1. Description of Process
7-A. Bid Auditor's Checklist


1995 1996 Oct. Nov. Dec. Jan. Feb. Mar. April. | | | | | | | | ----------------------------------------- | Bid Admin | ------------- (2/27-4/5)


Pre-bid day preparations - general

Bid day preparation begins approximately eight to ten weeks prior to the bid day. Procedures that must be addressed and dates are described in the table below:

                Procedure                                   Time                    

Assemble bid day team (contracted         At least 10 weeks prior to the bid day.   
professionals)                            The contractor must engage the bid day    
                                          team leader.                              
                                          The leader will then assemble and engage  
                                          necessary professional staff.             

Confirm bid day location including        At least 8 weeks prior to sale.           
equipment rental security guard, etc.                                               

Perform test of the following to ensure                                             
that the procedures work as planned.                                                
Allow time to remedy a problem.                                                     

A. Bid file creation and consolidation    At least 2 weeks prior to sale.           
Bids are submitted on a simple disk and                                             
need to be consolidated for transfer to                                             
Bell Labs.                                                                          

B.  Data transfer   Mock bids will be     At least 2 weeks prior to sale            
made, consolidated (see above), and                                                 
transferred to Bell Labs.                                                           

C. Deposit monitoring   Bidders deposit   At least 2 weeks prior to sale            
funds via wire transfers to FHLB -                                                  
Atlanta.  Bid day team has the                                                      
capability of verifying deposits via                                                

D. Optimization model   Bell Labs         At least 2 weeks prior to sale.           
obtains the bids from the bid team and                                              
feeds the bids into the model and                                                   
computes the winner.  Mock bids will be                                             
created by the bid team and sent to Bell                                            
Labs to test the model.                                                             

Draft auditor checklist, correspondence   1 or 2 weeks prior to sale .              
with winning and losing bidders,          Prepare documents and obtain approval of  
correspondence with HUD, and award day    the format.                               

Bid Diskettes. Bidders are provided, in their bid package, diskettes that are formatted in a spreadsheet format allowing entries (bids) to be made in selected areas of the spreadsheet. WK1 format is chosen because it is the most basic version and can be used in most spreadsheet programs such as Lotus 1-2-3 and Microsoft Excel.

In lieu of submitting each individual disk to Bell Labs for processing for optimization purposes, Bell Labs has requested that the bids be submitted on one "MASTER" bid file. This file is a text file with line breaks. Each line represents a bid. It starts with a string of 750 (number of blocks) "1" and "0", "1' indicate that block is included in that particular bid The string is followed by a space, then a unique serial number for that particular bid, the corresponding bidder name not known by Bell Labs. The serial number is followed by another space, which in turn is followed by a decimal number (98.00123) indicating the percentage bid.

This procedure of consolidating each bid onto the "MASTER" bid file is performed by a program. The creation of the program is a contract service provided by a dedicated professional versed on spreadsheet use.

Data transfer and Optimization. The "MASTER" bid file is then compressed with password and sent (via internet) to Bell Labs. Bell Labs gets the password for the compression over the phone, decompresses the file, feeds it into the optimization computer program, and generates the winner.

Pre-bid day preparations - specific (March 20, 1996 sale)

Task: Data transfer test

Date: Feb. 27 and Feb. 28

Final discussions with Bell Labs about the structure of the sale. Revise the file format. Test the secured file compression, transfer and uncompression with new passwords.

Task: Security guard arrangement

Date: March 5

Reserve security guard from 8:30 a.m. to 6:00 p.m. for sale date.

Task: Testing the deposit monitoring software

Date: Feb. 28 and March 4

Software is loaded onto a notebook computer. The monitoring process is checked step-by-step to insure that it works appropriately.

Task: Testing of bid file creation and consolidation

Date: March 8

The FHA Single Family Mortgage Loan Sale #1 bid file is revised according to the change in structure. The software is tested to consolidate individual bid files into one "master" bid file. The spreadsheet file is transformed into the text file in the format specified by Bell Labs. Bid diskettes are reproduced with unique serial numbers.

Task: Testing of Optimization Model

Date: March 11

Submit multiple test bids to Bell Labs to assess accuracy and speed and to correct any problem before the bid day.

Task: Document drafting and revision

Date: As early as possible prior to the sale

Using documents, memos, etc. from the previous single family sale, compile a complete set of materials in preparation for the sale.

To maintain the highest quality and to minimize any time delay, all documents listed below should be formatted prior to bid day:

Bid day process - general

Bids must be received between 9:00 a.m. and 3:30 p.m. ET on the bid day. On the bid day, the bid documents need to be processed and bids transmitted to Bell Labs.

The tasks that must be completed on the bid day are:

Verify completeness of bids. Three individuals will be assigned, by the bid-day team leader, to be bid-day auditors. These auditors, either financial advisory staff or contract professionals, should be experienced in audit procedures. The bid auditors are sequestered during the bid day and are provided an audit checklist that must be completed for each bid. Any exception to the audit checklist must be brought to the attention of the bid-day team leader for resolution. The checklist is a series of tasks that must be completed by the bid auditor. Drafted by the team leader, the checklist is designed so that if each task is properly completed, the bid will be deemed in compliance. If the checklist cannot be completed for a particular bid, the bid is deemed non-conforming. Non-conforming bids (any exception to the bid auditor checklist) must be brought to the attention of the bid-day team leader. The leader will then take all exceptions to the "non-conformity bid team" (NCBT).

The NCBT should consist of the senior member of the financial advisory team, the top FHA program official, top OGC official(s), and a representative of any private sector attorneys hired for the transaction. The NCBT is responsible for examining each non-conforming bid and determining its treatment: either as a non-conforming and bid not accepted or as non-conforming but non-conformity is deemed immaterial and bid is acceptable.

A security guard will be present throughout the process. Also present will be an FHA representative.

Bid day process - specific (March 20 sale)

Task: Log bid packages

Time: 9:00 a.m. - 3:30 p.m.

Each incoming bid package will be placed on the bidder number desk. A team member will open each package and will log the bids included in each package. This person will assign a separate bidder number to each package. This same person will also maintain a control log of bidder numbers in Excel on a notebook computer.

The bidder number associate (BNA) will then:

1. Place the bids back into the package that the bids came in.

2. Hand to the supervisor the package and the appropriate pre-numbered manila jackets.

The supervisor will then assign each package (which could include one bid or numerous bids) to a bid auditor.

The responsibilities of the BNAs are to:

1. Open each incoming bid.

2. Determine number of bids in each package.

3. Assign bidder number for each package.

4. Return bids into the original package.

5. Give the original package and appropriate manila file jackets to a supervisor.

Upon opening each package, the BNA will log the following minimum information for each package. This information will be maintained on an Excel format.

1. Bid numbers included in the package

2. Sender's name

3. Air-bill number

4. Courier name

5. Time received

Task: Verify completeness of bids

Time: 9:00 a.m. - 4:00 p.m.

At the designated receiving site there will be sufficient space for three bid auditors to work comfortably. Separately, there will be a one-person work table for the "bank wire verification" person (explained below).

The bid auditor will receive the bids from the BNA, by way of the supervisor, in the manila jackets. It is estimated that each bid auditor will have to process 5-10 bidder packages. The audit checklist (Exhibit A) will be placed in the front of each manila file.

The bid auditors' responsibilities are to complete the audit checklist which includes, but are not limited to:

1. Reviewing the loan sale agreement ("LSA"). Verifying that there are no alterations to the agreement.

2. Verifying that the LSA is signed in all appropriate places.

3. Verifying receipt of sufficient funds from the bank wire associate.

4. Placing the manila jacket in bidder-number order into the fireproof file cabinet.

This checklist should be finalized one week prior to the sale.

The non-conforming bids will be separated from conforming bids and will be logged for examination by the non-conforming bid team.

Task: Verification of receipt of the earnest money deposits

Time: 9:00 a.m. - 3:30 p.m.

The individual designated as the bank wire verification person will verify receipt of funds sufficient to satisfy the terms of the loan sale agreement. This will be done on a notebook computer connected via modem to Federal Home Loan Bank in Atlanta.

Task: Check the bid diskettes and add to the master bid file

Time: 9:00 a.m. - 4:00 p.m.

This will be done on a notebook computer. A program for this purpose should be created and tested two weeks prior to the sale.

Task: Non-conforming bids

Time: 4:30 p.m. - 6:00 p.m.

The non-conforming bid team will be responsible for examining each non-conforming bid and determining its treatment, i.e., non-conforming and not acceptable or non-conformity is deemed immaterial and therefore acceptable.

Task: Interactions with Bell Labs

Time: 4:30 p.m.

The "master" bid file will be converted into a text file format and encoded with a password known only to the financial advisor and a Bell Labs representative and sent to Bell Labs via an Internet connection. A member of the financial advisory staff should communicate with Bell Labs regarding rerunning the model for different scenarios. Some preliminary credit reform analysis will be conducted by the financial advisor to ensure the successful bids selected by the optimization model generate a negative credit subsidy or, if not, to provide instructions to Bell Labs for reruns of the model.

Post-bid day processes

Task: Bid approval meeting preparation

Date: March 21

An authorization letter from HUD should be prepared as well as letters to successful and unsuccessful bidders. Analysis of the bids should be conducted and a presentation to HUD officials should be conducted. All documents of recommended successful bidders must be prepared in a manner that is simple, concise, and accommodating to HUD.

Task: Bid approval meeting

Date: 8:30 a.m., March 22

The senior member of the financial advisory team will present to HUD the recommendation regarding the winning bids or for conducting a best and final round. The senior financial advisory team member will also obtain the required signatures from authorized HUD officials during or after the meeting. The bid administration official and the senior marketing official will assist.

Task: Notification to bidders for best and final

Date: March 22

Bidders that are eligible for the best and final round will be notified by phone and fax.

Task: Notification to successful and unsuccessful bidders

Date: March 22

Phone calls will be made to successful bidders. The awarding letter will be faxed to successful bidders. One copy of the executed loan sale agreement, as well as the original awarding letter, will be send to successful bidders via overnight delivery.

Letters to unsuccessful bidders will be faxed and mailed to them.

Task: Refunds to unsuccessful bidders

Date: March 29

The supervisors, with assistance from bid auditors, will compute the amount due to each unsuccessful bidder. These same calculations will be performed by HUD - FHA representatives, who will also get the necessary approval for funds to be wired to unsuccessful bidders.

Task: File organization and cleanup

Date: April 1-5

Organizing files, post sale correspondence, and general clean-up will be done primarily by the bid administration official.

7-A. Bid Auditor's Checklist