Background

BOP’s mission is to protect society by confining offenders in the  controlled environments of prisons and community-based facilities that  are safe, humane, cost-efficient, and appropriately secure, and that provide  work and other self-improvement opportunities to assist offenders in  becoming law-abiding citizens. BOP is organized into six regions of the  country—Mid-Atlantic, North Central, Northeast, South Central,  Southeast, and Western. BOP manages the construction of and operates  institutions at five security levels—minimum, low, medium, high, or  administrative security—to confine offenders in an appropriate manner.  Institutions constructed for a given security level generally have the same  design and features. For example, FCIs, which are medium-security  institutions, generally have strengthened perimeter fencing, cell-type  housing, and a wide variety of work and treatment programs. As such, FCI  construction projects typically include a UNICOR facility that employs and  provides job skills training to inmates. UNICOR is a government  corporation administered by DOJ, with the Director of the Bureau of  Prisons as its Chief Executive Officer. FCI construction projects also  generally include an adjacent work- and program-oriented minimum- security Federal Prison Camp, where inmates help serve the labor needs of  the larger, higher-security FCI.
We have previously reported that BOP follows a centralized, long-term  capacity planning process, with the aim of ensuring sufficient institutional  capacity while maintaining prison populations at safe-and-secure targeted  levels. BOP has two planning committees that are involved in the capital  decision-making process to identify new facility prison construction  projects: the Capacity Planning Committee (CPC) and the Long-Range  Planning Committee (LRPC). According to BOP headquarters officials,  CPC proposes new projects by BOP region using the Capacity Plan, which  provides projections of inmate population and rates of prison  overcrowding. BOP develops initial budget estimates for the projects that  CPC proposes, and LRPC ranks the proposed new prison facility  construction projects and makes specific funding recommendations to the  Director of BOP. The new construction projects are ranked on the basis of  agency need, funding, and the speed with which the projects can be  constructed.
BOP includes its proposed new construction projects in its annual Federal  Prison System budget request made to DOJ. As part of the DOJ annual  congressional budget submission, BOP also provides its Federal Prison  System Status of Construction report (status report), which provides  information on the status of construction for major projects that have  received funding. The specific information provided is as follows: each  project’s descriptive title, with name, type, and location; the amounts  funded, by fiscal year; the total project cost estimates; the funds obligated  to date; the estimated year of use; and a brief status of the project.  However, detailed project information is not provided in this status report.  Although BOP provides information to Congress about the specific  projects that it plans to support with the funds it requests, funding for BOP  construction is provided as a lump sum into its “Buildings and Facilities  Account,” rather than by the specific project. As a result, BOP can shift  funds within this account to fund cost increases on different projects.
In the last 10 years, BOP has completed 30 prison projects at a cost  totaling over $3.6 billion. BOP has received about $710 million for the 3  prison projects currently under construction—FCI Mendota, FCI Berlin,  and FCI McDowell. BOP has plans for 10 additional prison projects that  have received about $363 million in funding to date, as listed in its fiscal  year 2009 congressional budget submission.

		Developing Initial Project Cost Estimates

To request funding for construction projects such as a prison, an agency  must develop an initial project cost estimate several years before it plans  to begin construction. Cost estimating requires both science and judgment.  Since answers are seldom—if ever—precise, the goal is to find a  reasonable “answer.” Cost estimates are based on many assumptions,  including the rate of inflation and when construction will begin. Generally,  the more information that is known about a project and is used in the  development of the estimate, the more accurate the estimate is expected  to be. OMB’s guidance for preparing budget documents identifies many  types and methods of estimating project costs. The expected accuracy of  the resulting project cost estimates varies, depending on the estimating  method used.
As part of the project planning and budgeting process, BOP officials  develop an initial cost estimate when the need is identified for a prison in  a particular region of the country. Given that its prisons for a specific  security level generally have the same design features, BOP uses cost and  pricing information from a previous project to create a national average  cost for construction as the basis for its initial estimate of a new project.  To develop an initial cost estimate, BOP adjusts its national average cost  by assumptions for various factors, such as the difference in construction  costs for different regions of the country, the difficulty of construction,  and the expected inflation until construction is planned to begin. For  example, in 1999, BOP created a national average construction cost for an  FCI on the basis of the average of the 1998 bids for FCI Petersburg,  Virginia, the most recently available FCI construction cost information.  BOP adjusted FCI Petersburg’s pricing information to take into account  inflation between 1998 and 1999 and the relative construction costs in  Petersburg. To establish the initial estimate for FCI Mid-Atlantic—which  became FCI McDowell, located in McDowell County, West Virginia—BOP  adjusted the national average to take into account the relative  construction costs and difficulty of construction for the Mid-Atlantic  region of the country and inflation adjustment to 2001, which is when BOP  expected to begin construction. BOP used this estimate as the basis for  requesting funding.
BOP’s process of using cost information from an earlier project to  estimate the cost of a similar proposed project is one of the types of  estimates discussed in OMB’s guidance. Because this type of cost estimate  is based on a single overall project cost, guidance indicates that actual  project costs may vary from such an estimate by as much as ± 40 percent.  Actual costs may vary by this percentage even if the project begins as  assumed in the estimate because detailed project information, such as  quantities of particular construction components, was not used in  developing the estimate. A BOP official stated that he believes BOP’s  estimates are more accurate than ± 40 percent because it uses its own  historical project information, and the similarities shared by BOP projects.

	Project Delays Contributed to Increased Cost Estimates, and the Imprecise Nature of Estimates Was Not Communicated to Congress and Other Stakeholders

Delays in starting project construction or disruptions in available funding,  which interrupted construction, contributed to increases in cost estimates  due to inflation and to unexpected increases in construction material  costs. According to BOP officials, problems associated with selecting sites  for FCI Mendota, FCI Berlin, and FCI McDowell and with receiving the  funding later than planned in the initial estimates contributed to the  increase in the cost estimates. During the time that the projects were  delayed, construction costs rose at a rate higher than inflation. Also, cost  estimates are imprecise and should be expected to vary from the initial  estimates, but Congress and other stakeholders were not informed about  the extent to which costs might vary from the initial estimates.

		Problems with Site Selection and the Availability of Funding Contributed to Project Construction Delays

According to BOP officials, all three projects experienced delays in  beginning construction because of problems associated with selecting and  approving the sites for the prisons as well as with the availability of  funding. FCI Mendota also experienced disruptions in available funding  that led to an interruption in construction. See appendix II for project  estimates, budget requests, and funding for the three projects.

			FCI Mendota

In fiscal years 2001 and 2002, about $150 million was appropriated for a  high-security United States Penitentiary in California as requested in the  President’s budget. Funding was reduced in fiscal year 2002 when BOP  applied a rescission of about $5.7 million to the project. When BOP  initially estimated the cost for this project, it expected the contract to be  awarded in fiscal year 2001 and the construction to begin in fiscal year  2002. However, BOP did not award the contract to design and construct  the prison until fiscal year 2004. Mendota was selected as the prison site in  fiscal year 2002, at which time BOP changed the project to a medium- security FCI. Subsequent environment impact studies and approvals,  which included review and approval by the Environmental Protection  Agency (EPA), were completed in fiscal year 2004. In addition, the  continued availability of funding for this project came into question in  fiscal year 2004, when Congress rescinded almost $52 million of funding.  Furthermore, in fiscal year 2005 an amendment to the President’s Budget  proposed canceling $55 million from the unobligated balances in the  Buildings and Facilities Account previously provided for the FCI Mendota  project.
Despite this disruption in the available funding, BOP continued with the  FCI Mendota project because it expected that the rescinded funds would  be restored the following year. Partly as a result of the rescission, BOP  officials separated the work for this project into several pieces. This  decision enabled BOP to award a single contract for the project’s design  and construction in September 2004. The contract was structured for the  contractor to begin with design and allowed BOP to decide when and what  pieces of the construction would be done on the basis of the availability of  funding. In December 2004, with the funding it had, BOP directed the  contractor to construct the central utility plant, water tower, and general  housing units. The contract required BOP to award the remaining pieces  necessary to complete the facility—such as the support structures,  UNICOR factory, and Federal Prison Camp—no later than 2006 or the  option to do this work under the contract would expire. BOP did not  exercise the contract option because it had not received additional funds.  As a result, when the contractor completed its work, BOP could not house  prisoners at FCI Mendota. Figure 1 shows a comparison of the  uncompleted FCI Mendota in California to the completed FCI Forest City  in Arkansas.
Before BOP could solicit for construction bidders to complete the required  work at FCI Mendota, it had to contract for additional engineering services  to prepare construction documents. This was necessary to inform bidders  about what work had been done and what work remained to be  completed. In September 2007 after it received additional funding, BOP  awarded the contract to complete FCI Mendota.
We have previously raised concerns about this type of construction  management. For example, we have reported that nonconcurrent  construction—that is where different phases of a project are constructed  at different times—increases the overall cost to the government because it  requires additional and expensive mobilization of contractor staff and  equipment, security, work to procure building materials, and construction  management oversight. We also have raised concerns in prior work about  starting capital projects without all of the funding necessary to complete  the project or, if the project is divisible into stages, to complete a stand- alone stage that would result in a useable asset. While BOP had funding  for the pieces for which it awarded a contract, the pieces did not result in  a usable asset because it did not have enough of the pieces of the project  completed to house prisoners safely and securely. Although BOP shifted  some funds to help pay for the Mendota project, according to BOP  officials, sufficient funds were not available to fully fund the Mendota  project without delaying or canceling other projects that BOP had told  Congress it planned to begin.
To date, the total funding for FCI Mendota has exceeded the initial fiscal  year 2001 estimate by about $72 million, or almost 45 percent. However,  the latest project estimate is over $6 million, or 2.8 percent, more than the  current funding. BOP officials have told us that they do not plan to request  any more funding for this project, and that BOP will shift funds within its  Buildings and Facilities Account as necessary to complete FCI Mendota.

			FCI Berlin and FCI McDowell

In fiscal year 2004, about $154 million was appropriated for FCI Berlin,  and about $40 million was appropriated for an FCI in the Mid-Atlantic  region. When BOP initially estimated the costs for these projects, it  expected to receive funding for design and construction of these facilities  in fiscal years 2004 and 2002, respectively. BOP did not award contracts  for the design and construction of these projects until fiscal years 2007 and  2006, respectively. According to BOP, both projects experienced delays in  selecting the locations for the prisons and the environment impact studies.  For FCI Berlin, the property was acquired and EPA completed its approval  process in fiscal year 2007. For FCI McDowell, these events occurred in  fiscal years 2006 and 2005. In addition, BOP officials stated that they were  reluctant to proceed with construction because of OMB’s moratorium on  new construction for fiscal years 2005 through 2007. Also, the President’s  Budget included proposed cancellations of unobligated funds from BOP’s  Buildings and Facilities Account for fiscal years 2004, 2006, and 2007.
To date, the total funding for FCI Berlin and FCI McDowell has exceeded  the initial estimates by about $93.5 million and $112.3 million, or 56  percent and 89 percent, respectively. However, the latest project estimates  are more than $11 million and $9 million, or 4.2 percent and 3.7 percent,  more than the current funding for FCI Berlin and FCI McDowell,  respectively. BOP officials told us that they do not plan to request any  more funding for these projects, and that BOP will shift funds within its  Buildings and Facilities Account as necessary to complete them.

		Construction Costs Increased at a Rate Higher Than the Rate of Inflation

BOP factors into its estimates the project’s expected start date and  duration, on the basis of when BOP expects to receive funding. Generally,  if a project does not start as assumed in the cost estimate, the estimated  cost of the project should be expected to change at least by the rate of  inflation that occurs during the time that elapses between the expected  start date and the actual start date. BOP officials stated that during the  time that these projects were delayed, construction industry costs  increased at a rate greater than inflation. Costs for materials used in  construction, such as concrete, steel, copper, and oil, rose substantially.  For example, steel prices rose by about 60 percent and oil prices rose by  almost 150 percent between 2003 and 2007—a time between when the  initial cost estimates were prepared and when the projects were ready to  proceed with construction.
We analyzed national data on construction material costs from 2003  through 2007 to provide some context on increases to construction prices.  Specifically, to identify nationwide trends in the costs of many of the  materials used in construction—from concrete to electrical equipment— we analyzed the Department of Labor, Bureau of Labor Statistics’ Inputs  to Construction Industries Producer Price Index (ICIPPI). As shown in  table 1, from 2003 through 2007, the ICIPPI increased more than the  consumer price index, indicating that construction costs increased at a  higher rate than other costs.

		Cost Estimates Are Imprecise, and Congress and Other Stakeholders Were Not Informed of the Extent to Which They Might Vary

Because BOP estimates its initial project costs and requests funding early  in the planning process, generally before the specific location for the  prison has been selected, actual project costs can be expected to vary  from the initial estimates to some extent. This variance would be in  addition to any cost implications of a change in the project, such as a delay  in beginning construction. As we have previously noted in this report, the  extent to which one might expect actual costs to vary from estimates  typically depends on the type of estimating process used.
In developing its initial estimate prior to the selection of a site for the  prison, BOP relies on the cost of a previous prison as the foundation of its  estimate. However, BOP has more detailed information available than just  the cost of a previous prison, which, if used, would likely result in a more  accurate estimate. For example, BOP could analyze the design documents  or itemized costs that contractors on previous projects included in their  bills. In addition, when the project sites have been selected, actual local  market pricing for labor and material costs could be used. More BOP  resources would be needed to develop such an analysis.
According to government guidance, BOP’s method of using total cost  information from a prior project as the basis for its estimate may result in  actual project costs varying from the estimate by as much as ± 40 percent.  A BOP official stated that BOP’s estimating method results in more precise  estimates than ± 40 percent, but an analysis of the accuracy of BOP’s  estimating method has not been done.
Regardless of the estimating method used, Congress relies on information  provided by agencies when making funding decisions. Although BOP, like  other agencies, is not required to communicate the extent to which actual  costs may be expected to vary from its estimates in budget documents or  reports on project status, we have recently identified providing such  information as a best practice. BOP has not provided this information to  Congress and other stakeholders. Thus, BOP has not alerted them of the  risks that BOP might require additional funding to complete the projects  as originally planned. OMB guidance points out that estimating  inaccuracy—both overestimating and underestimating—can adversely  affect other projects. With overestimating, an agency may request and be  provided with more resources than it will actually need for the project,  thereby resulting in less resources being available for other projects or  programs. Underestimating projects can lead an agency to request less  resources than it will actually need to complete the project, potentially  leading to a significant reduction in the project scope, termination of the  project, or the shifting of funds from other projects. Inaccurate estimates  also reduce confidence in the accuracy of future estimates provided by an  agency. Consequently, BOP’s ability to inform Congress and other  stakeholders about the extent to which costs may vary from its initial  project cost is important as it plans additional prison projects and submits  subsequent funding requests.

	BOP Has Eliminated or Reduced Portions of Two Projects, and Plans to Use Its Construction Management Policies and Procedures to Control Cost and Schedule Changes

BOP eliminated or reduced portions of two projects, but did not clearly  communicate these changes to Congress and other stakeholders. BOP also  plans to use its construction management policies and procedures to  control cost increases and schedule delays during construction.

		BOP Has Eliminated or Reduced Facilities at FCI Berlin and FCI Mendota, but Did Not Clearly Communicate These Changes to Congress and Other Stakeholders

Congress appropriated funds for fiscal year 2007 that BOP indicated in its  status report were required to complete the three prison projects. However,  BOP eliminated portions of the FCI Berlin and FCI Mendota projects when it  awarded contracts in May and September 2007, respectively, to keep the  projects within the estimated costs provided to Congress. According to BOP  officials, the contractors’ bids for FCI Berlin and FCI Mendota were higher  than expected. In response, at FCI Berlin, BOP chose to eliminate the  UNICOR facility where inmates were to be employed and provided with job  skills training. Subsequently, UNICOR has agreed to pay for the cost of  constructing a smaller than originally planned facility, which has now been  added back to the project. At FCI Mendota, BOP eliminated both the UNICOR  facility and the minimum security Federal Prison Camp. Eliminating or  reducing the UNICOR facilities affects BOP’s mission to provide work and  other self-improvement opportunities for inmates. As a result, these two  projects are no longer the same as those for which BOP initially sought and  received appropriated funds.
While eliminating or reducing portions of two projects enabled BOP to  award contracts, the resulting facilities will not provide the same range of  services as originally planned. As part of its annual congressional budget  submission, BOP reports on the status of projects that have received  funding in the past. This status report includes the following information:  each project’s descriptive title, with name, type, and location; the amounts  funded, by fiscal year; the total project cost estimates; the funds obligated  to date; the estimated year of use; and a brief status of the project.  However, detailed project information is not provided in this status report.  In reviewing the BOP Status of Construction report in DOJ fiscal year 2009  budget documents, we found that the report does not discuss the  elimination of the UNICOR facility at FCI Mendota. Furthermore, BOP  did not mention that the Federal Prison Camp had been eliminated from  FCI Mendota. The only indication of this change is that the project title no  longer includes the words “with camp.” While BOP receives a lump-sum  appropriation for prison construction, Congress makes its appropriation  on the basis of, among other things, the project information provided by  BOP in its annual congressional budget submission. For FCI Berlin and  FCI Mendota, BOP did not clearly communicate to Congress or other  stakeholders that the facilities being constructed differed from those for  which funds were requested and appropriated. In addition, if BOP should  decide to construct these omitted facilities in the future and fulfill these  projects’ initial designs, it would likely cost more than if the facilities had  been constructed as one project. We have previously reported that  nonconcurrent construction of a project increases the overall cost to the  government because such construction requires additional and expensive  (1) mobilization of contractor staff and equipment, (2) security, (3) work  to procure building materials, and (4) construction management oversight.

		BOP Plans to Use Its Policies and Procedures to Control Cost Increases and Schedule Delays during Construction

BOP officials told us that they will have more ability to control project costs  because they have awarded design and construction contracts for the three  projects. These officials believe that using their construction management  policies and procedures will allow them to control cost increases and  schedule delays. Controlling schedule delays is critical because such delays  can lead to cost increases. BOP officials said they will use their Design and  Construction Procedures and Construction Management Guidelines to  manage the construction of prison projects. Within BOP, the Design and  Construction Branch is responsible for the oversight and management of  prison construction, and each project has a BOP project manager.
BOP’s Design and Construction Procedures outlines the specific tasks  that the Design and Construction Branch must complete to manage the  coordination, execution, oversight, and monitoring of the activities  required to construct the projects. For example, this guidance states that  the project manager must monitor and report on the contractor’s  performance during construction and review changes or a modification to  the contract to evaluate the extent to which BOP can hold the contractor  reasonably liable and, therefore, responsible for the resulting costs. To  accomplish these tasks, BOP’s Construction Management Guidelines  provides additional guidance, which identifies the processes that BOP staff  must follow to monitor the requirements and implementation of BOP  construction projects. For example, this guidance requires BOP officials  and the contractor to hold numerous design and construction meetings  throughout the duration of the project’s schedule to ensure good  communication and effective management of the project.
In addition, the Construction Management Guidelines requires specific  reports—including weekly status reports, monthly project progress  reports, performance evaluations of the contractor’s team members, and  other reports—to facilitate oversight and monitoring of the projects within  BOP. For example, this guidance requires the use of critical path method  scheduling that breaks a project down into a sequence of necessary  activities, which are placed into a project schedule that the project  manager can closely monitor. With this management tool, BOP has the  ability to monitor and track a project’s current progression of work in  relation to its initial schedule. This tool also gives the project manager the  ability to evaluate proposed construction changes or modifications to the  project and to understand their resulting impacts on the project’s  schedule. This evaluation step remains crucial because once BOP awards  the contract, any construction changes that impact the project schedule  may also lead to cost changes.
BOP’s guidance establishes clear lines of responsibility and documentation  requirements. The bureau’s Construction Management Guidelines also  outlines a detailed process that BOP must follow to manage and approve any  changes or contract modifications to the project. For example, this guidance  states that BOP’s project manager should review any proposed changes or  modifications to the project and determine if the changes or modifications  need further review by BOP’s Design and Construction Branch chief. If  further review is warranted, sufficient background information supporting the  changes or modifications should be provided to the branch chief, along with  the proposal. In addition, this guidance states that all change or modification  proposals should be discussed at regularly scheduled—or specially  scheduled—progress meetings with the contractor. If the changes or  modifications will affect the work, more detailed information should be  provided to justify them, and the project management team must also  evaluate them to ensure they are in compliance with BOP’s contract  requirements. Furthermore, to document the process, the guidance requires  that detailed files be created and maintained for all changes or modifications.
We found that BOP’s construction guidance—specifically, its Design and  Construction Procedures and Construction Management Guidelines— generally conform to government and industry management practices. We  compared BOP’s existing construction management policies and procedures  with existing guidance from OMB, the General Services Administration’s  Construction Excellence Features, the Department of Energy’s Project  Management for the Acquisition of Capital Assets, and the Construction  Industry Institute’s (CII) Guidelines for Implementation of CII Concepts:  Best Practices for the Construction Industry. Our review showed that  BOP’s construction management policies and procedures required systems  for monitoring, tracking, analyzing, forecasting, and reporting the status of a  project. For example, we found that BOP has procedures for reporting  important project information—such as cost and schedule, and their  deviations from trends—to the appropriate personnel, including management.  Furthermore, BOP has procedures for corrective actions when deviations in  cost and schedule occur as well as procedures for controlling project changes  or modifications.
In addition to the guidance, BOP officials said that the use of the Design- Build delivery system for two of these projects will help to reduce the risk  of additional costs being incurred during construction. This type of  project delivery system places the project design and construction under  one contract. This can reduce the risk of design errors being identified  during construction and leading to project delays or cost increases. To  provide some context to the extent that Design-Build contracting is  effective in managing construction, we reviewed the National Institute of  Standards and Technology and the CII study of the performance of the  Design-Build delivery method versus the traditional Design-Bid-Build  delivery system. The study found that for maintaining the project’s  schedule, as well as for managing any changes or rework needed during  the project’s construction, when the project was managed by its owner the  Design-Build system performed better than the Design-Bid-Build system.
BOP officials stated that they have more ability to control costs while the  project is under construction, and that for the FCI Mendota, FCI Berlin,  and FCI McDowell prison projects, they plan to continue to carefully  consider and approve changes after construction has begun to stay within  its budget. Since construction of the projects has just begun, it is too early  to evaluate the effectiveness of BOP’s construction policies and  procedures in controlling cost increases and schedule delays.

	Conclusions

When BOP asks Congress or other stakeholders to fund or support  projects, it is important for them to be aware of the extent to which actual  project costs may vary from the initial estimate. Given the continual  competition for limited funds, understanding that a proposed project may  need an additional 30 percent in funding as opposed to an additional 10  percent may influence their approval and funding decisions. In addition,  BOP is developing its estimates and requests funding on the basis of the  various facilities it intends to include in each project. If elements of a  proposed and funded project that can affect its functionality are  eliminated, the project may not fulfill decision makers’ expectations. In  addition, later construction of the omitted facilities would likely cost more  than if they had been constructed as one project. As the need for prison  space continues to grow, BOP’s ability to complete projects within budget  and with the elements initially anticipated will be important to  demonstrating BOP’s ability to manage its construction program. By  providing information on the accuracy of its cost estimates and clearly  communicating changes that could impact the projects functionality, BOP  would establish more accountability and transparency to its stakeholders.

	Recommendations for Executive Action

To improve accountability and transparency, we are making two  recommendations to the Attorney General of the United States to instruct  the Director of BOP to clearly communicate to Congress and other  stakeholders in DOJ’s annual congressional budget submission, in which  BOP provides its requests for funding and reports on the status of  construction projects:  the extent to which project costs may vary from initial estimates and   changes that may impact the functionality of projects.

	Agency Comments

We provided a draft of this report to the Department of Justice for its  review and comment. The Director of the Federal Bureau of Prisons  provided written comments on this draft. BOP concurred with our  recommendations and stated it would incorporate information on the  extent to which project costs may vary from initial estimates and changes  that may impact the functionality of projects in DOJ’s annual  congressional budget submission. BOP also provided technical  corrections, which we incorporated in this report where appropriate.  BOP’s comments are reproduced in appendix III.
We will send copies of this report to the appropriate congressional  committees and the Attorney General of the United States. Additional  copies will be sent to interested congressional committees and the  Director of the Office of Management and Budget. We will also make  copies available to others upon request. The report will be available at no  charge on the GAO Web site at http://www.gao.gov.
If you have any questions about this report, please contact me at   (202) 512-6923 or at dornt@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page of  this report. GAO staff who made key contributions to this report are listed in  appendix IV.

Appendix I: Objectives, Scope, and Methodology

To assess the extent to which costs changed for the three prisons  currently under construction and the reasons for those changes, we  obtained and analyzed the President’s budgets, the Department of Justice’s  budget justifications for the federal Bureau of Prisons (BOP) for fiscal  years 2001 through 2009, and appropriation laws for fiscal years 2001  through 2008. We obtained and analyzed BOP’s project files for three  Federal Correctional Institution (FCI) construction projects in Mendota,  California; Berlin, New Hampshire; and McDowell, West Virginia. To  determine the rate of inflation and other price indicators for the duration  of the three projects’ schedules, we obtained and analyzed the following  Department of Labor, Bureau of Labor Statistics’ data: (1) Producer Price  Index-Commodities, Metals and metal products, Steel mill products;   (2) Producer Price Index-Commodities, Fuels and related products and  power, Crude petroleum (domestic production); (3) Producer Price Index  Industry Data, Inputs to construction industries; and (4) Consumer  Price Index-All Urban Consumers. We obtained and analyzed (1) BOP’s  initial cost estimates for FCI Mendota, FCI Berlin, and FCI McDowell and  (2) information on prison projects completed from 1998 to 2007—10 years  prior to our review—to learn about BOP historical costs. We reviewed  BOP’s capital planning guidance. We obtained and analyzed the Office of  Management and Budget’s (OMB) guidance for Capital Planning and  Budget Submission. We interviewed BOP construction, budget, and  financial officials in Washington, D.C.
To assess the actions BOP has taken—or plans to take—to control cost  increases and schedule delays on the three current construction projects,  we obtained and analyzed BOP’s construction guidance and BOP’s project  files for FCI Mendota, FCI Berlin, and FCI McDowell. We obtained and  analyzed government and construction industry data concerning project  cost management and guidance from OMB’s Circular A-11, the General  Services Administration’s Construction Excellence Features, the  Department of Energy’s Project Management for the Acquisition of  Capital Assets, and the Construction Industry Institute’s (CII) Best  Practices for the Construction Industry. We obtained and analyzed  government and construction industry data concerning the performance of  the Design-Build delivery method versus the traditional Design-Bid-Build  delivery system from the National Institute of Standards and Technology  and the CII study. We interviewed BOP construction, budget, and financial  officials in Washington, D.C. We did not evaluate the effectiveness of  BOP’s construction policies and procedures in controlling cost increases  and schedule delays on these projects because although design and  construction contracts were awarded, little construction had been done.
We conducted this performance audit from June 2007 through May 2008,  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

Appendix II: FCI Mendota, FCI Berlin, and FCI McDowell: Project Estimates, Budget Requests, and Funding for Fiscal Years 2001–2009

Appendix II: FCI Mendota, FCI Berlin, and FCI  McDowell: Project Estimates, Budget Requests,  and Funding for Fiscal Years 2001–2009 (48,895)  (55,000)
Fiscal year 2009 funds have not been determined.

Appendix III: Comments from the Department of Justice, Federal Bureau of Prisons

Appendix IV: GAO Contact and Staff Acknowledgments

	Staff Acknowledgments

In addition to the individual listed above, Maria Edelstein, Assistant  Director; George Depaoli; Anne Dice; Carlos Diz; Colin Fallon; and Susan  Michal-Smith made significant contributions to this report.

Summary:
Why GAO Did This Study

The federal Bureau of Prisons (BOP) is responsible for the custody and care of more than 201,000 federal offenders. To provide housing for the federal prison population, BOP manages the construction and maintenance of its prison facilities and oversees contract facilities. GAO was asked to look into recent increases in estimated costs for Federal Correctional Institution (FCI) construction projects located in Mendota, CA; Berlin, NH; and McDowell, WV, which have led to almost $278 million or 62 percent more being provided in funding than initially estimated. This report addresses (1) the reasons for the changes to the estimated costs and (2) the actions BOP has taken--or plans to take--to control future cost increases and delays. GAO reviewed and analyzed BOP's fiscal years 2001 to 2009 budget documents, files for these three projects, and project management guidance. GAO also reviewed government and industry guidance on project management and met with BOP officials.

What GAO Found

For these three projects, delays in starting construction or disruptions in available funding that interrupted construction contributed to increases in cost estimates due to inflation and unexpected increases in construction material costs. According to BOP officials, delays resulted from problems with selecting and approving the sites for the prisons and with the availability of funding. BOP officials stated that they expected costs to increase by the inflation rate during the delay period, but did not anticipate that market forces would cause the construction costs to increase above the inflation rate, as they did. For example, steel prices rose about 60 percent and oil prices rose by almost 170 percent between the time that BOP prepared the initial cost estimates for these projects and when construction was ready to begin. In addition, because BOP estimates initial project costs early in the planning process, generally before an actual prison location is selected, variance from the initial estimates would be expected to some extent, even if the projects are not delayed. BOP, like other agencies, is not required to communicate how much it expects costs may vary from its estimates in its budget documents. Without such information, Congress and other stakeholders do not know the extent to which additional funding may be required to complete the project, even absent any project delays. BOP eliminated or reduced portions of two projects to remain within the amount that was funded and plans to use its construction management policies and procedures to control further cost increases and schedule delays. When awarding the contract for FCI Mendota in 2007, BOP eliminated a UNICOR facility, which would have provided additional employment and job skills training opportunities for inmates, and the minimum-security prison camp. At FCI Berlin, BOP eliminated the UNICOR facility when it awarded the contract in 2007, but subsequently added a smaller UNICOR facility to the project, which will be paid for by UNICOR. Intended to reduce costs, these changes also reduced the functionality of the two prisons, deviating from what BOP planned and requested funding for. In the subsequent budget submission to Congress and other stakeholders, BOP did not clearly communicate these changes, since BOP does not provide such detailed project information. Now that BOP has awarded the construction contracts for the three projects, BOP officials believe that their construction management policies and procedures will allow them to control cost increases and schedule delays. These policies and procedures reflect current government and industry project management practices to monitor and track projects, and to report on their status. Furthermore, BOP officials said that they plan to continue to avoid making changes that would increase construction costs after construction begins. GAO did not evaluate the effectiveness of BOP's construction policies and procedures in controlling cost increases and schedule delays on these projects because while construction contracts were awarded, little construction had been done.