Department of Veterans Affairs 

Office of Inspector General 

Follow-Up Audit of VA’s 

Major Construction Contract Award 

and Administration Process 

Report No. 08-01084-112 April 29, 2009

VA Office of Inspector General 

Washington, DC 20420 
 

 

 

To Report Suspected Wrongdoing in VA Programs and Operations 

Telephone: 1-800-488-8244 between 8:30AM and 4PM Eastern Time,

 Monday through Friday, excluding Federal holidays

 E-Mail: vaoighotline@va.gov 
Follow-Up Audit of VA’s Major Construction Contract Award and Administration Process 

Table of Contents 

Page 

Executive Summary ............................................................................................................i-iv 

Introduction

Purpose........................................................................................................................... 1

Background .................................................................................................................... 1

Scope and Methodology ................................................................................................ 2

Results and Conclusions

VA Strengthened Management Oversight of Major Contract Award and 

Administration but Additional Action Is Needed .......................................................... 3 

Conclusion ..................................................................................................................... 9 

Recommendations.......................................................................................................... 9 

Appendixes 

A. Monetary Benefits in Accordance with IG Act Amendments ............................... 12 

B. Prior Audit Report Recommendations ................................................................... 13 

C. Executive Director for Office of Acquisition, Logistics, and Construction........... 15 

D. OIG Contact and Staff Acknowledgments............................................................. 18 

E. Report Distribution................................................................................................. 19 

VA Office of Inspector General 
Follow-Up Audit of VA’s Major Construction Contract Award and Administration Process 

Executive Summary 

Results in Brief 

The Office of Inspector General (OIG) conducted a follow-up audit to determine whether 

the Department of Veteran Affairs (VA) implemented the corrective action plans in 

response to recommendations made in the OIG Audit of Veterans Health Administration 

Major Construction Contract Award and Administration Process (Report# 02-02181-79, 

February 8, 2005). The 2005 OIG report included 12 recommendations that addressed 

needed improvements in contract award, administration, and project management. The 

Under Secretary for Health concurred with the 2005 report recommendations and 

provided corrective action plans. 

VA has strengthened management controls and oversight of the major construction 

contracting process with the implementation of 10 of the 12 recommendations from the 

OIG’s 2005 report. To address the remaining two recommendations, VA still needs to 

improve project management oversight to reduce contract schedule slippage and to 

promptly close out projects so that unneeded funds can be reprogrammed. VA addressed 

10 of the 12 recommendations through the establishment of a Quality Assurance (QA) 

program and procedures to resolve significant differences between bid prices and 

Architecture and Engineering (A/E) estimates. 

Nine of the implemented recommendations required the establishment of a QA program. 

VA established the QA Service to oversee VA’s major construction contracts and ensure 

the contracts complied with Federal and VA acquisition regulations and VA policies and 

procedures. However, VA has no assurance that the QA Service is effectively 

monitoring major construction contracts because it has no written policies, procedures, 

and performance measures. Further, the QA Service did not have a staffing plan to 

ensure it met all of its QA program responsibilities. VA will not have adequate assurance 

that its major construction contracts are being effectively monitored until the QA Service 

increases its oversight activities; establishes policies, management procedures, and 

program performance measures; and develops a staffing plan to address all of its QA 

responsibilities. 

Background 

As of May 2008, the Office of Construction and Facilities Management (CFM) was 

responsible for 25 active major construction contracts valued at $715.6 million and eight 

completed contracts valued at $307.6 million that were closed out. Seven of the eight 

completed contracts valued at approximately $137.48 million were closed out and had 

unused funds totaling about $308,000. The fiscal year (FY) 2008 budget for Veterans 

Health Administration (VHA) major construction totaled approximately $1.07 billion. 

VA Office of Inspector General i 
Follow-Up Audit of VA’s Major Construction Contract Award and Administration Process 

At the time OIG issued its 2005 report, VHA's Office of Facilities Management (FM) 

was responsible for managing all major construction projects. In February 2007, FM 

was reorganized and realigned to the Office of the Secretary as the new Office of 

Construction and Facilities Management (CFM) under the direction of the Deputy 

Secretary. In October 2008, VA established the Office of Acquisition, Logistics, and 

Construction (OAL&C), which now includes CFM. The new office is headed by the 

Executive Director reporting to the Deputy Secretary. 

Findings 

Additional actions are needed to further strengthen national oversight of VA’s 

construction program. Specifically, VA needed to implement corrective action to 

improve monitoring of contract schedule slippage and needs to establish a formal 

program to close contracts in a timely manner. The QA Service also needed to develop 

formal written policies, procedures, and program performance measures to guide its QA 

operations, including needing a formal staffing plan to ensure the QA Service has the 

resources it needs to fully implement its work requirements. Further details of these 

issues follow.

Oversight of Contract Schedule Slippage Needed Strengthening. VA did not fully 

implement the 2005 report recommendation to implement more effective project 

management oversight to manage and reduce contract schedule slippage from a national 

perspective. In response to the 2005 report recommendation, VHA advised that a new 

QA Service oversight function would review the existing process for assessing contract 

slippage and the method by which feedback is provided to the field. However, QA had 

not performed these assessments or provided oversight of contract schedule slippage 

because its efforts were focused on performing field acquisition reviews of construction 

contracts. This lack of oversight could result in significant contract slippage and 

increased construction costs. 

Close-Out Program for Completed Contracts Needs To Be Established. VA did not 

fully implement the 2005 report recommendation to establish an effective program to 

ensure the timely close out of major construction contracts and identify unused funds that 

could be returned to the construction reserve account. In the 2005 report, VHA 

responded that they began improving the close-out process before the 2005 OIG audit 

report was issued, stating that FM reported they implemented a three-step process to 

identify contracts eligible for close out. FM would continue to reinforce timely close out 

and identification of unused funds through its QA oversight function. However, this 

2008 audit showed that FM did not have a formal three-step process in place. Instead, 

FM used an informal process to identify completed contracts to be closed out. CFM 

personnel stated the informal process is still in place. Further, QA did not provide 

oversight of the close-out process because its resources and efforts were focused on 

performing field acquisition reviews of construction contracts. Use of an informal 

process puts unused funds of $69,379 at risk of not being returned to the construction 

reserve fund in a timely manner. 

VA Office of Inspector General ii 
Follow-Up Audit of VA’s Major Construction Contract Award and Administration Process 

Quality Assurance Policy and Procedures Needs To Be Developed. VA has not 

developed formal written policies, procedures, or program performance measures to 

guide QA operations in oversight of major construction and quality assurance over 

CFM’s business lines and other responsibilities. In addition to oversight of major 

construction contracting, the QA Service’s Function Statement provides that QA is also 

responsible for quality assurance over CFM’s business lines. Other responsibilities 

include business planning, performance measures, lessons learned, and benchmarks (that 

address cost and pricing data, reviews of changes in contract scopes, and additional 

costs). Discussions with CFM management disclosed they are presently drafting written 

policy and procedures for its QA field acquisition reviews. However, written policies 

and procedures covering QA’s other responsibilities were not developed. Without 

written QA policies, procedures, and program performance measures CFM lacks 

reasonable assurance that the QA Service will provide effective oversight of major 

construction contracts and quality assurance for CFM operations. 

Formal Staffing Plan Needs To Be Developed. The QA Service lacks a staffing plan 

that addresses all of its responsibilities. The QA Service is responsible for oversight of 

major construction contracting and providing quality assurance for CFM’s business lines. 

While QA has developed some performance measures, the work in its other areas of 

responsibilities have been minimal. The primary focus of QA has been on the 

performance of field acquisition reviews and it is not staffed to perform its other 

responsibilities. Without a staffing plan that addresses all of its responsibilities, VA 

lacks assurance that QA has the resources needed to provide effective oversight over VA 

major construction and quality assurance over CFM operations. 

Conclusion 

VA’s QA Service provided oversight over its major construction contracting process in 

strengthening areas of contract award, administration, and project management by 

performing field acquisition reviews of high-risk construction activities identified in our 

prior audit as needing improvement. VA had not effectively implemented corrective 

actions in response to 2 of the 12 recommendations made in 2005. Specifically, VA did 

not fully implement a national corrective action plan to provide the project management 

oversight needed to manage and reduce contract schedule slippage or establish a program 

that provides reasonable assurance that major construction contracts close-outs are 

timely. 

In response to nine of the OIG recommendations in 2005, VA proposed and implemented 

corrective action to establish a Quality Assurance Program. However, the QA Service 

needs to develop and implement written policies, procedures, and program performance 

measures for the field acquisition reviews as well as for quality assurance over CFM’s 

other business lines. The QA Service also needs to implement a formal staffing plan to 

provide effective oversight of major construction contracts and quality assurance over 

CFM’s business lines. 

VA Office of Inspector General iii 
Follow-Up Audit of VA’s Major Construction Contract Award and Administration Process 

VA Office of Inspector General iv 

Recommendations 

1. We recommend the Executive Director for OAL&C implement an effective 

mechanism to monitor contract schedule slippage and minimize construction contract 

delays. 

2. We recommend the Executive Director for OAL&C establish an effective mechanism 

to ensure the timely close out of major construction contracts and identify unused 

funds that can be returned to the construction reserve account for use on other 

projects. 

3. We recommend the Executive Director for OAL&C develop written QA policies and 

procedures, and program performance measures addressing all QA Service areas of 

responsibilities. 

4. We recommend that the Executive Director for OAL&C develop a formal staffing plan 

to ensure all QA Service responsibilities are met. 

Management Comments and OIG Response 

The Executive Director for OAL&C agreed with our findings and recommendations and 

provided plans to implement acceptable corrective actions. Specifically, the Executive 

Director took appropriate action to implement recommendation 2; therefore, consider the 

recommendation closed. The Executive Director’s planned actions for recommendations 

1, 3, and 4 were acceptable, and we will follow up on their implementation. The 

Executive Director reported that the Office of Construction & Facilities Management 

(CFM) has an aggressive program for tracking schedules, maintaining schedule 

awareness by senior leadership, and follow-up when schedules are experiencing delays as 

outlined below. In addition to these efforts, CFM will issue a policy on schedule 

management as part of the compliance reviews by August 31, 2009. See Appendix C for 

the full text of the Executive Director’s comments. 

 (original signed by:)

BELINDA J. FINN 

Assistant Inspector General 

for Auditing 
Follow-Up Audit of VA’s Major Construction Contract Award and Administration Process

Introduction 

Purpose 

The OIG conducted a follow-up audit to determine whether VA implemented the 

corrective action plan in response to recommendations in the OIG Audit of Veterans 

Health Administration (VHA) Major Construction Contract Award and Administration 

Process (Report#. 02-02181-79, February 8, 2005). The audit objective was to evaluate 

the effectiveness of VA’s corrective actions in response to the prior audit report 

recommendations. 

Background 

Major Construction Projects. VA’s budget for construction was approximately $1.08 

billion. The FY 2008 budget for Veterans Health Administration (VHA) major 

construction totaled approximately $1.07 billion. As of May 2008, the Office of 

Construction and Facility Management (CFM) was responsible for 25 active major 

construction contracts valued at $715.6 million. CFM was also administering seven 

completed contracts that were closed out. These contracts are valued at approximately 

$137.8 million, had unused funds totaling about $308,000 still obligated against the 

contracts. 

Prior OIG Review. In 2005, the OIG issued the Audit of Veterans Health 

Administration Major Construction Contract Award and Administration Process (Report 

No. 02-02181-79, February 8, 2005). The audit concluded that major construction 

contract award, administration, and project management needed to be enhanced to ensure 

that VA did not pay excessive prices for construction work. The audit identified a risk 

for excessive prices involving major construction projects valued at $133.6 million. The 

audit also identified $957,164 in unused funds that were required to be returned to the 

construction reserve fund if no longer needed. 

At the time of the prior audit, the VHA’s Office of Facilities Management (FM) was 

responsible for VHA’s major construction program and was administering 31 contracts 

valued at $594.6 million. The report included 12 recommendations that addressed 

needed improvements in contract award, administration, and project management. The 

Under Secretary for Health concurred with the 2005 report recommendations and 

provided corrective action plans. 

Reorganization. In February 2007, FM was reorganized and realigned to the Office of 

the Secretary as the Office of CFM. This new organization consolidated the execution of 

all major construction under the direction of the VA Deputy Secretary. In October 2008, 

VA established the Office of Acquisition, Logistics, and Construction (OAL&C) which 

now includes CFM. The new office is headed by the Executive Director reporting to the 

Deputy Secretary. 

VA Office of Inspector General 1
Follow-Up Audit of VA’s Major Construction Contract Award and Administration Process

Quality Assurance. During the course of the 2005 audit, VA initiated action to establish 

an independent QA oversight function to oversee major construction. The QA Service 

was established to carry out a QA program for FM’s service lines that included major and 

minor construction, real property management, and VA’s state grant and homeless grant 

program. With the reorganization of FM into CFM, the QA Service responsibilities were 

revised to reflect the new organization. However, QA’s oversight function over VA 

major construction remained the same. 

Scope and Methodology 

The scope of our audit work included a review of VA active and completed but not 

closed out major construction contracts as of May 2008. We performed audit work from 

June 2008 through December 2008. We also reviewed QA operations as they related to 

the action plan management implemented in response to our original audit report. 

We selected four active major construction contracts valued at $145.9 million and three 

completed but not closed out contracts valued at $54.7 million for review. To assist us in 

selecting contracts for review, we developed a matrix that included attributes based on 

findings included in the 2005 audit report. The attributes highlighted potential 

weaknesses in a number of areas. They included completed contracts that were not 

closed out and still had unused funds, contract change actions exceeding the Federal 

Acquisition Regulation (FAR) threshold for cost or pricing data, asbestos and asbestosrelated contract changes, forward pricing of contract changes, and contract schedule 

slippage. The matrix also included contracts reviewed by QA. 

We reviewed contract actions as they related to our 2005 recommendations and the 

corrective actions implemented in response to the report. We reviewed CFM contract 

logs, and hard copy contract related documents from contract files. We also interviewed 

CFM officials responsible for implementing the corrective action plan. 

Our assessment of internal controls focused only on those controls related to our audit 

objective. To achieve the assignment's objective, we relied on computer-processed data 

contained in CFM’s Construction and Facilities Management Information System, 

Paragon Information System, and VA’s Financial Management System. We established 

the reliability of this data by comparing the data to hard copy contract file documentation 

and interviews with key officials. Our conclusions and recommendations are based on 

this data. 

Our work was conducted in accordance with generally accepted government auditing 

standards. These 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. 

VA Office of Inspector General 2
Follow-Up Audit of VA’s Major Construction Contract Award and Administration Process

Results and Conclusions 

VA Strengthened Management Oversight of Contract Award 

and Administration but Additional Action Is Needed 

VA has implemented effective corrective action plans in response to 10 of the 12 

recommendations in the OIG 2005 report. The implementation of these action plans has 

strengthened management oversight and controls over the VA major construction 

contract award and administration process. However, additional attention is needed to 

further strengthen the national oversight and management controls because VA had not 

effectively implemented corrective actions in response to 2 of the 12 recommendations 

made in 2005. As a result, improvements are still needed to address the weaknesses we 

previously reported –– to provide oversight of contract schedule slippage and to establish 

a formal program to close out completed major construction contracts in a timely manner 

and to reprogram unneeded funds. 

Furthermore, in response to nine OIG recommendations in 2005, VHA proposed and 

implemented corrective action to establish a QA program. VA took action during the 

course of our 2005 audit and established an independent QA program function, called QA 

Service, to oversee major construction. We examined the performance effectiveness of 

VA’s QA Service and concluded it is monitoring active VA major construction contracts 

by performing field acquisition reviews for compliance with Federal and VA acquisition 

regulations and contract terms and conditions. The scope of the reviews includes 

oversight of high risk major construction activities we identified in our prior audit as 

needing improvement. We determined that the QA Service has been generally effective 

in providing oversight of VA major construction contracting, but there are opportunities 

for additional improvements. QA did not develop formal written policies, procedures, or 

program performance measures to successfully guide QA operations and does not have a 

staffing plan that addresses all of the QA’s areas of responsibilities. 

We also identified opportunities to strengthen VA’s national oversight of major 

construction projects by strengthening QA oversight of contract schedule slippage and 

contract close-out process. In this way, VA can gain better assurance that major 

construction project risks are managed more effectively. VA can also better identify and 

address any systemic weaknesses that might negatively impact the administration of 

major construction projects VA-wide. 

Quality Assurance Oversight. VA established a QA Service to monitor active 

construction contracts for compliance with Federal and VA Acquisition Regulation, and 

contract terms and conditions. The scope of the QA reviews included assessing high risk 

areas identified in our prior audit as needing improvement. The QA Service is 

performing independent field acquisition reviews of active major construction contracts. 

VA Office of Inspector General 3
Follow-Up Audit of VA’s Major Construction Contract Award and Administration Process

In FY 2007, QA performed 17 of 18 scheduled reviews. For FY 2008, QA performed 15 

of 16 scheduled reviews. 

Our review of a sample of major construction contracts showed that VA management has 

taken corrective action in response to ten of our 2005 recommendations. These actions 

are highlighted by the following examples: 

• Recommendation 1. Resolve significant differences between the bid price and the 

A/E estimate with the original A/E prior to contract award.

The prior report included a finding that a significant difference between a low bid and 

an A/E estimate was not resolved. One of the contracts we reviewed had a $4.4 

million difference between the low bid for a contract and VA’s A/E contract estimate. 

CFM personnel requested the contractor to resubmit a revised contract offer. The 

contractor reduced the bid by approximately $1.5 million. The action taken supports 

that efforts are being made to resolve significant differences between bid prices and 

the A/E estimate prior to contract award. 

• Recommendation 2. Ensure price reasonableness for contracts awarded where only 

one contractor submits a bid.

The prior report included a finding that addressed award efforts where adequate 

competition was not achieved and VA did not perform a market survey to determine 

why the response to the solicitation was so low. One of the contracts we reviewed 

involved a single bid response to a contract solicitation. In this case, CFM conducted 

a market survey to determine why more contractors did not bid on the contract. 

• Recommendation 3. Strengthen construction contract price determinations by: (a) 

obtaining cost and pricing data, (b) ensuring that work not included in the original 

scope of the contract be considered for competitive bid or negotiated as a separate 

contract, (c) providing adequate support for determinations of price reasonableness 

reflected in Price Negotiation Memorandums (PNMs), (d) ensuring appropriate 

documentation to support contract changes, and (e) ensuring that VA requests for 

DCAA audit assistance to establish price reasonableness be based on full scope audits 

of contractor proposals. 

We found that QA work steps for field acquisition reviews of construction contracts 

assess whether certified cost or pricing data was submitted where required, contract 

changes were reviewed to ensure out-of-scope work was not added to contracts, 

change orders and supplemental agreements were supported by a PNM narrative and 

cost estimate, change orders were adequately supported, and a Defense Contract 

Audit Agency (DCAA) audit was requested to establish price reasonableness. Thus, 

the implementation and corrective action plans were considered adequate. 

• Recommendation 4. Maintain a low level of design errors and omissions and ensure 

that design work is in compliance with contract specifications, terms, and conditions. 

Hold the A/Es accountable for design work deficiencies. 

VA Office of Inspector General 4
Follow-Up Audit of VA’s Major Construction Contract Award and Administration Process

The prior report included a finding in which contract changes resulting from design 

errors and omissions and asbestos/hazardous waste-related changes were significant. 

QA now uses a project management software program to monitor contract changes 

due to design errors and omissions when the need for a contract change is first 

identified through the approval of a formal contract change. QA field acquisition 

reviews evaluate contract change justifications to ensure that design errors and 

omissions are properly identified. For two contracts where the value of contract 

changes due to design errors and omissions represented 9 and 12 percent of the 

contract values, respectively, the QA Service is evaluating VA’s position to determine 

the potential A/E liability. In addition, VA revised its policy and procedures on A/E 

liability for design and construction period services deficiencies to hold A/Es more 

accountable for errors and omissions. 

• Recommendation 5. Review the adequacy of asbestos/hazardous waste-related 

surveys and design work to improve the accuracy of removal estimates that are 

included in contract specifications and drawings. 

QA monitors contract changes for asbestos and asbestos-related contract changes and 

evaluates project management performance during field acquisition reviews. VA also 

revised its Asbestos Abatement Design Manual in September 2005 to reflect new 

requirements for asbestos design work. The manual established agency-wide policy 

on removal and management of asbestos containing material. The manual also 

specified that VA will use industrial health consultants to assist in developing scope 

of work for the development of bid documents. 

• Recommendation 6. Encourage that contract change estimates are received by 

Senior Resident Engineers (SREs) prior to receipt of contractor proposals and that 

estimates are prepared independent of contractor proposals. 

QA work steps for field acquisition reviews of construction contracts assess whether 

estimates are timely and included in contract change file documentation. 

• Recommendation 7. Improve management and control of construction contract 

changes by: (a) encouraging that contract changes are forward priced to reduce VA’s 

risk of loss if a contractor exceeds the price agreement, and (b) improving submission 

of timely cost proposals on contract changes. 

The prior report included a finding in which contract changes were not forwardpriced. Contract change records of negotiation now require resident engineers to 

certify that contract changes are forward-priced or justified in writing why forward 

pricing was not used. 

• Recommendation 8. Ensure that contract change files include PNMs and that project 

management and SRE staff is adequately trained in contract administration. 

QA work steps for field acquisition reviews of construction contracts assess whether 

contract change files include PNMs. In addition, we performed a review of training 

VA Office of Inspector General 5
Follow-Up Audit of VA’s Major Construction Contract Award and Administration Process

records for project management and SRE staff and determined that staff had been 

adequately trained in contract administration. Training courses included Contracting 

Officer Training Level 1 – Basic Warrant, and Mission Focused Contracting. 

• Recommendation 9. Ensure that official contract award files include all required 

documentation. 

QA work steps for field acquisition reviews of construction contracts assess whether a 

contractor’s certificate of insurance and subcontracting plan were on file. Also, work 

steps assessed whether the Contracting Officer Authorization Orders delegating 

contract administration responsibilities to the SRE and an alternate were on file. 

VA’s QA Service has been generally effective in monitoring active construction contracts 

by performing field acquisition reviews for compliance with FAR, VAAR, and contract 

terms and conditions. However, VA still needs to implement two 2005 recommendations 

as discussed below: 

Oversight of Contract Schedule Slippage Needs Strengthening. VA did not 

implement corrective action to provide more effective project management oversight to 

reduce contract schedule slippage. In response to the prior report recommendation, VA 

stated that a newly established QA oversight function would review the existing process 

for assessing contract slippage and the method by which feedback was provided to the 

field. However, QA has not performed these assessments and has not developed policies, 

procedures, or program performance measures to provide effective oversight of contract 

schedule slippage. 

The 2005 audit report identified seven construction contracts that were delayed from 5 to 

23 months. As of May 2008, 16 of 19 active construction contracts appear to be on 

schedule. However, three active contracts valued at approximately $98.9 million have 

experienced contract schedule slippage of between 4 and 5 months. Also, three of seven 

completed contracts valued at $45.6 million experienced slippage of between 5 and 12 

months. OAL&C later advised us that as of December 2008 one of the active contracts 

was four months ahead of schedule and a second contract was only two days behind 

schedule. 

The QA Service has not yet addressed the issue of assessing contract slippage because 

QA has been focusing its efforts on conducting field acquisition reviews of major 

construction contracts. The Director of the Service Delivery Office and the QA Director 

indicated that future efforts will include assessing contract slippage and how feedback is 

provided to the field. The lack of effective QA oversight could result in untimely 

identification of significant contract slippage and the potential for increased costs to 

complete construction contracts. 

Close-Out Program for Completed Contracts Needs To Be Established. VA did not 

implement the corrective action plan to establish an effective program to ensure the 

timely close-out of major construction contracts and identify unused funds that can be 

returned to the construction reserve account for use on other projects. In response to the 

VA Office of Inspector General 6
Follow-Up Audit of VA’s Major Construction Contract Award and Administration Process

prior report recommendation, FM responded to our 2005 report that they used a threestep process to identify contracts eligible for close-out. The corrective actions plan 

provided that FM would continue to reinforce the timely close out of major construction 

contracts and identify unused funds through its QA oversight function. 

The Director of the Service Delivery Office advised us that FM did not have a formal 

three-step process for identifying contracts that should be closed out. However, he 

advised that since 2002, FM and then CFM have periodically requested that project 

management staff identify contracts that could be closed out. The process has not been 

formalized in CFM policies and procedures. The QA Director confirmed that QA does 

not provide oversight over the close-out process and has not developed policy or 

procedures to oversee the process. 

The VA Project Managers Handbook, Chapter 12.8, “Contract Closeout”, states that the 

closeout process can begin when most outstanding contract-related issues have been 

resolved. Chapter 12.8 includes procedures for closing out a specific contract. However, 

the handbook does not include a process for identifying contracts that should be closed 

out. QA has not provided oversight in this area because they are currently focusing their 

efforts on conducting field acquisition reviews of major construction contracts. 

During our current audit, CFM was responsible for seven completed construction 

contracts with unused funds totaling $307,605. The lack of a formal program to identify 

contracts that can be closed out places unused funds for three contracts totaling $69,379 

at risk for not being returned in a timely manner for use on other construction contracts. 

We identified one contract with unused funds totaling $24,730 that could be closed 

because construction was completed in July 2004 and all outstanding issues related to the 

contract have been resolved. CFM advised us that they have initiated close out action for 

two completed contracts with unused funds totaling $44,649. Construction was 

completed for these contracts in November 2004 and November 2007. Four completed 

contracts with unused funds totaling $238,226 were not closed out because of pending 

claims, contract required elevator maintenance that continues through December 2009, a 

contractor request for an equitable adjustment, and a contract punch list of tasks that have 

not been completed. 

Quality Assurance Policy and Procedures Need To Be Developed. VA has not 

developed formal written policies, procedures, or program performance measures to 

guide QA operations in oversight of major construction or its other areas of 

responsibilities. In addition to major construction contracting oversight, the QA Service 

Function Statement provides that the QA Service is also responsible for quality assurance 

over CFM’s business lines including design and lease project management, design and 

construction standards, and historic preservation services. Other responsibilities include 

business planning, performance measures, lessons learned, and benchmarks (that address 

cost and pricing data, reviews of changes in contract scopes, and additional costs). 

VA Office of Inspector General 7
Follow-Up Audit of VA’s Major Construction Contract Award and Administration Process

Although the QA Service monitored major construction contracts by conducting field 

acquisition reviews, written policy needs to be developed to strengthen the QA oversight 

function. Discussions with CFM management disclosed they are presently drafting 

written policies and procedures for its QA field acquisition reviews of major construction 

contracts. CFM management further explained that a number of issues prevented the 

development and implementation of QA policies and procedures. These issues included 

staffing, the reorganization, and special impact issues such as the need for professional 

engineers to be certified under the Federal Acquisition Certification in contracting 

requirements. The policies and procedures need to be finalized and approved to ensure 

all reviews are consistently performed in accordance with CFM requirements. 

Written policies, procedures, and program performance measures need to be developed 

and implemented for QA to ensure effective oversight over construction contracting and 

quality assurance over CFM operations. The General Service Administration (GSA), 

responsible for $1.58 billion in new construction for FY 2008 and FY 2009, has 

developed a Quality Assurance/Quality Control (QAQC) process. Private sector and 

industry professionals independently evaluate design and construction quality, schedule 

progress and project management. OAL&C needs to benchmark GSA’s process to 

identify opportunities to enhance QA policies, procedures, and program performance 

measures.

Formal Staffing Plan Needs to Be Developed. The QA Service lacks sufficient staff to 

address all of its responsibilities yet it is responsible for oversight of VA’s major 

construction contracting process and for quality assurance over CFM’s business lines. 

Other responsibilities include business planning, performance measures, lessons learned, 

and benchmarks (that address cost and pricing data, reviews of changes in contract 

scopes, and additional costs). 

QA performs field acquisition reviews of contract award, contract administration, and 

project management needed to improve the weaknesses we reported in 2005. In 

conducting field acquisition reviews, QA has developed specific work steps to address 

contracting weaknesses discussed in the prior report. Further, a QA contract review 

checklist is also used to strengthen the monitoring of major construction contracts. 

However, while QA has developed some performance measures, its work in the other 

areas of responsibility has been minimal since the primary focus of QA has been on the 

performance of field reviews, and QA has not been staffed to manage all its 

responsibilities. 

The QA Director advised us that when QA was first established in 2004, a formal staffing 

plan was not developed to address all of its responsibilities. At that time, however, FM 

proposed to hire a Chief and five to seven staff for its field acquisition reviews. CFM 

initially hired the Chief and two employees and CFM elected to augment the QA function 

with staff from other offices to perform field acquisition reviews. Staffing for QA’s other 

responsibilities was not implemented. QA is presently staffed with a Chief and one fulltime and one part-time employee. At the time of our original audit and subsequent 2005 

VA Office of Inspector General 8
Follow-Up Audit of VA’s Major Construction Contract Award and Administration Process

audit report VA was responsible for 17 active major contracts valued at approximately 

$256 million. As of May 2008, OAL&C was responsible for 25 active contracts valued 

at approximately $715.6 million. Without a staffing plan that addresses all of its 

responsibilities, including the increased construction contract activity, the QA Service 

will not have the staff needed to fulfill its responsibilities in providing oversight over 

major construction and quality assurance over VA construction programs and activities. 

Conclusion 

VA has implemented 10 of the 12 recommendations included in our 2005 report. 

However, VA did not effectively implement corrective actions in response to 2 of the 12 

recommendations. Specifically, VA did not fully implement a corrective action plan to 

implement the project management oversight needed to manage and reduce contract 

schedule slippage from a national perspective or establish a program that provides 

reasonable assurance that major construction contracts are timely regarding close-outs.

Furthermore, in response to nine of the 2005 recommendations, VA proposed corrective 

action to establish a QA Program. The QA Service has provided oversight over VHA’s 

major construction contracting process by performing field acquisition reviews of highrisk construction activities identified in our prior audit as needing improvement. 

However, the QA Service needs to develop and implement written policies, procedures, 

and program performance measures for all its responsibilities including field acquisition 

reviews as well as CFM’s other business lines. The QA Service also needs to implement 

a formal staffing plan to provide reasonable assurance of effective oversight of major 

construction contracts and quality assurance over CFM’s business lines. 

VA does not have adequate assurance that major construction contracts are properly 

awarded, administered, and managed without: (1) increased QA Service oversight, (2) 

written QA Service policies and procedures and, (3) a staffing plan addressing all QA 

Service responsibilities. 

Recommendations 

1. We recommend the Executive Director for OAL&C implement an effective 

mechanism to monitor contract schedule slippage and minimize construction contract 

delays. 

2. We recommend the Executive Director for OAL&C establish an effective mechanism 

to ensure the timely close out of major construction contracts and identify unused 

funds that can be returned to the construction reserve account for use on other 

projects. 

3. We recommend the Executive Director for OAL&C develop written QA policies, 

procedures, and program performance measures addressing all QA Service areas of 

responsibilities. 

VA Office of Inspector General 9
Follow-Up Audit of VA’s Major Construction Contract Award and Administration Process

4. We recommend the Executive Director for OAL&C develop a formal staffing plan to 

ensure all QA Service responsibilities are met. 

Management Comments and OIG Response: 

The Executive Director agreed with our recommendations. The Executive Director 

reported that by August 31, 2009, CFM will issue a policy on schedule management as 

part of the compliance reviews that provides for QA Service oversight of contract 

performance against established schedules. The Executor Director reported, “that there 

are five key elements to CFM's current schedule management program: 

• Routine oversight of the project schedule by individual project managers and senior 

resident engineers in the day-to-day conduct of their duties. 

• The use of the Critical Path Method (CPM) to track contractor performance against 

the established CPM activity network. Each project is required to have an approved 

CPM plan which for major projects can contain many thousands of individual 

activity units. 

• Monthly leadership review with the project managers. Once each month, the 

Directors of the Service Delivery Office and the Resource Management Office, along 

with their key staff, hold a conference call with all project managers to review 

schedule performance against the Major Construction Operating Plan. 

• The Office of the Secretary's Monthly Performance Review focuses on schedule 

performance as relates to the major construction program. Each month CFM reports 

on projects that have been delayed in making planned contract awards and identifies 

mitigation strategies being taken. 

• The current Compliance Review Program includes assessments of contract slippage 

in the review. The Review assesses the current approved construction schedule with 

the on-site performance and actual schedule to determine if the contract is being 

executed within the contractual duration. The Compliance Review Team reviews 

modifications with time increases to assure documentation of the reason for the 

addition of time to the performance period. These reports are reviewed by senior 

managers and corrective actions are taken where necessary." 

According to the Executive Director, on March 20, 2009, CFM issued procedures 

requiring contracts be closed out timely and that unused funds be returned to the 

construction reserve account for use on other projects. By August 31, 2009, CFM will 

develop written QA policies and procedures for field acquisition reviews. 

The Executive Director reported that CFM continues developing program performance 

measures addressing CFM’s key program areas and that the first measures will be rolled 

out May 18, 2009. The complete list of FY 2010 measures will be rolled out no later than 

August 31, 2009, and the measures will be adjusted each year as the strategic plan 

evolves and as areas needing improvement are identified through CFM’s compliance 

review program. 

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Follow-Up Audit of VA’s Major Construction Contract Award and Administration Process

VA Office of Inspector General 11

The Executive Director said that CFM will also develop a staffing plan for the QA 

Service and submit a request for resources to address the additional staffing in the FY 

2011 budget. However, without obtaining the additional resources, CFM will not be able 

to support additional dedicated staff for the QA Service. Appendix C contains the full 

text of the Executive Director’s comments. 

The action taken and planned actions are acceptable, and we will follow up on their 

implementation.
Follow-Up Audit of VA’s Major Construction Contract Award and Administration Process

Appendix A 

Monetary Benefits in Accordance with IG Act (as 

amended) 

Recommendation Explanation of Benefit(s)

Better Use 

of Funds

2 Establishment of an effective program 

that ensures timely close outs of major 

VA construction contracts and identifies 

unused funds that can be returned to the 

construction reserve account for use on 

other projects. 

$69,379 

Total: $69,379 

VA Office of Inspector General 12
Follow-Up Audit of VA’s Major Construction Contract Award and Administration Process

Appendix B 

Prior Audit Report Recommendations 

We recommended that the then Acting Under Secretary for Health ensure that FM takes 

action to: 

1. Resolve significant differences between the bid price and the A/E estimate with the 

original A/E prior to contract award. 

2. Ensure price reasonableness for contracts awarded where only one contractor submits 

a bid. 

3. Strengthen construction contract price determinations by: (a) obtaining cost and 

pricing data, (b) ensuring that work not included in the original scope of the contract 

be considered for competitive bid or negotiated as a separate contract, (c) providing 

adequate support for determinations of price reasonableness reflected in PNMs, (d) 

ensuring appropriate documentation to support contract changes, and (e) ensuring that 

VA requests for DCAA audit assistance to establish price reasonableness be based on 

full scope audits of contractor proposals. 

4. Maintain a low level of design errors and omissions and ensure that design work is in 

compliance with contract specifications, terms, and conditions. Hold the A/Es 

accountable for design work deficiencies. 

5. Review the adequacy of asbestos/hazardous waste-related surveys and design work to 

improve the accuracy of removal estimates that are included in contract specifications 

and drawings. 

6. Encourage that contract change estimates are received by Senior Resident Engineers 

prior to receipt of contractor proposals and that estimates are prepared independent of 

contractor proposals. 

7. Improve management and control of construction contract changes by: (a) 

encouraging that contract changes are forward priced to reduce VA’s risk of loss if a 

contractor exceeds the price agreement, and (b) improving submission of timely cost 

proposals on contract changes. 

8. Ensure that contract change files include PNMs and that project management and 

senior resident engineering staff is adequately trained in contract administration. 

9. Ensure that official contract award files include all required documentation. 

10. Implement more effective project management oversight to reduce contract schedule 

 slippages. 

11. Establish an effective program to timely close out major construction contracts and 

 Identify unused funds that can be returned to the construction reserve account for 

 use on other projects. 

VA Office of Inspector General 13
Follow-Up Audit of VA’s Major Construction Contract Award and Administration Process

Appendix B 

VA Office of Inspector General 14

12. Establish a separate QA function to independently assess the quality of project 

 management and contract administration. 
Follow-Up Audit of VA’s Major Construction Contract Award and Administration Process 

Appendix C 

Executive Director’s for OAL&C Comments 

to Office of Inspector General’s Report 

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Follow-Up Audit of VA’s Major Construction Contract Award and Administration Process 

Appendix C 

VA Office of Inspector General 16
Follow-Up Audit of VA’s Major Construction Contract Award and Administration Process 

Appendix C 

VA Office of Inspector General 17
Follow-Up Audit of VA’s Major Construction Contract Award and Administration Process 

Appendix D 

OIG Contact and Staff Acknowledgments 

OIG Contact Michael Bravman (202) 461-4549 

Acknowledgments Sheila Brown 

Jeff McGowan 

Tonya Shorts-Smith 

Carla R.Vines 

VA Office of Inspector General 18
Follow-Up Audit of VA’s Major Construction Contract Award and Administration Process

Appendix E 

Report Distribution 

VA Distribution

Office of the Secretary 

Veterans Health Administration 

Veterans Benefits Administration 

National Cemetery Administration 

Assistant Secretaries 

Office of General Counsel 

Non-VA Distribution

House Committee on Veterans’ Affairs 

House Appropriations Subcommittee on Military Construction, Veterans Affairs, and 

Related Agencies 

House Committee on Oversight and Government Reform 

Senate Committee on Veterans’ Affairs 

Senate Appropriations Subcommittee on Military Construction, Veterans Affairs, and 

Related Agencies 

Senate Committee on Homeland Security and Governmental Affairs 

National Veterans Service Organizations 

Government Accountability Office 

Office of Management and Budget 

This report will be available in the near future on the OIG’s Web site at 

http://www.va.gov/oig/publications/reports-list.asp. This report will remain on the OIG 

Web site for at least 2 fiscal years after it is issued. 

VA Office of Inspector General 19