AYBR Program Administration

Lesson 10: Contracts and construction management

Module 4, The project · 14 practice questions

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Reading

Once the Department approves the selected bid, the job moves from paper to a real house with a real household living in it. This lesson covers the agreements that govern the work, the steps before the first day on site, how to manage change orders, how the clock works, and the warranty you owe at the end. GCHS's role is construction management, so this is the part of the program where your judgment shows most.

Three layers of agreements

People say "the contract" as if there were one. There are several, and each one controls something different.

Agreement	Between	What it controls
RSP Agreement	Department and GCHS	GCHS's standing as a Reservation System Participant
Household Assistance Contract (HAC)	Department and GCHS	The award, the term of up to 12 months from full execution, and the draw period
Construction contract	GCHS and the contractor	The line-item scope and price, and each party's responsibilities
Signed write-up and payment documents	Household, with GCHS and the contractor	The household's agreement to the work and its completion

The rule sets no required terms for the construction contract. The manual only says it must clearly state each party's responsibility, and you upload it at Stage 3. Because the rule is silent, write the contract so it matches the approved work write-up and the selected line-item bid, state each party's responsibility plainly, and check the current Program Manual before you finalize your template.

Wait for the Department's notice

After Stage 3 approval, the manual says the Department will notify the Administrator to proceed with construction. Until that notice arrives, nothing starts. Approval of a bid is not the same as permission to build, and a contractor who starts early puts the household's job, and GCHS's reimbursement, at risk. Use the waiting time well: confirm the contractor's start date and crew plan with the household, check that permits needed for the work are in hand, and make sure the conference is on everyone's calendar.

The pre-construction conference

The manual requires a pre-construction conference with the winning contractor at the construction site. Plan for the contractor, any subcontractors who are likely to work on the job, the household, and GCHS program staff. Use the Pre-Construction Conference form. Walk the house and re-inspect every item in the scope so everyone agrees what each line means, where it goes and what the household expects.

The manual is direct about one thing: demolition and construction may not begin until the Administrator authorizes it. That authorization is GCHS's decision, made after the Department's notice and the conference. Record it in the Activity File.

Every construction step waits on the one before it, and the HAC expiration date is the clock for the finish and the final draw.

Overseeing the work

The manual says Administrators are responsible for providing oversight of the construction contractor. For GCHS that is the heart of construction management. Interim (progress) inspections are optional under AYBR, but the manual encourages them so you can photograph work before it is covered, such as framing and plumbing rough-in behind a new wall. The rule on interim inspections in 10 TAC 20.9(b) does not apply to AYBR, and the manual calls them optional. The Department may also make periodic construction site visits, so the file should always be ready for a visitor. Monitoring, covered in Lesson 12, looks at construction quality as one of its four areas, alongside finance, administration and eligibility.

A construction manager's checklist

Three short lists keep the job on track. They come straight from the steps above.

Before work starts: the Department's notice is in the file, the Pre-Construction Conference form is signed, every scope item was re-inspected on site, and GCHS's authorization to begin is recorded.
While work is under way: photograph work before it is covered, get written approval before any change, keep a dated log of household complaints and what was done, and keep the file ready for a Department visit.
At the finish: close the punch list, walk the work against the scope, collect the payment request signatures, and give the household the warranty papers.

One more habit is worth building. On the day the HAC is fully executed, put its expiration date and the draw due date (60 calendar days after expiration) on a shared calendar, along with a check-in well before expiration. If a job is slipping, the time to ask about an amendment is while there is still room on the calendar, not in the last week.

Change orders: approval comes first

10 TAC 26.27(g) is short and strict. You must obtain written Department approval prior to the commencement of any work related to the proposed change. Work done without it "may result in disallowed costs." The manual adds the working details:

Use the Program's change order form, with a detailed specification and a justification.
Tie the price to the contracted line-item prices.
The added work must be fair and reasonable.
A change order that pushes hazard spending over the 25 percent limit may be disallowed.
A change order first submitted with the draw, without prior approval, may be disallowed.

Why this matters

A change order is the one place where the program tells you to stop work and wait. Contractors want to keep moving, and households want the job done. The cost of asking first is a few days. The cost of not asking is disallowed costs, and the Department can require disallowed costs to be repaid immediately.

Worked example: the Whitfield change order

Mr. Whitfield (a made-up household) has a $18,000 construction contract for a roll-in shower and a wider doorway. His Hard Costs budget is $18,000, and hazard repairs already approved total $4,400 (electrical panel and gas line work). That is about 24 percent of Hard Costs, just under the 25 percent limit of $4,500.

After demolition the contractor finds a rotted subfloor under the old tub, caused by a leaking drain. Replacing it and the drain costs $600. A leaking drain falls under the plumbing and sewer items on the hazard list, so the $600 counts toward the hazard cap. It is not an alarm, GFCI, AFCI or egress item, so it gets no exception.

The contractor stops work on that area. GCHS tells the contractor in writing that nothing related to the change starts yet.
GCHS prepares the change order on the Program form, with a specification, a justification and line-item prices tied to the contract, plus photographs as good practice.
GCHS sees the problem: $4,400 plus $600 is $5,000, which is above the $4,500 limit. The rule lets the Department approve a different ratio, so GCHS says so in the justification and asks.
Only after written approval does the work begin.

If the Department says no, the choices are to find another way to fix the condition within the limits, to commit supplemental funding as the manual describes for budget gaps, or to apply the walk-away policy. What you cannot do is fix it first and explain at the draw.

The clock: HAC term, draw period and extensions

The HAC term may not exceed 12 months from full execution unless it is amended (10 TAC 26.24(g)). The adopted rule in 26.28(a) says you must complete all construction before the HAC expires and submit the draw not more than 60 calendar days after expiration. Earlier drafts of the rule described a 90-day clock from bid approval; the adopted rule has no such clock, so teach the HAC date.

When more time is truly needed, the route is an amendment. The Executive Director's designee may extend the term by up to three months and the draw period by up to three months (26.24(h)). The manual describes a request letter on Administrator letterhead, signed by the executive director, sent to the Single Family and Homelessness Programs Director, and says it can be sent electronically. It gives that procedure in a sentence about a "one-time, 30-calendar day extension," which conflicts with the manual's own three-month text on page 10. Use the letter as your working method and confirm it with the Department. Teach the rule's three months for the designee's approval. The Executive Director may approve other amendments, but not an extension of the term by more than 12 months (26.24(i)). Treat two points as open: whether a second extension is possible, and how the 30-day text will be corrected. Do not plan a job around a second extension.

When the household is unhappy

If the household expresses dissatisfaction with the completed work, the Department may delay approval of the draw to resolve the conflict (10 TAC 26.28(d)). That is why you listen during the job, not only at the end. Write down complaints, what you did about them, and when. A written trail also helps if the Department asks.

The payment request

The contractor may ask for payment only after all costs have been incurred and the work is satisfactorily complete. By signing the Construction Contractor's Request for Payment, the contractor, the household, the Inspector and the Administrator each verify every line item. Do not circulate it for signature until you have walked the work against the scope.

The 12-month warranty

10 TAC 26.27(c)(4) says Administrators and subcontractors must honor a twelve-month warranty on all completed items. Under 26.28(b) you send evidence with the final draw that the builder gave a one-year warranty on new, good quality materials, work free of defects and work that conforms to the contract documents. Under 26.28(c) you give the household all warranty information, including manufacturer and installer warranties. Lesson 11 shows where that sits in the draw package.

Picture the household calling in month nine because a grab bar has loosened. The twelve-month duty means GCHS cannot say the job is closed. Put the contractor's name and contact details in the warranty packet you hand the household, tell them to call GCHS first, and log the call and the fix. That log is simple good practice, and it shows a monitor that the warranty was honored in fact and not only on paper.

What goes wrong

These are teaching examples drawn from the requirements, not TDHCA findings data.

Starting demolition before the Department's notice or before the conference.
Approving added work by email or text and sending the change order with the draw.
Adding hazard work that pushes the total above 25 percent without asking.
Letting construction run past the HAC expiration date and planning on an extension.
Collecting signatures on the payment request before checking the work.
Leaving warranty papers with the contractor instead of giving them to the household.

Practice questions

1. Stage 3 has been approved for the Whitfield household. What must happen before a contractor may begin demolition?

Nothing more is needed, because Stage 3 approval is itself the notice to proceed and the contractor may mobilize at once
The Department notifies GCHS to proceed, the pre-construction conference is held, and GCHS authorizes the start
The household signs the Final Inspection form and the contractor submits an interim draw request to the Department
GCHS files the Audit Certification Form and the Department schedules its first monitoring visit

2. Who is expected at the required pre-construction conference, and where is it held?

TDHCA staff and the contractor by telephone, with GCHS staff and the household listening in as observers only
GCHS staff and the contractor at the GCHS office, because the household is not required to attend the conference
The contractor and the household's lender, at the lender's office before the HAC is signed
The contractor, likely subcontractors, the household and GCHS program staff, at the construction site

3. After demolition in a bathroom, the contractor finds a rotted subfloor and wants to replace it right away to hold the schedule. What must happen first?

GCHS submits a change order on the Program form and gets written Department approval before the related work starts
GCHS approves the work by email and reports the added cost to the Department with the final draw request at the end of the job
The household and contractor sign a note and the work proceeds, with the Department reviewing the change when it checks the Stage 4 draw package
Nothing, as long as the added cost is under 10% of the Hard Costs and the Inspector photographs the repair afterward

4. What can happen to a change order that is first submitted with the draw, without prior approval?

It is accepted automatically if the Inspector and the Administrator both signed it before the work
It is accepted if the household initialed the added work on the Final Inspection form
The Department may disallow its costs
The reservation is cancelled and can never be resubmitted, even if funding is available

5. How should the cost of work added by a change order be set?

As a single lump sum agreed with the contractor at the site and recorded in the Activity File by the Inspector
At the contractor's current retail price list, whatever unit prices the signed contract used for similar work
At a flat 10% markup on the original contract total, so that line-item pricing is not needed for the change and the Department is not asked
Tied to the contracted line-item prices, with a detailed specification and justification, and fair and reasonable

6. A household's Hard Costs budget is $18,000 and hazard repairs already total $4,400. A change order adds $600 of hazard work that is not an alarm, GFCI, AFCI or egress item, and no Department exception is in place. What is the problem?

There is no problem, because the limit is 40% of Hard Costs, which is $7,200, and the total stays below it
The total would be $5,000, above the 25% limit of $4,500, so the change order may be disallowed
There is no problem, because change orders are exempt from the hazard cap once the contract is signed and approved
The total exceeds the 10% Soft Cost ceiling of $1,800, so the change order must be funded as Soft Costs

7. A HAC has just been fully executed. When must construction be finished and when is the draw due?

Construction must be finished before the HAC expires, and the draw is due not more than 60 calendar days after expiration
Construction within 90 calendar days of bid approval, with a draw due within 30 calendar days after that, plus one 30-day extension
Construction within 12 months of the notice to proceed, and the draw at any time before the next Audit Certification Form
Construction within 60 calendar days of the notice to proceed, and the draw within 12 months of the HAC

8. GCHS needs more time to finish a job. What does the adopted rule let the Executive Director's designee approve when more time is needed?

A single 30-calendar-day extension requested online by the Inspector
An extension of up to six months, approved by the household in writing without Department review
An amendment adding up to three months to the term or up to three months to the draw period
No extension of any kind, because the reservation is cancelled once the HAC expires

9. Which statement about the warranty is correct?

Subcontractors must honor a six-month warranty on materials only, and Administrators are not bound by it
Administrators and subcontractors must honor a twelve-month warranty on all completed items
The contractor alone must honor a 90-day warranty on structural items only, and GCHS has no duty
A warranty applies only if the household buys an extended service plan from the contractor

10. What must GCHS do with warranty information at the end of the job?

Keep it in the Program File only and give the household a copy if the household asks
Send it to the Department after the 12-month warranty period has passed
Give it to the contractor, who keeps it for the length of the warranty
Give the household all warranty information, including manufacturer and installer warranties, and send evidence of the builder's one-year warranty with the final draw

11. After the work is finished, the household tells GCHS it is dissatisfied. How can that affect payment?

The Department automatically reduces the administrative fee by 10 percent until the household signs off
The Department must cancel the reservation and the household loses the grant entirely
The Department may delay approving the draw while the conflict is resolved
Nothing, because only the Inspector's findings are considered at the final inspection

12. Why does the Program Manual encourage optional interim inspections?

To photograph and check work before it is covered up, since GCHS is responsible for overseeing the contractor
Because the Department pays an interim draw at 50 percent completion only if an interim inspection was done
Because 10 TAC 20.9(b) requires interim inspections on every AYBR project above a dollar threshold set in the NOFA
To replace the final inspection when the household cannot be at home for it

13. Under the manual, when may a contractor request payment, and who verifies each line item?

After half the work is done; only the contractor and the Administrator verify the line items
Only after all costs have been incurred and the work is satisfactorily complete; the contractor, household, Inspector and Administrator each verify
At each stage approval; only the Department verifies the line items
Once the crew leaves the site; the household verifies by telephone

14. Which describes GCHS procedure on a household's job?

GCHS crews perform the repairs to keep costs down, while outside firms only supply the materials
GCHS charges the household a coordination fee that is deducted from the grant at the final draw, shown on the invoice
GCHS manages construction, its inspectors and estimators never bid on a job they worked, and independent contractor firms do the repairs
GCHS staff may bid on any job if the household signs a disclosure form beforehand and the Department is told about it in advance of the bid

Glossary

Household Assistance Contract (HAC): The Department's contract with the Administrator for one household's award; its term is up to 12 months from full execution.
Notice to proceed: The Department's notice, after Stage 3 approval, that the Administrator may proceed with construction.
Pre-construction conference: The required on-site meeting of contractor, household and Administrator staff before work starts.
Change order: A written change to the contracted scope or price; it needs written Department approval before the related work starts.
Disallowed cost: A cost the Department refuses to reimburse, for example work done under a change order without prior approval.
Interim inspection: An optional progress inspection used to check and photograph work before it is covered.
HAC amendment: A change to the HAC, such as up to three more months of term or draw period.
Warranty: The twelve-month promise by Administrators and subcontractors on all completed items.
Punch list: The list of remaining items to correct before the final inspection can be signed.

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