We audited the U.S. Department of Housing and Urban Development’s (HUD) annual contributions contracts (contract) for performance-based Section 8 contract administration (PBCA). We audited this contract because our prior audit of HUD payments to the PBCAs for certain performance standards indicated that HUD was not getting the best value for the dollars spent on the PBCA’s services. Our audit objective was to determine whether the performance-based contract administration contract was cost effective.

We found that HUD did not always ensure accountability for results and include appropriate, cost-effective controls over its contracts. Consequently, HUD did not obtain the best value for the $291 million spent in 2008 on contract administration services. In particular, HUD spent $107 million of this amount on incentive fees. While we could not quantify how much of this amount was excessive, HUD continued to pay incentives for tasks that were included in the PBCAs’ basic fees. In addition, at least $7.6 million may be wasted each year because HUD continues to extend the existing contracts beyond the original contract term of five years.

We recommend that the Deputy Assistant Secretary for Multifamily Housing perform a detailed analysis to determine the most cost-effective method of performing the contract administration tasks. After selecting the best method, we recommend that the Deputy Assistant Secretary for Multifamily Housing ensure accountability for results and include appropriate, cost-effective controls in its contracts.