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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

11.1 General

This chapter provides guidance on the administration of contracts.  Administration 
refers to all the actions taken regarding a contract after award to ensure that it 
is successfully performed, and that the PHA receives the required supplies or 

11.2 Administering Construction Contracts

The following guidance and instructions are provided for administration of 
construction contracts. Contract administration for non-construction contracts 
is discussed in 11.3 of this chapter. (Information regarding contract administration 
for PHA development contracts is included in HUD Handbook 7417.1, Chapter 12.)

	A.	Pre-construction Conference and the Notice to Proceed. Following 
		the award of a construction contract, a pre-construction and safety 
		conference should be held to thoroughly discuss key construction 
		and contract administration-related issues. The PHA should issue a 
		Notice to Proceed to the contractor stating the starting and 
		completion dates and typical contract-related information. The 
		notice should be prepared in an original with at least two copies 
		signed by the Contracting Officer. The contractor should retain the 
		original and sign, date, and return the copies. This Notice may be 
		hand-delivered to the contractor at the conference and signed 
		immediately. The PHA should retain one copy for the official 
		contract file and, if requested, send the other copy to HUD. See 
		Appendix 14 for a sample Notice to Proceed.

	B.	Progress Meetings. The PHA should meet with its architect and the 
		contractor on a regular basis (usually weekly for large or complex 
		projects) to discuss work progress, payments, any problems or 
		deficiencies noted during inspection visits, overdue reports, and 
		the construction schedule. The PHA or the A/E should prepare a 
		written record of the items discussed at each meeting and place a 
		copy in the construction contract file.

	C.	Inspections. If an A/E firm has been retained to conduct the 
		contract administration function, the PHA must hold the A/E firm 
		accountable for carrying out the necessary inspections and 
		monitoring. The quality of the inspection is critical, and the 
		PHA should ensure that either the A/E or the designated person 
		responsible for inspection (Clerk-of-the-Works) is fully qualified 
		and performs the inspections frequently and thoroughly.

		1.	Inspection Reports. All progress inspections should be 
			documented using an appropriate PHA inspection report form. 
			The inspection report should include a description of the 
			work completed and a determination as to whether or not the 
			work is acceptable. If payment is made on a unit price 
			basis, quantities must be verified. If payment is made on a 
			time and materials basis, the report should show that the 
			time charged was spent on PHA work and that materials were 
			charged at cost. A copy of the inspection report should be 
			included in the contract file. Based on the progress 
			report, the Contracting Officer should initiate any needed 
			follow-up actions to ensure that the terms of the contract 
			are being fulfilled.

		2.	Deficiencies. Upon being notified by its architect or HUD 
			of construction deficiencies, the PHA shall promptly 
			notify the contractor in writing of the deficiencies 
			observed. This notification should also advise the 
			contractor that 



                                                          Handbook No. 7460.8 REV 2
			failure to make timely corrections will be an infraction 
			of the contract and that the contractor will be held 
			liable for any resulting losses or delays. 

	D.	Labor Standards. The PHA is responsible for the administration and 
		enforcement of labor standards requirements as provided in HUD 
		Handbook 1344.1, REV 1, Chg1 as required by DOL regulations 
		applicable to Davis-Bacon covered work (29 CFR 5).  See 10.8.E of 
		this Handbook.

	E.	Progress Payments. Some state laws impose mandatory payment 
		schedules to contractors that may not be consistent with HUD’s 
		holdback requirements. Any such problems should be resolved 
		before soliciting bids for a contract. For Capital Fund and 
		Development Projects, payments shall be made as follows:

		1.	If progress payments are necessary (they may not be 
			necessary in small construction contracts), the PHA shall 
			require the contractor to prepare a construction progress 
			schedule for each project immediately after issuing the 
			Notice to Proceed. The PHA may require use of form 
			HUD-5372, Construction Progress Schedule, or another 
			appropriate form from various professional organizations. 
			The information must be realistic and consistent with the 
			information provided by the contractor on the PHA-approved 
			schedule of amounts for contract payments and the 
			HUD-approved Project Implementation or Development 
			Schedule, as applicable.

		2.	The PHA or its architect should review the contractor’s 
			construction progress schedule to ensure that the 
			scheduled dates and amount of work to be completed are 
			reasonable and consistent with the contract. If 
			acceptable, the PHA’s architect shall sign the schedule 
			and forward it to the PHA for approval. After approval 
			by the PHA, the construction progress schedule shall be 
			returned to the contractor and copies filed in both the 
			construction contract file and the official contract 

		3.	The PHA should require the contractor to prepare a 
			schedule of amounts of payments immediately after 
			execution of the contract. The PHA must use form 
			HUD-51000, Schedule of Amounts for Contract Payments, 
			for this purpose.

		4.	The PHA and its architect shall review the schedule to 
			determine that both the scheduled work to be completed 
			by the specified dates and the amount of payment for 
			such work are reasonable. If acceptable, the PHA should 
			approve and return the schedule to the contractor. HUD 
			review is not required.

		5.	The PHA is responsible for making progress payments to the 
			contractor based on the PHA-approved schedule of amounts 
			for contract payments. Generally, progress payments for 
			acceptable work and materials delivered and stored on the 
			site are made at 30-day intervals. HUD authorization of 
			progress payments based on the approved payment schedule is 
			not required.

		6.	The contractor should submit a request for payment for each 
			project on form HUD-51001, Periodic Estimate for Partial 
			Payment. The request shall be accompanied by the 
			contractor’s written designation of a certifying officer. 
			In addition, the contractor should submit the following HUD 
			forms or other appropriate forms, if applicable, with each 
			periodical estimate for partial payment: form HUD-51002, 
			Schedule of Change Orders; form HUD-51003, Schedule of 
			Materials Stored; and form HUD-51004, Summary of Materials 

		7.	The PHA should review each contractor request and should 
			approve the payment if the following conditions have been 
			met (if the contractor requests payment for                                                           


                                                          Handbook No. 7460.8 REV 2 
			items that have not been acceptably completed, the PHA 
			should delete those items and adjust the payment 

			a.    The contractor’s request is consistent with the 
			      PHA-approved schedule of amounts for contract 

			b.    The request does not include the amount to be 
			      retained by the PHA under the contract; 

			c.    The work covered by the payment has been 
			      performed in accordance with the construction 

			d.    The form HUD-51001, Periodic Estimate for 
			      Partial Payment, has been properly executed and 
			      all applicable supporting documentation submitted; 

			e.    The contractor has submitted all required 
			      reports, such as payroll reports. The PHA shall 
			      retain the original form HUD-51001 and any 
			      applicable supporting documentation for its file 
			      and return a copy of the PHA-approved forms to 
			      the contractor. 

	F.	Delays and Time Extensions. The contractor is responsible for 
		completing the work within the time established in the contract. 
		The PHA is responsible for monitoring the contractor to ensure that 
		work will be completed as scheduled. The PHA may authorize 
		justifiable time extensions without prior HUD review and approval, 
		unless the PHA is subject to prior HUD approval under a 
		HUD-established threshold that is less than the requested amount. 
		The “Default” clause on the forms HUD-5370, 5370-C and 5370-EZ 
		prescribes the conditions under which a time extension may be 
		granted. The basic principle is that delays arising from 
		unforeseeable causes beyond the control and without the fault or 
		negligence of the contractor may be grounds for allowing a time 
		extension. Such time extensions should be formalized in a written 
		modification to the contract.

		1.	Construction Log. The PHA should maintain a construction 
			log to record potential causes for delays that may be 
			used as the basis for granting time extensions or for 
			denying a request for a time extension. The construction 
			log should contain daily reports that record at least the 
			following:  the daily temperature, the daily amount of 
			precipitation, delays in obtaining labor and materials, 
			including the duration and the applicable construction 
			trade, delays experienced by others in completing 
			non-contract public improvements (whether on-site or 
			off-site), and other causes for delays, such as fires, 
			floods, vandalism, or court orders.

		2.	Time Extension Criteria. In order to be considered for 
			approval by the PHA, requests for time extensions should 
			meet the following criteria:

			a.    The contractor should submit a written notice to the 
			      PHA within 10 calendar days of the start of any 

			b.    The severity and extent of adverse weather could not 
			      have been reasonably foreseen by the contractor (
			      normal seasonal levels of rain, snow, cold or heat 
			      should have been considered by the contractor); and

			c.    The cause of the delay was beyond the contractor’s 


                                                          Handbook No. 7460.8 REV 2

		3.	Documentation. Immediately upon receipt of the 
			contractor’s notification of delay or request for time 
			extension, the PHA should send a letter of 
			acknowledgment to the contractor. The letter should 
			indicate that either: (1) immediate consideration will 
			be given to the contractor’s request or (2) the actual 
			delay in work is difficult to determine and 
			consideration will be given to the contractor’s request 
			upon completion of work. PHA staff should review 
			records to ensure that the information provided by the 
			contractor is accurate and complete. This will allow 
			the Contracting Officer to determine the cause of the 
			delay and the extent that it was within the 
			contractor’s control. It will also determine if the 
			request meets the contract’s criteria for approving or 
			rejecting the request for a time extension. Two 
			criterion for approval of time extension requests 

			a.    The contractor’s request, as documented by the PHA 
			      “finding of fact,” meets the requirements stated in 
			      paragraph 11.6.F.2 above, and

			b.    The additional time requested by the contractor is 
			      reasonable based on the nature and duration of the 

	G.	Completion of Work. The completion of a construction contract 
		requires some formal procedures, including the following:

		1.	Notification. The contractor should provide prompt 
			written notification to the PHA when all work is completed. 
			A final inspection of completed work shall then be 
			conducted. Until the final inspection has been carried out 
			and corrections made, the PHA should not advance any of the 
			retainage or make the final payment to the contractor.

		2.	Final Inspection. Upon receipt of the contractor’s 
			notification of the date when the work has been completed, 
			the PHA should conduct a final inspection within 10 
			calendar days. 

		3.	Post-Inspection Meeting. The inspection team should meet 
			after completing the final inspection to determine whether 
			the work has been completed in accordance with the 
			construction documents and to identify any minor items of 
			incomplete or unsatisfactory work (or seasonal work such 
			as planting of shrubs and lawns). The team should also 
			reach agreement on the items to be included on the PHA’s 
			or its architect’s final punch list and on any major 
			deficiencies that must be corrected by the contractor.

		4.	Documentation. Following final inspection, the PHA should 
			notify the contractor to submit the following documentation 
			to the PHA:

			a.    A certificate of occupancy issued by the responsible 
			      local agency for each building (where appropriate);

			b.    One notarized original and two copies of the 
			      contractor’s release, including certification that 

			      i.    The work was completed in accordance with the 
			            construction documents, including contract 
			            modifications, except any minor items 
			            identified on the PHA’s or its architect’s 
			            proposed certificate of completion;

			      ii.   The total amount due the contractor and a 
			            separately stated amount for each unsettled 
			            claim against the PHA;



                                                          Handbook No. 7460.8 REV 2 

			      iii.  Documentation noting that the PHA is released 
			            of all claims, other than those stated in the 
			            contractor’s release; and

			      iv.   Wages paid to laborers or mechanics were 
			            consistent with the wage rate requirements of 
			            the contract and there are no outstanding 
			            claims for unpaid wages. 

			c.    Assignment of all guarantees and warranties to the 
			      PHA; and

			d.    “Final” partial payment. The PHA may accept part 
			      of a project for occupancy before contract 
			      settlement if the following conditions are met: 

			      i.    The dwelling units to be accepted (except items 
			            approved for delayed completion) have been 
			            completed and are ready for occupancy;

			      ii.  The general contractor agrees to early occupancy 
			            and completion of items approved for delayed 

			      iii.  Early occupancy will not unduly inconvenience 
			            or represent a safety risk to tenants while the 
			            unfinished work is being completed; 

			      iv.   The PHA has obtained occupancy permits from the 
			            responsible local agency for each unit to be 
			            accepted; and

			      v.    The PHA has executed an occupancy agreement 
			            with the general contractor indicating that the 
			            PHA partially accepts specified work, provided 
			            that the contractor accepts the responsibility 
			            to complete the project by the established 
			            completion date. 

	H.	Final Payment. The PHA should ensure that an adequate and notarized 
		certificate and release are received from each construction 
		contractor to assure that the work was in full compliance with the 
		construction contract documentation and that all materials, 
		supplies, equipment, and labor-related expenses have been paid in 
		full by the contractor. Prior to making final payment, the PHA 
		should ensure that all required certified payroll reports have been 
		received and that any discrepancies and/or wage underpayments have 
		been corrected. Upon receipt of the approved certificate of 
		completion, the PHA is authorized to make payment to the contractor.
		The PHA payment to the contractor should be the amount specified in 
		the certificate of completion, but it should not include any amount 
		to be retained for disputed items and incomplete work, such as the 
		punch list or seasonal items.

	I.	Construction Warranties. The warranty period for all construction 
		work should be at least 365 calendar days from the date of final 
		acceptance of the work in question or such longer period as 
		otherwise specified in the contract. For complex equipment or 
		systems (such as boilers, air conditioning units, thermal paned 
		windows or storefronts, or membrane roofs), the PHA should 
		consider using a full two-year warranty. The extra year will help 
		to ensure that the PHA can discover and report any hidden or 
		latent deficiencies while the warranty is still in force. The 
		contractor is fully responsible to correct any and all legitimate 
		deficiencies reported within the warranty period. It is often a 
		good approach to specify the additional warranty period on 
		replaced or repaired items; one full additional year is generally 
		reasonable and appropriate. 

		1.	Warranty Inspections. The PHA is responsible for 
			performing required warranty inspections, including the 
			11-month inspection, during the warranty                                                           



                                                          Handbook No. 7460.8 REV 2

			period and promptly notifying the contractor in writing to 
			remedy any defects relating to manufacturer or contractor 
			warranties on equipment and systems and contractor 
			warranties on materials and workmanship. This is an area 
			that has been frequently overlooked by some PHAs and their 
			A/Es. Failure to enforce warranties is a violation of the 
			ACC requirement for economy and efficiency and can be very 
			costly to the PHA. In such cases, the PHA will have to use 
			its own funds after the expiration of the warranty to 
			correct defects that were the contractor’s responsibility.

		2.	Corrective Action. Upon receipt of the PHA’s written 
			notice, the contractor should promptly remedy any defects 
			due to the use of faulty equipment or materials or poor 
			workmanship. The contractor is also responsible for paying 
			for any damage to other work resulting from such defects. 
			If the contractor fails to resolve such warranty issues, 
			the bonding company should be contacted by the PHA for 
			final resolution. 
11.3 Administering Non-Construction Contracts

The necessary amount of oversight and monitoring, i.e., contract administration, will 
vary with the complexity of the work. Relatively simple contracts may require limited 
monitoring, while large, complex contracts will need more in-depth monitoring and 
oversight. Efforts to develop good specifications and a carefully planned 
solicitation can be undermined by weak contract administration.

	A.	Post-award Conference. For relatively complex projects, it is 
		advisable to meet with the contractor soon after contract award 
		to ensure that all parties understand the contract’s performance 
		requirements. Terms of the contract should be thoroughly 
		discussed. In addition, formal minutes of the meeting should be 
		recorded and subsequently issued to all meeting attendees. Also 
		at this meeting, samples may be presented if required and 
		inspection personnel introduced. Any necessary changes to the 
		contract resulting from this meeting should be reflected in a 
		formal written modification to the contract, rather than through 
		oral agreements or instructions from PHA staff. Only the 
		Contracting Officer has the authority to make a formal change in 
		a contract.
	B.	Establishing a System for Receiving Supplies, Equipment, and 

		1.	The PHA should establish a system for ensuring that the 
			items required by contract are delivered to an appropriate 
			location where PHA personnel can make certain that receipt 
			of supplies, materials, or equipment is properly handled 
			and documented. For example, a contract for supplies should 
			indicate where delivery should be made (what room or other 
			location, such as a management office) and how the receipt 
			will be recorded and provided to the contractor. 

		2.	The receiving report, either a standardized PHA document or 
			one submitted by the contractor, should contain, at a 
			minimum, the following information: contract number, item 
			number/description of the item, date of receipt, place 
			received, receiving official (printed name, signature, 
			date), date of inspection, inspection official (printed 
			name, signature, date), whether the work/item was or was 
			not accepted (and, if not accepted, reasons for rejection), 
			and accepting official (printed name, signature, date). The 
			receiving, inspecting, and accepting official may, in 
			certain circumstances, be the same individual, particularly 
			under project-based management.

	C.	Monitoring and Inspecting Supplies and Services. Once received, the 
		PHA should monitor or inspect the supplies or services obtained in 
		accordance with the contract. If poor contractor performance 
		occurs, the PHA should document the file and remember that 
		performance when awarding future contracts. The PHA should                                                        



                                                          Handbook No. 7460.8 REV 2   
		also make recommendations to HUD, when appropriate, regarding 
		suspensions and debarments and provide evidence involving serious 
		complaints, areas of non-responsibility, and other violations of 
		or failure to comply with Federal, State, or local laws and 
		regulations to the HUD Field Office for review (see Chapter 10, 
		Evaluating Contractors and Analyzing Cost and Price).

	D.	Enforcing Specifications and Timelines. The PHA should establish a 
		system to enforce both specifications and timelines and, when 
		necessary, enforce compliance with all of the contract 
		specifications, particularly since the rules of law may relieve a 
		contractor of any liability if the PHA failed to regularly 
		monitor the contractor’s performance before final acceptance. The 
		PHA is not obligated to pay for or accept supplies or services 
		until it has had an opportunity to fully inspect them. Such 
		inspection and any rejection resulting therefrom should be within 
		a reasonable time after delivery or performance. If the PHA fails 
		to require the contractor to correct a particular defect because 
		of the PHA’s failure to inspect (assuming that the defect could 
		have been found by reasonable inspection), the PHA may have 
		waived its rights to future rejection based on that particular 

		Acceptance may be assumed to have occurred, with or without 
		concurrence by the PHA, if after a reasonable time to inspect 
		has passed and the PHA has failed to make any notification to 
		the contractor that the supplies, services, or construction do 
		not conform to the contract requirements.

	E.	Acceptance of Supplies and Services

		1.	The Contracting Officer should ensure the supplies 
			received from vendors are inspected and accepted, the 
			performance of services was satisfactory, and receiving 
			documents are prepared and processed for payment. This 
			acceptance should not be delayed, since prompt payment 
			will help to ensure good relations with vendors and 
			contractors. In addition, many contracts allow a 
			discount for prompt payment if made within a specified 
			number of days. Discounts, if offered by the contractor, 
			should always be taken by the PHA to the greatest extent 
			feasible, and procedures should be established to 
			facilitate expedited receipt and prompt payment.

		2.	Nonconformance. When supplies, services, or construction 
			items do not conform to the contract, the PHA has three 
			response options. reject the items, require the 
			contractor to correct them, or conditionally accept them. 

			If any items or services are rejected, the contractor is 
			subject to being declared in default unless it can provide 
			conforming items or make a correction within the required 
			delivery schedule/completion time. If the contractor is 
			required to correct the defects, it would appear that the 
			PHA has elected to have them corrected; therefore, the PHA 
			may not terminate the contract for default until the 
			contractor has a reasonable opportunity to correct the 
			defects. If the contractor does not correct the defects 
			within the required timeframe, the PHA may accept the 
			defective items or deficient services, but negotiate a 
			commensurate reduction in price.

	F.	Labor Standards. Maintenance contracts in excess of $2,000 
		require the payment of HUD-determined wage rates. 

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



                                                          Handbook No. 7460.8 REV 2
		2.	Compliance Monitoring. PHAs have certain compliance 
			monitoring and enforcement responsibilities for 
			maintenance contracts subject to HUD-determined wage 
			rates. See Chapter 10 of this Handbook for a discussion 
			of the wage and recordkeeping requirements and the 
			enforcement requirements of the PHAs.

	G.	Control of Payments. To the extent practical, and to help eliminate 
		disputes that arise when shortages or damages are not discovered 
		until after payment has been made, payment for supplies and 
		services should be made only after the delivered items are 
		inspected and found to be satisfactory. 
11.4 Contract Modifications

	A.	General. Occasionally, it is necessary to modify a contract or 
		purchase order to reflect changes in the required effort, period of 
		performance, or price. Contract and purchase order modifications 
		shall be issued in writing in one of the following forms:  

		1.	Unilateral modification (a modification that is signed 
			only by the Contracting Officer, such as a change order 
			pursuant to the Changes clause on form HUD-5370, or 
			administrative modification, such as a change in the 
			address of the payment office), or

		2.	Bilateral modification (such as a supplemental agreement 
			in which both parties mutually agree on contract changes) 
			that is signed by both the Contracting Officer and the 
			contractor. Bilateral modifications are the preferred 
			method of modifying contracts and purchase orders. 

	B.	Process. A change order is issued by the Contracting Officer after 
		the award of a contract in any of the contract terms, including 
		specifications, completion time, description of the work, etc., 
		within the scope of the contract. 

		1.	The Changes clause is included in form HUD-5370 (for 
			construction) and form HUD-5370-C (for non-construction 
			contracts) and form HUD-5370-EZ (for small 
			construction/development contracts).

		2.	A change order may be issued unilaterally by the 
			Contracting Officer. In such cases, the contractor is 
			entitled to submit a change order proposal to identify 
			any changes in cost or schedules as a result of the 
			change, and the parties negotiate an equitable adjustment. 

		3.	Change orders may be issued bilaterally if the contractor 
			agrees to the change in advance. When a change is mutually 
			agreed upon, including price adjustment for concessions 
			made by either party, a contract modification is prepared 
			and signed by both parties to the original contract. See 
			Appendix 15 for a Sample Contract Modification format that 
			may be used for modifications.

		4.	Change orders/modifications should include at least the 
			following: a detailed description of the proposed change in 
			work, a reference to the applicable working drawings and 
			specifications, when applicable, a price (credit, debit, or 
			no change) for the change in contract work, estimate of 
			additional time, if any, required to complete the work, the 
			contractor’s itemized breakdown of the cost of materials 
			and labor and an itemized breakdown for any applicable 
			subcontractors, and the change indicate on the 
			architectural or engineering drawings, if applicable. 

	C.	Limitations on Change Orders. The Changes clause contained in forms 
		HUD-5370, 5370-C, and 5370-EZ, prescribes the specific circumstances
		in which a                                                      


                                                          Handbook No. 7460.8 REV 2   
		change order may be issued. For example, adding the construction of 
		a new building to a modernization contract would not be considered 
		within the scope of the contract or within the authority of the 
		Changes clause but should be considered a new contract (and subject 
		to competition).

	D.	Modification Register. The PHA shall maintain accurate records and 
		documentation regarding contract modifications by including a 
		modification register or other record in each contract file. This 
		register is required to provide a permanent record of all actions 
		taken in connection with each contract. The modifications register 
		should generally include information on the following: the number 
		of modifications, a brief description of the change, the cost of 
		the proposed modification, the date submitted to HUD for approval, 
		if applicable, any critical deadline dates, the date of HUD 
		approval or disapproval, if applicable, and the action taken, and 
		the amount of any additional time required by the contractor.

	E.	HUD Approval of Modifications. PHAs must submit to HUD for prior 
		approval any proposed contract modifications changing the scope of 
		the contract in accordance with the Changes clause in the contract, 
		or that increases the contract by more than the Federal small 
		purchase threshold, unless exempted under paragraph 12.5 of this 
11.5 Contract Claims

	A.	General. Contract claims may occur after the contract has been 
		executed and may be pursued by the PHA or the contractor, although 
		most often the contractor is the claimant. Disputes may arise 
		regarding breach of contract, mistake, misrepresentation, other 
		cause for contract modifications, or other disputes as described 
		in the contract documents, such as unforeseen conditions. Forms 
		HUD-5370, 5370-C and 5370-EZ, describe types of disputes and how 
		claims will be processed. PHAs are required to have a provision in 
		the procurement policy that explains how claims and disputes will 
		be handled.

	B.	Filing Claims. The PHA should make every effort to resolve claims 
		informally and expeditiously to avoid time losses or expensive 
		delays. However, if the dispute cannot be resolved by mutual 
		agreement, the following steps must be taken:

		1.	The contractor must submit the claim to the PHA’s 
			Contracting Officer in writing within the timeframe 
			specified in the contract documents.

		2.	The claim must identify the nature and scope of the claim, 
			including extra costs or time sought by the contractor.

	C.	Rendering Decisions on Claims. The Contracting Officer shall review 
		the facts pertinent to the claim and secure any necessary assistance 
		from legal, technical, or other advisors and shall issue a final 
		written decision promptly and within the timeframe stated in the 
		contract documents. (As provided by forms HUD-5370 and 5370-C, if 
		the Contracting Officer does not issue a final decision within 60 
		days after written request by the contractor for a final decision, 
		or longer period if mutually agreed upon by both parties, then the 
		contractor may proceed as if an adverse decision has been received.) 
		The written decision should include:

		1.	A description of the claim;

		2.	A reference to the pertinent contract clauses;

		3.	A statement of the factual areas of agreement or 

		4.	A statement of the Contracting Officer’s decision with 
			support rationale; and


                                                          Handbook No. 7460.8 REV 2

		5.	A statement referencing appeal rights as provided in the 
			PHA’s Procurement Policy. 

	D.	The Contracting Officer shall immediately furnish a copy of the 
		decision to the contractor by certified mail, with return receipt 

	E.	Records of Claims. The PHA shall maintain a complete written and 
		dated record of any actions that may result in a dispute or claim 
		for damages. An example would be records of weather conditions 
		during the course of a contract, delays in receiving materials 
		ordered by the PHA, or other items that may result in requests for 
		time delays that may be disputed. These records protect the PHA’s 
		interests during any litigation that may arise later.

		At a minimum, the PHA should maintain records of the following:

		1.	A complete and detailed job record; and

		2.	A disputes and claims file, including a cross-reference to 
			other pertinent files (such as a separate file for a 
			particular subcontractor), any correspondence related to a 
			dispute, written minutes of meetings between the PHA and 
			architects, or job meetings where decisions or agreements 
			were made regarding disputes.
11.6 Contract Terminations

	A.	General. Contracts are terminated either for default or termination, 
		as prescribed in the termination clauses on forms HUD-5370, 5370-C, 
		and 5370-EZ. 

	B.	Termination Notice. The Contracting Officer shall terminate 
		contracts for convenience or default only by a written notice 
		to the contractor. The notice shall be sent by certified mail 
		with a return receipt requested. The notice shall state, at a 
		minimum, the following:

		1.	The contract is being terminated for default or for the 
			convenience of the PHA under the cited contract clause 
			authorizing the termination;

		2.	Whether the contract is terminated in whole or in part 
			(for partial terminations, identify the specific items 
			being terminated); 

		3.	If terminated for default, the acts or omissions 
			constituting the default, the Contracting Officer’s 
			determination that failure to perform is not excusable, 
			the PHA’s rights to charge excess costs of 
			re-procurement to the contractor, and the contractor’s 
			appeal rights; 

		4.	The effective date of termination; 

		5.	The contractor’s right to proceed under the 
			non-terminated portion of the contract;

		6.	Any special instructions; and

		7.	Copies of the notice should be sent to the contractor’s 
			surety, if any, and any assignee.

	C.	Termination for Convenience. Contracts may be terminated for 
		convenience when the PHA no longer needs or desires the supplies 
		or services under contract or can no longer fund the procurement.



                                                          Handbook No. 7460.8 REV 2 
		1.	Settlement. Settlement of contracts terminated for 
			convenience may be settled through negotiations or by a 
			unilateral determination of the Contracting Officer. 
			The contractor should submit a settlement proposal 
			promptly to the Contracting Officer for any amounts 
			claimed as a result of the termination. Whenever 
			possible, the Contracting Officer should negotiate a 
			fair and prompt settlement with the contractor and 
			should settle by determination only when mutual agreement 
			cannot be reached.
		2.	Compensation. A settlement should compensate the 
			contractor fairly for work performed, for other costs 
			incurred under the contract, and for preparations made for 
			the terminated portions of the contract, including a 
			reasonable allowance for profit. However, no profit shall 
			be allowed on settlement expenses. In addition, the 
			Contracting Officer shall not allow profit if it appears 
			that the contractor would have incurred a loss had the 
			entire contract been completed. Fair compensation is a 
			matter of judgment and cannot be measured exactly. The 
			Contracting Officer should use prudent business judgment in 
			the settlement process, as opposed to strict accounting 
			principles. The parties may agree to a total amount to be 
			paid to the contractor without agreeing on individual cost 
			items or profit.

	D.	Termination for Default. A contract may be terminated for default 
		because of the contractor’s actual or anticipated failure to 
		perform its contractual obligations. Under a termination for 
		default, the PHA is not liable for the contractor’s costs on 
		undelivered work and may be entitled to the repayment of progress 
		payments. If the contractor fails to make progress so as to 
		endanger performance of the contract, the Contracting Officer 
		should issue a written notice to the contractor (generally called 
		a “Cure Notice”) specifying the failure and providing a period of 
		10 days (or longer period if needed) in which to “cure” the 
		failure. After the 10 days, the Contracting Officer may issue a 
		notice of termination for default, unless the failure to perform 
		has been cured.

		1.	Notice. If the contractor has failed to perform work 
			within the required time and a termination for default 
			appears appropriate, the Contracting Officer should, if 
			practicable, notify the contractor in writing of the 
			possibility of the termination. This notice shall call the 
			contractor’s attention to the contractual liabilities if 
			the contract is terminated for default, and request the 
			contractor to “show cause” why the contract should not be 
			terminated. If the response to this “show cause” notice is 
			inadequate or insufficient, action is taken in response to 
			it; the contract should then be terminated for default.

		2.	Alternatives to Termination. Alternatives to termination 
			for default include the following (at the PHA’s 
			discretion): allow alternative dispute resolution 
			(arbitration or mediation) as agreed to by both parties; 
			allow the contractor or the surety to continue 
			performance of the contract under a revised delivery 
			schedule (in exchange for a reduced price or other 
			consideration); permit the contractor to continue 
			performance of the contract by means of a subcontract or 
			other business arrangement with an acceptable third 
			party, provided the rights of the PHA are adequately 
			protected; or, if the contractor is not liable to the PHA 
			for damages, execute a no-cost termination settlement 

		3.	Repurchase. When the supplies, services, or construction 
			activities are still required after termination, the 
			Contracting Officer should seek to contract for the same 
			or similar items as soon as possible. The Contracting 
			Officer may use any appropriate contracting method for 
			the procurement (sealed bids or competitive or 
			noncompetitive proposals, as appropriate), provided 
			competition is solicited to the maximum extent 
			practicable to secure the lowest price obtainable under 
			the circumstances in order to mitigate damages.



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