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RER Solutions, Inc.

A Herndon, Virginia contractor that told Congress it put six employees on the contract SBA used to process COVID-19 Economic Injury Disaster Loans. SBA paid $926.1 million under that contract. RER's subcontractors were Rocket Loans and Rapid Finance. After RER paid them and their data costs, the House Select Subcommittee found that RER "still received more than $340 million for the work of six employees in less than a year," and called the result a "windfall."

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Updated

The profile

Individuals and companies whose conduct was challenged or called into question during or after the pandemic. See sources: Select Subcommittee staff report, June 14, 2022 Clyburn letter, July 30, 2020

In the archive

RER Solutions was the prime contractor on SBA's disaster loan recommendation services contract, No. 73351019D0001. It was not a lender. A July 30, 2020 congressional letter describes it as a minority-owned and women-owned business in SBA's 8(a) program, and names Errin Green, chairman and chief executive, as its addressee.1 The contract bought a system that received EIDL application data and returned a recommendation; SBA "retained the role and responsibility of approving EIDL loans and advance grants."2 SBA paid RER. RER subcontracted with RockLoans Marketplace LLC, doing business as Rocket Loans, which subcontracted with its affiliate Rapid Financial Services.3 Both companies belong to Dan Gilbert's group; Rapid is run by Will Tumulty. The record is SBA Inspector General Report 22-10 (April 14, 2022), a House Select Subcommittee staff report (June 14, 2022) and four congressional letters (2020–2021). None of them reports a criminal charge or an enforcement action against the three companies.

Before the pandemic

In early 2018 SBA solicited proposals for services to help its Office of Disaster Assistance process loans, after application volume rose following hurricanes Harvey, Irma and Maria. SBA limited the competition to small businesses and said it preferred a contractor that could return recommendations within 10 minutes.4 SBA received 10 proposals and awarded an indefinite-delivery, indefinite-quantity contract to RER Solutions Inc., with Rocket Loans as subcontractor. The Inspector General describes Rocket Loans as an affiliate of Rock Holdings and Quicken Loans.4 SBA awarded the contract on December 17, 2018, with a $100 million ceiling.5 RER and RockLoans Marketplace LLC had signed a teaming agreement on September 7, 2018.6

The Select Subcommittee's staff report describes RER's earlier federal work as professional services support. It lists a Department of Energy contract of about $1 million a year for "general and business management support services" and a $165,000 contract with the Department of Housing and Urban Development to support underwriting 2,460 loans.7

The contract's estimated volume was 65,000 loans a year, and SBA estimated that catastrophic events could generate more than 300,000 applications.8

What the Inspector General found about the 2018 award

The Inspector General's table of the 10 offers puts Team RER-Rocket 55.7 percent above the independent government cost estimate, in a field that ran from 75.7 percent above it to 88.1 percent below.9 SBA's acquisition standard treated a variance above 30 percent as significant, and the report says the contracting officer "did not analyze or address any of the significant variations."10 The award decision memo, as the report quotes it, said of the team's pricing: "It is hard to tell what we are paying for or what the level of effort is for the first 6 months."9

The Inspector General's first finding is that SBA "did not ensure fair and reasonable prices or contractor compliance with size standards for the 2018 contract."11 The size standard for the award was $15 million in annual revenue. The report says SBA did not evaluate whether RER's relationship with Rocket Loans made the two companies affiliates under the ostensible subcontractor rule. In the report's words, "RER on its own may have been a small business, but RER relied on Rocket to perform vital contract requirements."11 The teaming agreement said the prime contractor would perform the primary and vital requirements and would always control the prime contract. The same agreement specified the subcontractor's commercial software.6 The report's conclusion on this point is that "RER and Rocket Loans circumvented the subcontracting rule."12

During the pandemic

On March 31, 2020, SBA reported 680,000 COVID-19 EIDL applications in a single day, and more than 4.5 million over the next 10 days.8 SBA issued a $50 million task order under the RER contract on March 29, 2020.5 Using emergency contracting authority, it then raised the ceiling without competition. The Inspector General puts the increases at $100 million to $600 million in April 2020 and to $850 million in August 2020.13 The House staff report and the February 2021 letters give the later figure as $750 million.14 The staff report says then-SBA Administrator Jovita Carranza approved the April modification and calls the modified contract the largest the federal government awarded in response to the pandemic's economic impact.14

Who did the work

Under the second task order SBA relied on the Rapid Finance Portal, the system of RER's second-tier subcontractor. Rapid Financial Services began processing loan recommendations in late March 2020 through a subcontract with Rocket Loans.8 The staff report says Rapid's system "reviewed COVID-19 EIDL application information in less than a second to provide fraud alerts, credit checks, and approval or denial recommendations," and that SBA agreed to pay RER more than $40 for each application reviewed.15

The staff report gives this division of the $738 million SBA had paid through February 2021: RER $357 million (48 percent), Rocket Loans $233 million (32 percent) and Rapid $148 million (20 percent).3 Rapid had 163 employees and contractors on the work and paid $39 million to third-party data providers. Rocket Loans identified 20 employees. RER told the Select Subcommittee it assigned six.316 According to the report, RER's staff "largely performed 'contractual administrative duties'" such as negotiating with SBA and sending invoices and application counts, along with high-level "project management."16 SBA also paid a flat fee of at least $2.3 million a month, more than $25 million in total, on top of the per-recommendation fee.17

RER represented to the Select Subcommittee that it paid 51 percent of the "hard costs" Rocket Loans invoiced for credit checks and other third-party data. The staff report says those costs came to $31.7 million in the invoices RER produced. After subtracting them and the payments to subcontractors, it says, RER "still received more than $340 million for the work of six employees in less than a year."16 The report's word for the result is "windfall."3

The Inspector General's payment figures

The Inspector General worked from SBA's accounting system and subcontractor invoices obtained from RER. Its table shows total contract payments of $756,229,307.76 across three task orders, of which the prime received $365,115,454.31 and the subcontractor $391,113,853.45. The COVID-19 task order accounted for $740,506,022.40.18 Small-business set-aside rules bar a prime from subcontracting a majority of the work to larger businesses. The report identifies $13,046,124.50 paid to the subcontractor above the 50 percent limit and lists it as a questioned cost.1819 SBA asked RER in December 2020 to confirm it was following the limitation. "The prime contractor asserted it complied and SBA accepted the response without any supporting analysis or evidence."18

The report's second finding is addressed to the agency: SBA's use of emergency contracting procedures "did not ensure fair and reasonable prices or contractor compliance with subcontracting limitations." Because SBA did not consider alternatives, the report says, "SBA likely overpaid to obtain these services."20

The congressional inquiry

The House Select Subcommittee on the Coronavirus Crisis and the House Committee on Small Business wrote to RER on July 30, 2020. They asked for the contract, its modifications, the agreement between RER and Rocket Loans, and written answers about how the work and revenue were split.1

A second letter followed on February 11, 2021. It said RER had answered a request for "a complete list of all fraud checks conducted on EIDL applications" with "a single document with brief guidance from SBA." RER had also declined to hand over unredacted proposals, "asserting that the documents contain 'highly sensitive commercial information that could jeopardize RER's competitive interests if the documents were to be made public.'"21 The letter records RER's own account of staffing: its personnel were a "small percentage of overall staffing," perhaps "15-20%" of a project team of "a couple hundred people." It also records RER's position on the set-aside rule: "RER asserts that it is complying with this subcontracting requirement by paying Rocket less than 50% of the overall value of the contract."22 The companies, the letter says, had told the Committees they did not track headcount or keep hourly records for the project.22 Letters went the same day to Rocket Loans and to Rapid Finance.23

By June 2022 the Select Subcommittee had received 17,000 pages of documents from SBA, RER, Rocket Loans and Rapid, and had held two briefings with RER and Rapid.2

RER's defense of the price

The staff report records RER's argument and answers it. RER compared the $41 it received per application with the higher fees banks charged to originate Paycheck Protection Program loans and with SBA's own costs in smaller disasters. The report calls the comparison "faulty," on the ground that RER and Rapid provided automated processing "with no manual review of applications." SBA separately employed about 8,000 loan officers, team leads and other staff to review applications after Rapid's system had processed them.24

How the contract ended

The Inspector General made six recommendations, all addressed to SBA. SBA agreed or partially agreed with each one, and agreed with the questioned costs.25 Two recommendations were unresolved when the report issued. One of them asked SBA to request a formal size determination "to evaluate whether the loan processing contractor exceeded the size standard." SBA management answered that RER had self-certified as a small business at the time of award and that a formal size determination "is not appropriate at this point." It proposed instead to request a size representation from RER before issuing new task orders or exercising options. The Inspector General maintained its position.26 Its semiannual report for the six months to March 31, 2023 still listed three of the six recommendations as open, the size determination among them, with $13,046,125 in potential cost savings attached. SBA had reached a management decision on the size determination on March 15, 2023, with final action due March 31 (SBA OIG, Spring 2023 Semiannual Report to Congress). The report for the six months to September 30, 2023 no longer lists Report 22-10 among reports with open recommendations (SBA OIG, Fall 2023 Semiannual Report to Congress). Neither report says whether a size determination was made or what it found.

USAspending.gov records seven task orders under the contract, with $928,860,279.13 obligated and $926,083,978.73 paid (task-order totals). Two were COVID-19 orders. The first, issued March 29, 2020 and running to September 30, 2021, shows $800,000,000 obligated and the same amount paid (task order 73351020F0071). The Inspector General, working from SBA's accounting system for its 2022 report, had counted $740,506,022.40 paid on it. The second, for $80,000,000, covered October 1, 2021 to June 30, 2022 (task order 73351021F0230). The other five orders account for the remaining $48.9 million; one of them ran from March 4, 2023 to March 3, 2024, for $6,746,180.87 (task order 73351023F0038). USAspending gives the contract itself an end date of March 17, 2024 (contract 73351019D0001). The staff report's invoice totals leave RER $357,338,310.65 after its subcontractors were paid, the same figure as the prime contractor's column in the Inspector General's table. Neither report covers the $139.5 million SBA paid on the two COVID-19 orders beyond the Inspector General's count, and USAspending lists no subawards on either order.

The staff report adds a figure from the public filings of Rocket Loans' parent company: Rocket Loans' revenue rose from less than $25 million in 2019 to more than $393 million in 2020, then fell to $95 million in 2021. The report quotes the parent's explanation of its 2021 results: "mainly as a result of a reduction in revenues earned from processing economic injury disaster loans offered by the Small Business Administration in response to the COVID-19 pandemic."27

Source notes

Primary documents in this archive

External references

Notes

  1. Letter to Errin Green, Chairman and Chief Executive Officer, RER Solutions, Inc., July 30, 2020, pp. 1–3. The address block reads 950 Herndon Parkway, Suite 410, Herndon, VA 20170. The same letter cites Dun & Bradstreet for a count of 40 employees. ↩
  2. House Select Subcommittee staff report, Idle on EIDL Fraud, June 14, 2022, PDF p. 10. ↩
  3. Staff report, PDF p. 21. ↩
  4. SBA OIG Report 22-10, PDF p. 5 (report p. 1); contract number at PDF p. 23, Table 4. ↩
  5. Letter to Errin Green, February 11, 2021, p. 1. OIG Report 22-10, PDF p. 6, describes the same ceiling as options to extend for up to four years with a price cap of $100 million. ↩
  6. OIG Report 22-10, PDF p. 11 and its note 12 (RER Solutions Inc. and RockLoans Marketplace LLC Teaming Agreement, September 7, 2018, p. 3). ↩
  7. Staff report, PDF p. 6. ↩
  8. OIG Report 22-10, PDF p. 6. ↩
  9. OIG Report 22-10, PDF p. 10, Table 1 and the text below it, quoting the SBA Award Decision Memo, Solicitation No. 73351018R0010, December 7, 2018, p. 27. ↩
  10. OIG Report 22-10, PDF p. 9. ↩
  11. OIG Report 22-10, PDF p. 8, Finding 1. ↩
  12. OIG Report 22-10, PDF p. 12. ↩
  13. OIG Report 22-10, PDF pp. 6–7. ↩
  14. Staff report, PDF p. 7; letter of February 11, 2021, pp. 1–2. ↩
  15. Staff report, PDF p. 5. ↩
  16. Staff report, PDF pp. 21–22. ↩
  17. Staff report, PDF p. 20. ↩
  18. OIG Report 22-10, PDF p. 16, Table 3 and the text below it. ↩
  19. OIG Report 22-10, PDF p. 15 and PDF p. 23, Appendix II, Table 4. ↩
  20. OIG Report 22-10, PDF p. 13, Finding 2. ↩
  21. Letter of February 11, 2021, pp. 2–3. ↩
  22. Letter of February 11, 2021, pp. 3–4. ↩
  23. Letters of February 11, 2021, to Rocket Loans and to Rapid Finance. ↩
  24. Staff report, PDF pp. 20–21. ↩
  25. OIG Report 22-10, PDF p. 2 (executive summary), PDF p. 17 and PDF p. 20 (Recommendation 5). ↩
  26. OIG Report 22-10, PDF p. 12 (Recommendation 3) and PDF p. 19 (status and management response). ↩
  27. Staff report, PDF p. 22. ↩
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