By Ray Gronberg

gronberg@heraldsun.com; 419-6648

DURHAM -- For the second time in little more than five years, federal regulators have sharply limited the Durham Housing Authority's ability to spend money on outside services and contractors.

The restrictions imposed earlier this month require DHA officials to get permission from the U.S. Department of Housing and Urban Development before spending money on any purchase worth more than $25,000.

DHA leaders got notice of the stricter oversight on Aug. 14, after federal reviewers concluded the authority had "ceased to adhere" to its own procurement policies and the HUD regulations that govern purchases.

Their report noted violations of both the code of federal regulations and HUD policy, stemming from a number of recent consulting and service contracts.

A parallel check of DHA construction contracts signed in the last couple of years found those files were "in excellent condition" and in compliance with DHA policy and HUD regulations.

DHA board Chairman Tom Niemann declined comment Wednesday.

"We're going to formulate a response," Niemann said, referring to the likelihood that DHA officials will draft a formal reply letter to regulators. "We're going to refrain from comment until we have our response ready for HUD."

The purchasing limits were a setback for the authority. It had to get HUD's permission for all purchases for almost two years from June 2004 to May 2006.

The earlier restrictions coincided with executive-level turmoil at DHA, which began with the 2003 ouster of former Executive Director James Tabron over a credit-card scandal and continued when HUD auditors found that DHA leaders had improperly channeled public-housing subsidies into other projects.

HUD lifted the restrictions about seven months after the authority's present chief executive officer, Harrison Shannon, took over. Shannon's Texas-derived connections to then-HUD Secretary Alphonso Jackson were a plus to the board that hired him.

But Jackson resigned in April 2008, departing ahead of other senior officials of former President George W. Bush's administration amid allegations of cronyism and other problems at HUD.

The procurement evaluation was part of a broader review of the Durham Housing Authority HUD officials conducted in June and July.

The inspectors issued six major findings.

Among them, they noted that DHA had given a "development consulting" contract to a man named Marshall Isler even though he ranked behind two other bidders on technical merit.

HUD policy urges the housing authority to select contractors based on technical merit and then negotiate price with the top-ranked firm. Inspectors found "no documentation" explaining the departure from procedure, save that Shannon "had worked with Mr. Isler previously."

The same finding also noted that DHA officials had failed to check HUD's banned-contractors list before awarding four contracts. The reviewers did not, however, say any of the four had actually gone to a banned contractor.

Reviewers also found that DHA hadn't documented work leading up to the award of some contracts, hadn't necessarily involved its procurement officer in reviews leading up to awards, hadn't documented one bid for a landscaping contract, and hadn't fully documented the evaluation of the winning bidder for its auditing contract.

The remaining finding faulted DHA officials for failing to do their cost estimates as federal regulations require before taking bids for four contracts, including the landscaping, audit and development-consulting contractors.

To get HUD's permission for major purchases, DHA officials will have to give the federal agency cost estimates, budgets, bid documents and proposed contracts. Following the selection of a contractor, they also have to provide bid evaluations and tabulations.

During a board meeting Wednesday, DHA Chief Operating Officer Sonny McMahand said officials should have a draft of their response to HUD ready next week. The authority has 30 days to answer the federal review.

Amoes Sheppard, public housing division director in HUD's Greensboro office, said regulators would be monitoring DHA "for quite some time."

He added that while HUD hadn't found any problems with construction contracting, the agency will also has to watch over that because the DHA has received a nearly $4.4 million federal economic-stimulus grant.