			negotiate the final amount of the termination settlement. 
		7.	When awarding any construction contracts that were obtained 
			through means other than sealed bidding. Construction 
			contracts awarded using any method other than sealed 
			bidding and modifications to construction contracts require 
			cost analysis. 
	D.	Cost Analysis Technologies. Where a formal cost analysis is 
		required, PHAs should follow the instructions in this section. As 
		indicated, the number of instances where a PHA will be required 
		to conduct a formal cost analysis will be limited.
		1.	Commercial Yardsticks. Where available, a PHA may use 
			commercial yardsticks in lieu of a formal cost analysis. 
			Since the overall purpose of a cost analysis is to settle 
			on total prices that are fair and reasonable, these 




                                                          Handbook No. 7460.8 REV 2
			yardsticks provide a measure of that overall price 
			reasonableness. The following examples illustrate this 
			a.	A PHA is negotiating A/E fees with the architect 
			for additional work pursuant to the changes clause in 
			the contract. The PHA would not need to request that 
			the A/E firm break out its hourly fees in terms of 
			profit, overhead, etc., provided that the overall 
			hourly fee was reasonable; vis-ŕ-vis fees normally 
			charged in that community.

			b.	A PHA has a 6-unit scattered site project that is 
			adjacent to its HOPE VI development. The HOPE VI 
			development is operated by a private management 
			company. The PHA determines that it is in the best 
			interest of the PHA that the HOPE VI development and 
			the scattered site project be managed jointly and is 
			negotiating a sole source procurement with the HOPE VI 
			management company. The PHA would not need to request 
			that the management company break out its proposed 
			management fee in terms of profit, overhead, etc., 
			provided that the overall management fee was reasonable 
			vis-ŕ-vis fees normally charged in that community. 

			c.	The PHA has a security guard contract for its 
			high-rise properties. The rates charged are $14/hour 
			for non-armed guards. Because of a recent rise in 
			security incidents, the agency is negotiating a change 
			order to increase the coverage under the contract. The 
			PHA would not need to request that the security company 
			break out its proposed cost fee in terms of profit, 
			overhead, etc., provided that the overall hourly rate was 
			reasonable vis-ŕ-vis rates normally charged in that 

		2.	Level of Detail and Analysis. The level of detail and 
			complexity of the cost analysis should be commensurate 
			with the dollar value and complexity of the contract. 
			For example, in a construction change order proposal 
			for $30,000, where the PHA’s changes to the 
			specifications only result in added labor hours for 
			three skill categories, and the wage rates are at the 
			Davis-Bacon wages, the PHA’s cost analysis may be 
			limited to determining the reasonableness of the number 
			of hours proposed. If, however, the change order 
			proposal was for $250,000 and included added material, 
			new subcontracts, and other items, the PHA should 
			evaluate whether the costs proposed are allowable, 
			allocable, and reasonable, using the more detailed 
			techniques described below.

		3.	Conducting a Cost Analysis. When conducting a cost 
			analysis, PHAs should generally proceed in accordance 
			with the following (see also Appendix 12 for a 

			a.    Verify the cost and pricing information submitted 
			and evaluate the following:

			    i.    The necessity for, and reasonableness of, 
			    proposed costs, including allowances for 
			    contingencies. Proposed costs must meet three 
			    critical tests. The costs must be:



                                                          Handbook No. 7460.8 REV 2
			        •    Allowable. The applicable cost principles 
			        (see discussion below) will usually state whether 
			        a type of cost is allowable or not. 
			        •    Allocable. This means that the costs are 
			        logically related to or required in the 
			        performance of the contract. Many costs may be 
			        allowable but not related to the work required 
			        under the contract.
			        •    Reasonable. This term is generally defined as 
			        what a prudent business would pay in a competitive 
			        marketplace. A cost can be allowable, allocable and 
			        still not be what a prudent businessperson would 
			    ii.    The projection of the contractor’s cost trends. 
			    Are his/her costs likely to increase or decrease?
			    iii.    The assessment of proposed direct cost 
			    elements by a technical expert, e.g., engineer, 
			    architect, etc., to determine their necessity to 
			    perform the contract and reasonableness, e.g., in 
			    comparison to market rates.
			    iv.    The application of audited or pre-negotiated, 
			    e.g., by the Federal Government, indirect cost, e.g., 
			    overhead rates, labor and fringe benefit rates, or 
			    other factors.
			    v.    The effect of the contractor’s current practices 
			    on future costs. Does the contractor have a track 
			    record of containing costs (completing contracts at or 
			    “under cost”)?  Does he/she overrun costs?
			b.    Compare costs proposed by the offeror with:
			    i.    Actual costs previously incurred by the same 
			    offeror. If it is a repetitive type of work or s
			    ervice, how much has it cost in the past?  Apply any 
			    appropriate inflation factors for past work.
			    ii.    Costs proposed by other offerors. This 
			    comparison may point out the need for negotiations if 
			    prices of the different offerors vary widely or seem 
			    unusually high (or low) compared to the ICE.
			    iii.    Previous cost estimates from the offeror or 
			    other offerors for the same or similar items.
			    iv.    The methods proposed by the offeror with the 
			    requirements of the solicitation (i.e., do the costs 
			    reflect the technical approach proposed and the work 
			    required, and are they cost efficient?).
			    v.    The PHA’s ICE. 



                                                          Handbook No. 7460.8 REV 2  
			c.	Verify that the offeror’s cost submissions comply 
			with the appropriate set of cost principles.

			    i.	When performing a cost analysis, PHAs shall use 
			    the applicable set of cost principles, which have been 
			    issued by the Federal Government, to determine the 
			    allowability of proposed costs. (Note that cost 
			    principles are not used when performing a price 
			    analysis.)  These cost principles set the standards 
			    for the allowability of a wide range of costs (e.g., 
			    salaries, travel, advertising, etc.). Each set applies 
			    to contracts with a specific group or type of 
			    organizations, so one set will not work for all 

			    ii.	The cost principles and the type of contractor 
			    entity to which they apply are as follows:

			        •    OMB Circular A-87, for contracts with State, 
			        local or Indian tribal governments.
			        •    OMB Circular A-122 for contracts with most 
			        non-profit organizations.

			        •    OMB Circular A-21 for educational 

			        •    FAR 48 CFR Chapter 1, Subpart 31.2 for 
			        profit-making entities (e.g., commercial business 
			        concerns) and certain nonprofit organizations 
			        listed in Attachment C of OMB Circular A-122. 

	E.	Documentation.  With respect to price reasonableness, the 
		procurement file should be documented to support the actions 
		taken. In the case of sealed bids where there was adequate 
		competition, no additional documentation is required in that 
		the bid tabulation sheet, or equivalent, will serve as the 
		test of price reasonableness. Similarly, in the case of 
		competitive proposals where (1) there was adequate 
		competition, (2) the scope of work was not complex (easy to 
		evaluate competing bids), and (3) the PHA did not ask the 
		vendor to break out elements of costs separately, no 
		additional documentation is required for price 
		reasonableness other than the comparison of prices offered. 
		However, documentation is required to demonstrate price 
		reasonableness, including any cost analyses, whenever (1) 
		adequate competition did not exist, (2) adequate competition 
		existed but the PHA received only one bid/proposal, or (3) 
		the price obtained varied significantly from the ICE, in 
		which case the Contracting Officer should notate/explain the 
		reasons for the difference, e.g., poor estimate, etc. 

	F.	Audit.

		1.	When cost analysis is required, and the usual means of 
			analysis (e.g., comparison historical cost data) are 



                                                          Handbook No. 7460.8 REV 2

			insufficient, the PHA may need to audit or review the 
			contractor’s/offeror’s financial records.  Such a review 
			should be limited to the needs of the immediate 
			procurement action (new contract award, modification, 
			etc.) and not be overly broad in scope or intrusive.  
			The audit should provide an independent verification 
			that the costs proposed by the contractor are legitimate. 
			The PHA may conduct the audit using its own employees, 
			obtain the services of other governmental agencies to 
			perform the audit, or contract with a private firm for 
			audit services.

		2.	The audit should examine each element of cost relevant to 
			the procurement action, indicating whether it should be 
			accepted, questioned, or further documented.  The audit 
			should also analyze the contractor’s accounting system to 
			ensure that it is adequate to properly allocate costs in 
			accordance with the applicable cost principles, and in the 
			case of new contract awards or significant modifications, 
			will permit timely development of all necessary cost data 
			in the form required by the contract type contemplated.  

		3.	Audit reports should always be written and maintained in 
			the contract file.

		4.	The Contracting Officer’s cost analysis shall document how 
			and the degree to which the audit results were relied upon. 
		5.	In accordance with 24 CFR 85.36(i)(10), contractors (i.e., 
			firms under contract to the PHA) may not deny access to 
			their records for the purpose of audits.  A competing 
			offeror’s denial of access may disqualify it from contract 
			award.  In the case of competitive proposals, offerors may 
			withdraw their offer, unless they have been notified that 
			they have been selected for award.  Then it is up to the 
			PHA’s discretion to permit the withdrawal.  In the case of 
			a single bid received under the sealed bidding method (the 
			most likely scenario under which cost analysis would be 
			needed), the bidder may not withdraw his/her bid once it 
			has been opened.  The Contracting Officer s should seek 
			advice from legal counsel when a contractor or offeror 
			denies access to records.
10.4 Protests (24 CFR 85.36(b)(12))

Disagreements over the award of a PHA contract, referred to as protests, may 
occasionally arise between the PHA and an offeror.  Usually, the protestor asserts 
that he/she should have received the contract award and alleges that the PHA did 
not conduct the competition appropriately.  (Note: While protests are commonly 
referred to as “bid protests,” any type of contract award, including small 
purchase, competitive proposal, or sealed bid, may be protested by an unsuccessful 
offeror.)  For small purchase procedures see Chapter 5.                                                          



                                                          Handbook No. 7460.8 REV 2 
	A.	Responsibility.  PHAs, in accordance with sound business judgment, 
		are responsible for the settlement of protests arising from the 
		procurement Process.    

	B.	Written Protest Procedures.  Providing a formal, objective means 
		for offerors to receive an unbiased hearing of their concerns is 
		critical to preserving the integrity and confidence in the PHA’s 
		procurement operations.  Therefore, PHAs shall have written 
		procedures for handling and resolving protests against their 
		contract awards.  These may be included in the PHA’s procurement 
		policy.  The procedures should include:

		1.	Designation of Protest Officials.  The procedure should 

			a.	The PHA employee responsible for receipt of 
				protests (e.g. Contracting Officer), This 
				information should be included in written 

			b.	The PHA employee or a designee (e.g., an 
				independent third party who can render an 
				impartial opinion) who will decide the 
				protest; and  

			c.	The official or third party who will hear any 
				appeal of the initial protest decision.

		2.	Requirement for written protests.  Protestors should be 
			required to submit protests in writing, clearly stating 
			the basis for their protest.  Protests should include, 
			at a minimum, the following information:

			a.	Name, address, and phone number(s) of the 

			b.	Solicitation number and project title;

			c.	A detailed statement of the basis for the protest;

			d.	Supporting evidence or documents to substantiate 
				any arguments; and

			e.	The form of relief requested (e.g., 
				reconsideration of their offer).

		3.	Submission Time Period. The procedure shall state the time 
			period during which a protest must be submitted.  
			Generally, the time period should begin on the date that 
			the protestor has knowledge, or may be presumed to have 
			knowledge, of the basis for his/her protest (e.g., the date 
			the solicitation was issued, or the date he/she receives 
			notification from the PHA that his/her proposal did not


                                                          Handbook No. 7460.8 REV 2
			win).  The protest submission period must be stated in 
			solicitations.  Protests against the terms of a 
			solicitation should be considered late if submitted after 
			the due date for offers.                                                          
		4.	Remedial Action.  The PHA’s procedures shall provide 
			remedies when a protest is decided in favor of the 
			protestor, and the PHA must take appropriate action 
			in accordance with those procedures.  

				For example, if the contract has not been awarded, 
				the PHA may cancel or revised the solicitation or 
				proposed contract award, or if the contract has 
				been awarded, the contract may be terminated for 
				convenience and awarded to the protestor, or the
				procurement may be canceled and offers 

		5.	Emergencies or Unusual and Compelling Circumstances.  
			PHA protest procedures should provide for allowing 
			contracts to remain in place despite a successful 
			protest in cases of emergency or unusual and 
			compelling need for the supplies or services.  
			However, if the PHA determines, based on compelling 
			circumstances such as an emergency or serious 
			disruption of the PHA’s operations, that termination 
			or re-solicitation would not be in the best interest 
			of the PHA, the PHA may allow the award to stand and 
			pay the successful protestor costs associated with 
			preparing the bid along with the cost of filing and 
			pursuing the protest and other damages determined.

		6.	Denials. The PHA’s protest procedures shall require 
			the Contracting Officer to notify the protestor in 
			writing of the PHA’s decision and state the basis for 
			the denial.  The notification shall apprise the 
			protestor of any appeal rights in accordance with the 
			PHA’s protest procedures.    

		7.	Appeal Procedures.  The PHA’s protest procedures shall 
			provide for hearing appeals by unsuccessful protestors 
			including, but not limited to: requirements for written 
			appeals, designation of appeal official(s) and 
			timeframes for submitting and resolving appeals.  
			Appeals should contain a statement of the factual and 
			legal grounds on which reversal or modification of the 
			decision is deemed warranted, specifying any errors of 
			law made or information not previously considered.

	C.	Documentation.  The Contracting Officer shall fully document the 
		protest decision in writing in the contract file.  The PHAs protest 
		procedures should describe the requirements for such documentation.

	D.	Informal Resolution Processes.  PHAs are encouraged to resolve 
		potential and actual protests outside of the formal protest process 
		or litigation (e.g., through mediation).  



                                                          Handbook No. 7460.8 REV 2 
	E.	HUD Review 24 CFR 85.36(b)(12)(i) & (ii). Review by HUD of a 
		protest will be limited to:

		1.	Violations of Federal law or regulations.  The protest 
			should cite the specific Federal or HUD regulation that 
			has been violated.  Violations of State or local laws 
			should be referred to the State or local entity having 
			jurisdiction over such matters.

		2.	Violation of the PHA’s protest procedures for failure to 
			review a complaint or protest.  The PHA shall submit a 
			copy of the protest to the HUD Field Office having 
			jurisdiction over the PHA.

		HUD will refer any protests other than those specified above 
		back to the PHA for action.
10.5 Mandatory Contract Clauses (For purchases above the Federal Small Purchase Threshold)

	A.	Mandatory Requirements for Construction/Development Contracts 
		greater than $100,000. PHAs must incorporate the clauses 
		contained in form HUD-5370, General Conditions of the Contract 
		for Construction, and the applicable Davis-Bacon wage decision.  
	B.	Mandatory Requirements for Non-Construction Contracts (without 
		maintenance work) greater than $100,000. PHAs must incorporate 
		the clauses contained in Section I of form HUD-5370-C, General 
		Conditions for Non-Construction Contracts.
	C.	Mandatory Requirements for Maintenance Contracts (including 
		non-routine maintenance work) greater than $100,000.  PHAs must 
		incorporate the clauses contained in Sections I and II of 
		form HUD-5370-C, General Conditions for Non-Construction Contracts.
	D.	Acceptable Methods of Incorporation. PHAs may utilize any one or 
		any combination of the following methods to incorporate mandatory 
		clauses and applicable wage decisions into bid specifications and 
		contracts. PHAs may:
		1.	Attach the HUD form(s), and/or wage decisions, as printed;
		2.	Incorporate the clauses/text of the applicable HUD form 
			and wage decision into other documents (e.g., into the 
			PHA’s own forms) that are bound/attached to the contract 
			(and bid specifications, if applicable) or incorporated 
			by reference (see paragraph 3, below).
		3.	Incorporate the clauses or HUD forms and/or any applicable 
			Davis-Bacon or HUD wage decision by reference. The 
			reference must be specific as to the exact clauses or 
			form(s) that are incorporated, and where the clauses or 
			forms(s) may be accessed or obtained (e.g., HUDClips, PHA 
			web site). A Davis-Bacon wage decision (applicable to



                                                          Handbook No. 7460.8 REV 2
			construction/development work) may be incorporated by 
			reference to and to the specific number, 
			modification number, and date of the wage decision. HUD 
			wage decisions (applicable to maintenance work) are not 
			available at HUD’s web site; however, a PHA may post any 
			applicable HUD wage decision to its own web site and 
			reference that site. PHAs must provide hard-copies of any 
			referenced clauses, forms, and/or wage decisions on 
10.6 Prohibited Clauses-Project Labor Agreements.

HUD regulations at 24 CFR 5.108 implement Executive Order 13202, Preservation of 
Open Competition and Government Neutrality Towards Government Contractors’ Labor 
Relations on Federal and Federally Funded Construction Projects. Under this 
regulation, to the extent permitted by law, the bid specifications, project 
agreements, or other controlling documents for a constructions contract awarded 
by a HUD grantee or recipient of financial assistance for a construction project 
(or a construction manager acting on their behalf) shall not:

	(1)	Require or prohibit bidders, offerors, contractors, or 
		subcontractors to enter into or adhere to agreements with 
		one or more labor organizations on the same or other 
		related federally funded construction project; or 

	(2)	Otherwise discriminate against bidders, offerors, 
		contractors, or subcontractors, for becoming or refusing 
		to become or remain signatories, or otherwise adhere to 
		agreements with one or more labor organizations, on the 
		same or other related federally funded construction project.

Accordingly, documents pertaining to a construction contract awarded by a PHA or 
other recipient of HUD financial assistance shall not contain the 
above-prohibited provisions. HUD may exempt a particular construction project or 
contract from these requirements in special circumstances specified in Section 
5.108. Contractors and subcontractors are not prohibited from voluntarily 
entering into project labor agreements.

10.7 Performance Standards

It is possible to use performance, delivery, or cost incentives to motivate the 
contractor to achieve realistic, measurable targets set forth in the specification, 
purchase description, or statement of work. Performance standards may be used to 
determine the degree to which the desired results are achieved. Performance 
incentives increase the efficiency of contractor performance. For example, there 
could be a monetary bonus for early delivery. Cost incentives are used to motivate 
the contractor to manage costs effectively, but cost incentives should not be used 
if a large number of technical changes in the project are expected. As for all 
contracts, PHA personnel should closely monitor contractor performance.                                                          



                                                          Handbook No. 7460.8 REV 2 
10.8 Use of Options

	A.	General. In many cases, the PHA may have a recurring need for 
		specific supplies or services. One method of obtaining firm 
		commitments from contractors for additional quantities or longer 
		time-periods is to include an option clause in the contract. 
		The advantage of awarding a contract with options is that it 
		gives the PHA a continued source of supply or services under 
		contract at known prices.

	B.	Definition. The option to extend the term of the contract or to 
		order additional supplies or services is the unilateral right of 
		the PHA. The additional supplies or services are ordered at the 
		prices specified in the original contract. A clause that allows 
		an option to be exercised by the contractor is not a legitimate 
		option clause. 

	C.	Limitations.

		1.	Price. The option to extend the term of the contract or to 
			order additional quantities may only be exercised if the 
			contract contained an options clause and if a price for 
			the additional supplies or services was included. An 
			unpriced option is considered a new procurement and, 
			therefore, may not be used. In the case of a 
			cost-reimbursement contract, an estimated cost for the 
			option periods or additional quantities must be negotiated 
			and included in the contract award; otherwise, the option 
			will need to be treated either as a change order or a new 

		2.	Time and Quantity. Contracts shall not exceed a period of 
			five years, including options for renewal or extension. 
			(For PHAs still operating under the “old” ACC – form 
			HUDs-53010 and 53011 – the maximum contract term is two 
			years.) Contracts, other than energy performance 
			contracts, with terms, plus extensions, that exceed a 
			total of five years are viewed as restrictive of 
			competition and in violation of 24 CFR 85.36(c). A Field 
			Office may approve contracts in excess of five years if it 
			determines there is no practical alternative. Energy 
			performance contracts may be for a period not to exceed 20
			years in accordance with 24 CFR Part 990 and PIH Notice 
			2006-6. A PHA must also follow its own procurement policy 
			and any applicable local or State laws and regulations. 
			There must be a finite period for a contract, including all 
			options, and a specific limit on the total quantity or 
			maximum value of items to be purchased under an option. 

		3.	Option to Extend.

			a.	Any contract containing options must specify the 
				timeframe within which the option to extend the 
				term of the contract must be exercised. 

			b.	If the PHA decides to include options in a 
				solicitation, the pricing of the options should 
				be evaluated as part of the overall contract 
			c.	Contractors should be notified of the PHA’s 
				likely intention to exercise the option to extend 
				the term of the contract approximately 30 days 
				before the expiration date of the contract. This                 



                                                          Handbook No. 7460.8 REV 2

				notice does not obligate the PHA to extend the 
				contract; however, it allows PHA staff time to 
				assess the need for and advisability of extending 
				the contract. It also makes the contractor aware 
				of the potential extension. 

			d.	The Contracting Officer should notify the 
				contractor at least 30 days before the contract 
				expiration date of the specific intention to 
				exercise the option, and then issue a formal 
				modification extending the contract. 

			e.	Options may not be exercised after the term of 
				the contract has expired; technically, there is no 
				longer a legal and binding contract to extend.

	D.	Exercising Options. Before exercising an option, the PHA should 
		document the contract file with a written determination. At least 
		the following items should be included:

		1.	Fund availability;

		2.	Statement that the option was included in and evaluated 
			as part of the basic contract;

		3.	A brief review of market prices to justify price 
			reasonableness, indicating whether the option is still 
			economical for the PHA; and

		4.	Any other factors that support the PHA’s decision to 
			exercise the option. For example, the PHA avoids the 
			cost of a new procurement and ensures continuity in 
10.9 Federal Labor Standards and Wage Rates - Construction

	A.	General. All laborers and mechanics (including apprentices and 
		other workers trained by PHAs, Resident Management Corporations 
		(RMCs), or other contractors under HUD’s “Step-Up” or similarly 
		approved training initiatives) involved in construction contracts 
		in excess of $2,000 must be paid wages in accordance with Federal 
		labor standards issued pursuant to the Davis-Bacon Act by the 
		Department of Labor (DOL).  In addition, the overtime requirements 
		of the Contract Work Hours and Safety Standards Act are applicable 
		to construction contracts in excess of $100,000.  See, also, DOL 
		regulations at 29 CFR Parts 1, 3 and 5.  Additional information 
		about labor standards administration and enforcement is contained 
		in HUD Handbook 1344.1, REV 1, Chg 1.

	B.	Solicitations and Contracts.  Solicitations (e.g., Invitations for 
		Bids) and contracts subject to Davis-Bacon wage requirements must 
		contain the applicable wage decision and labor standards provisions. 
		Davis-Bacon Wage Decisions can be obtained at no charge from a 
		DOL-approved web site at:



                                                          Handbook No. 7460.8 REV 2 
	C.	Reporting.  As provided by DOL regulations (29 CFR Parts 3 and 5), 
		each construction employer (the contractor and any/all 
		subcontractors) shall submit a payroll report and statement of 
		compliance to the PHA for each week during which work is performed 
		under the contract.  Such reports may be submitted on the DOL 
		Payroll Form (WH-347), which includes on its reverse side the 
		required Statement of Compliance.  These forms, WH-347 and 
		instructions, may be obtained from HUD’s Labor Relations field 
		staff and are also available in “fillable” Portable Document Format 
		(PDF) on-line through HUDClips or directory at the DOL web site at 
		this address:

		Employers are not required to use the form WH-347 and may 
		substitute other payroll formats, including computer-generated 
		forms, provided that all of the required information and the exact 
		language of the Statement of Compliance (reverse side of the 
		WH-347) is included.

	D.	Compliance.  The contractor and any/all subcontractors are 
		responsible, on no less than a weekly basis, for paying not 
		less than the applicable wage rates to all laborers and 
		mechanics in their employ and engaged in work under the 
		contract.  The contractor is responsible for its own full 
		compliance, and for the full compliance of any/all 
		subcontractors, with all wage, overtime and reporting 
		requirements included in the contract.

	E.	Enforcement. The PHA is responsible for the administration and 
		enforcement of labor standards requirements as provided in HUD 
		Handbook 1344.1, REV 1, Chg 1 and as required by DOL regulations 
		applicable to Davis-Bacon covered work (29 CFR Part 5). These 
		activities include:

		1.	Posting Wage Rates. The PHA must ensure that a copy of the 
			applicable Davis-Bacon wage decision and the DOL poster 
			Notice to All Employees (WH-1321) are displayed at the job 
			site in a place accessible to all laborers and mechanics 
			and placed in an area that is protected from inclement 
			weather. The WH-1321 poster is available through HUDClips 
			or directory at DOL’s web site at:

		2.	On-site Interviews. The PHA is responsible for conducting 
			interviews with the laborers and mechanics on the jobsite 
			to determine if the work performed and wages received are 
			consistent with the job classifications and wage rates 
			contained in the applicable wage determination and the 
			classifications and wages reported by the employer on 
			certified payrolls. On-site interviews are documented on 
			form HUD-11, Record of Employee Interview, which can be 
			found at HUDClips.
		3.	Certified Payroll Review. The PHA must review the 
			certified payroll reports submitted by the contractor for 
			itself and any subcontractors to ensure that all 


                                                          Handbook No. 7460.8 REV 2
			laborers and mechanics are classified and paid in 
			accordance with the applicable wage determination and must 
			compare information collected during on-site interviews to 
			ensure consistency with such interview data. Any 
			discrepancies found must be corrected and wage restitution 
			must be required wherever underpayments are disclosed.

	F.	Recordkeeping. The PHA shall retain all payroll reports and 
		statements of compliance for three years from the date of 
		contract completion and acceptance by the PHA, or from the date 
		of resolution of any standards issues outstanding at contract 
10.10 Federal Labor Standards and Wage Rates - Maintenance

	A.	General. All maintenance laborers and mechanics employed under 
		contracts in excess of $2,000 for the operation of public housing 
		must be paid no less than prevailing wages determined or adopted 
		by HUD. In addition, the overtime requirements of the Contract 
		Work Hours and Safety Standards Act are applicable to maintenance 
		contracts in excess of $100,000.

	B.	Employment of apprentices or trainees.  PHAs, RMCs, or other 
		contractors on work subject to HUD-determined wage rates may 
		employ apprentices or trainees. Apprentices and trainees may be 
		compensated at less than the prevailing wage rate for their craft, 
		provided that they are individually registered in an 
		apprenticeship or trainee program that has been approved by HUD, 
		the DOL’s Bureau of Apprenticeship and Training (BAT), or a 
		BAT-recognized state apprenticeship agency. PHAs, RMCs, or other 
		contractors who wish to discuss the development of such training 
		programs may contact HUD Labor Relations Staff for assistance. 
		Unless otherwise directed, RMCs and other contractors should 
		submit all requests to develop approved training/apprenticeship 
		programs and proposed program descriptions to the HUD Labor 
		Relations field staff with jurisdiction over the PHA.

	C.	Exclusions for professional service contracts.  Contracts for 
		certain professional services are excluded from coverage by 
		HUD-determined (or HUD-adopted) prevailing wage rates.  These 
		exclusions include: Periodic inspections or testing of equipment 
		without repairs; testing for lead-based paint; warranty 
		inspections; installation, service or maintenance of leased 
		equipment, fixtures or appliances; and installation, inspections, 
		maintenance or service on equipment or fixtures which are owned by 
		a utility. Examples include, but are not limited to, local code or 
		performance inspections of elevators or escalators, gas lines or 
		equipment, or fire hydrants or water lines; inspections or routine 
		servicing of fire extinguishers, smoke detectors, security systems, 
		boilers, heating systems, water heaters, air conditioners, water 
		testing or treatment; soil testing or treatment; energy use or 
		conservation analyses; routine garbage removal; and pest control 
		(without attendant repairs).



                                                          Handbook No. 7460.8 REV 2 
	D.	Solicitations and Contracts.  Solicitations (e.g., Invitations for 
		Bids) and contracts for all maintenance services subject to HUD wage 
		rates must contain the applicable HUD wage decision and labor 
		standards provisions.

		1.	HUD wage decisions are obtained from the HUD Labor 
			Relations staff.  A list of the Labor Relations staff, 
			their contact information, and the jurisdictions they 
			cover can also be found at the HUD web site:

		2.	For all maintenance contracts of more than $2,000, but 
			less than the Federal small purchase threshold, PHAs 
			should use the clauses found in Table 5.1 and the clauses 
			in Section II of form HUD-5370-C.  For all maintenance 
			contracts of more than the Federal small purchase 
			threshold, PHAs should use the clauses in Sections I and 
			II of form HUD-5370-C.

	E.	Reporting.  Unlike construction contracts subject to Davis-Bacon 
		wage provisions, maintenance contracts subject to HUD-determined 
		wage rates do not require the submission of payroll reports.  
		Contractors and subcontractors are still required to maintain 
		payroll records and must make such records available to the PHA 
		and/or to HUD, on request (see Labor Relations Letter No. LR 

	F.	Compliance.  The contractor and any/all subcontractors are 
		responsible, on no less than a semi-monthly basis, for paying 
		not less than the applicable wage rates to all maintenance 
		laborers and mechanics in their employ and engaged in work 
		under the contract.  The contractor is responsible for its own 
		full compliance, and for the full compliance of any/all 
		subcontractors, with all wage, overtime and record keeping 
		requirements included in the contract.

	G.	Enforcement. The PHA is responsible for the administration and 
		enforcement of labor standards requirements as provided in 
		Labor Relations Letter LR-2004-01.  These activities include:

		1.	Posting Wage Rates. The PHA must ensure that a copy of the 
			applicable HUD wage decision is displayed at the job site 
			in a place accessible to all laborers and mechanics and 
			placed in an area that is protected from inclement 

		2.	On-site Interviews. The PHA is responsible for conducting 
			interviews with the laborers and mechanics on the jobsite 
			to determine if the work performed and wages received are 
			consistent with the job classifications and wage rates 
			contained in the applicable wage determination and the 
			classifications and wages reported by the employer on 
			certified payrolls. On-site interviews are documented on 
			form HUD-11, Record of Employee Interview, which can be 
			found at HUDClips.



                                                          Handbook No. 7460.8 REV 2
		3.	Enforcement. The PHA must perform contractor compliance 
			monitoring with such frequency and depth as appropriate 
			(based upon the scope and duration of the contract 
			involved) to ensure that all laborers and mechanics are 
			paid no less than the HUD prevailing wage rate for the 
			type of work they perform.

	H.	Recordkeeping.  The PHA shall retain all compliance monitoring 
		records, including employee interview records, for three years 
		from the date of contract completion and acceptance by the PHA, 
		or from the date of resolution of any labor standards issues 
		outstanding at contract completion.
10.11 Guidance on Federal Labor Standards Requirements

Additional guidance on Federal labor standards is available on the Office of Labor 
Relations web site at:

This web site offers the latest in HUD policy guidance and instructional materials 
regarding labor standards, including two guides concerning Davis-Bacon, Making 
Davis-Bacon Work: A Practical Guide for States, Indian Tribes and Local Agencies 
and A Contractor’s Guide to Prevailing Wage Requirements, and Labor Relations 
Letters.  The web site also includes HUD’s Regional and Field Office Labor Relations 
Staff as well as links to other related web sites.

10.12 Procurement of Recovered Materials

PHAs must give preference to EPA-listed recovered materials in their own procurement 
practices, in accordance with the provisions in Section 6002 of the Solid Waste 
Disposal Act.  See EPA regulations in 40 CFR Part 247. Required language relating to 
procurement of recovered materials is included with the mandatory contract 



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