Legal Alert

Alternative Project Delivery Methods Authorized for Repairs at 25,000 NYC Public Housing Units

July 11, 2022

Summary

Hoping that faster construction methods can be combined with increased subsidies to undertake billions of dollars of desperately needed affordable housing renovations, New York’s Legislature has authorized the use of several alternative project delivery methods on some New York City affordable housing units. Contained in the NYC Public Housing Preservation Trust Act, the plan to use alternative construction methods is contingent on federal authorization of subsidies to provide ongoing support for units currently owned by the New York City Housing Authority (NYCHA).

The Upshot

  • Enacted last month, the Act takes effect August 15, 2022. It creates a new public authority, the New York City Public Housing Preservation Trust. Its purpose is to facilitate the design, development, construction, reconstruction, improvement, modernization, rehabilitation, repair, and operation of housing for low-income families currently within NYCHA’s portfolio.
  • The Trust is authorized to use a best-value selection methodology to enter into design-build, construction manager-build (CM/Build) and construction manager at-risk (CMAR) contracts. The contracts can utilize incentive payments and be cost-plus-not-to-exceed-guarantee-maximum-price contracts and lump sum contracts.
  • NYCHA can transfer up to 25,000 units to the Trust, but approval is needed from the NYCHA Board, the U.S. Department of Housing and Urban Development (HUD), residents of housing facilities selected for modernization, and the Mayor of New York City.
  • Authorization for such alternative delivery methods sunsets in five years from the August 15 effective date.

The Bottom Line

If New York City can utilize the Trust as planned, authorization for CM/Build and CMAR—which very few New York public agencies have authority to use—might expand to other entities in the State. In addition, with yet another local agency authorized to use design-build, the Legislature will face continued requests from local agencies outside of New York City to be given the power to use design-build.

The New York State Legislature continued its support for the expanded use of design-build, along with approving additional alternative delivery methods, by passing the New York City Public Housing Preservation Trust Act (Act). Enacted on June 16, 2022, the Act provides a framework for the creation of the New York City Public Housing Preservation Trust, a local public benefit corporation, to use several alternative project delivery methods on up to 25,000 affordable housing units transferred from the New York City Housing Authority (NYCHA)—about 15 percent of its housing stock. 

Beyond design-build,1 the Act authorizes the Trust to undertake two additional alternative delivery methods—construction manager-build (CM/Build) and construction manager at-risk (CMAR)—giving the Trust broader authorization than recent design and construction procurement reform legislation for New York City and New York State agencies and authorities. The Act authorizes proposal selection based on a best-value determination using a two-step model. Step one requires that the Trust release an advertised Request for Qualifications. In step two, a Request for Proposals is issued to those entities who demonstrated a general capability to perform the advertised project in step one. The Trust then makes a best-value selection from the submitted proposals. The Act also authorizes the use of cost-plus-not-to-exceed-guarantee-maximum-price contracts, lump sum contracts, and incentive payments.

In justifying the law, the New York Legislature stated that by using innovative project delivery methods, combined with the leveraging of capital, NYCHA residents would see “renovations and repairs on a much faster timeline” than the traditional procurement methods currently available to NYCHA. According to the legislation’s Memorandum in Support, NYCHA estimates its apartments currently need a staggering $40 billion worth of major repairs, or about $200,000 per unit. According to NYCHA’s Blueprint for Change, this need grows at a rate of $1 billion a year. Despite this, NYCHA’s Five Year Capital Plan (2020-2024) includes only $4.5 billion for capital improvement projects due to funding limitations. 

The Act specifies the CMAR assumes all risk of construction costs exceeding the specified contracted-for amount: (i) during design, while acting as part of a team in conjunction with the owner; and (ii) during construction, acting as the general contractor at risk. The Act further specifies that the CM/Build serves: (i) as part of a team, in conjunction with the owner, during design; (ii) under the supervision of the owner, as a single point of responsibility to bid, select, and hold the construction contracts on behalf of the owner, during construction; and (iii) on behalf of the owner, as construction manager, during construction. 

Driving NYCHA’s efforts is a 2019 settlement with the U.S. Attorney’s Office for the Southern District of New York and the U.S. Department of Housing and Urban Development (HUD) relating to NYCHA’s provision of “decent, safe and sanitary housing.” Under the supervision of a federal monitor, NYCHA must commit to achieving performance goals regarding lead-based paint, mold, pests and waste management, elevators, heat, and inspections. These areas will be targeted for NYCHA’s modernization efforts.

The Trust will have the potential to nearly double the federal subsidies on the transferred units by leveraging larger federal Section 8 Leased Housing Program subsidies to the extent available, as opposed to smaller and more restricted conventional Section 9 public housing subsidies with its bonding authorization. Importantly, the ability to receive the Section 8 subsidies, and therefore the financing for the renovations, is dependent on approvals from HUD. 

Ballard Spahr’s P3/Infrastructure Group advises government and private sector participants on all facets of public projects, from schools, hospitals, courthouses, and the entire spectrum of social infrastructure to bridges, highways, and rail stations in the transportation sector. The Group’s attorneys have helped design and implement some of the nation’s largest and most innovative P3 projects.

Ballard Spahr’s Affordable Housing and Community Development Group is a national leader working at the forefront of the legal and business elements of affordable housing and community development. Our attorneys ensure that clients get the most benefit from transactions and help navigate shifts in the market, regulatory obligations, and government incentive programs.

 


[1] Design-build authority was granted to certain NYCHA projects in 2018 as part of the New York City Housing Modernization Investment Act and in 2019, NYCHA was granted broader design-build authority pursuant to the New York City Public Works Investment Act.

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