GAO

United States General Accounting Office

Chairman, Subcommittee on Oversight

and Investigations, Committee on

Veterans’ Affairs, House of

Representatives

November 2000 VA LAUNDRY

SERVICE

Consolidations and

Competitive Sourcing

Could Save Millions

GAO-01-61

Page 1 GAO-01-61 VA Laundry Service

Contents

Letter 3

Appendixes Appendix I: Scope and Methodology 20

Appendix II: Fiscal Year 1999 Data for VA’s 67 Laundries 23

Appendix III: Laundries Located in Multi-Laundry Markets, Fiscal

Year 1999 26

Appendix IV: Commercial Laundries Used by VA 27

Appendix V: Comments From the Department of Veterans

Affairs 28

Appendix VI: Comments From the American Federation of

Government Employees 30

Appendix VII: GAO Contacts and Staff Acknowledgments 34

Related GAO Products 35

Figures Figure 1: Reduction in Average Daily Inpatient Census,

FY 1995–FY1999 6

Figure 2: Map of Inpatient Locations Served by the St. Albans

Laundry 8

Figure 3: VA Laundries in Multi-Laundry Markets 10

Abbreviations

AFGE American Federation of Government Employees

OMB Office of Management and Budget

VA Department of Veterans Affairs
Page 2 GAO-01-61 VA Laundry Service
Page 3 GAO-01-61 VA Laundry Service

United States General Accounting Office

Washington, D.C. 20548 Letr

November 30, 2000

The Honorable Terry Everett

Chairman, Subcommittee on Oversight and Investigations

Committee on Veterans’ Affairs

House of Representatives

Dear Mr. Chairman:

The Department of Veterans Affairs (VA) operates 67 laundries that serve

more than 36,000 inpatients a day in its hospitals, nursing homes, and

domiciliaries.1 In fiscal year 1999, VA spent about $52 million to process

more than 166 million pounds of laundry.2 Most of these expenditures are

for the cost of labor of approximately 1,100 employees3 who sort, wash,

dry, fold, iron, and transport laundry for 177 inpatient locations.4

As agreed with your office, we assessed major initiatives VA has taken to

reduce inpatient laundry service costs by (1) consolidating laundry

workloads and (2) competitively sourcing to determine if it is more cost

effective to use VA-owned and -operated laundries or to contract with the

private sector. We assessed the extent to which these initiatives have

reduced costs for some inpatient locations and what additional savings

may be possible if they are implemented in other locations.

We conducted a nationwide survey to obtain data on operating practices

from all of VA’s laundries for fiscal year 1999.5 We also obtained data from

all locations that were consolidated or used competitive sourcing in fiscal

year 1999. We interviewed VA headquarters officials, local VA officials, and

private-sector laundry companies. We conducted site visits to locations

1

A VA domiciliary is a residential rehabilitation and health maintenance center for veterans

who do not require hospital or nursing home care but are unable to live independently

because of medical or psychiatric disabilities.

2

The costs of purchasing and repairing textiles and internal distribution of laundry within

inpatient locations are excluded from this analysis.

3

Numbers of employees in this report refer to full-time equivalent employees.

4

This includes about 700,000 pounds of laundry that VA laundries process for 47 outpatient

clinics.

5

For baseline data on VA’s laundry services, see VA Health Care: Laundry Service Operations

and Costs (GAO/HEHS-00-16, Dec. 21, 1999).
Page 4 GAO-01-61 VA Laundry Service

that had consolidated or used competitive sourcing. In our review of one of

these sitesVA’s laundry in Albany, New Yorkwe questioned certain

contractor practices and subsequently conducted a special investigation.

Our overall evaluation was performed between January and November

2000 in accordance with generally accepted government auditing

standards, and our special investigation of the VA Albany laundry was

conducted in June and July 2000 in accordance with quality standards for

investigations established by the President’s Council on Integrity and

Efficiency. (See app. I for a complete description of our scope and

methodology.)

Results in Brief VA has the opportunity to reduce costs by closing 13 of its 67 laundries and

moving their workloads to other, underused VA laundries. VA has already

closed 49 laundries over the last two decades through consolidations. The

additional consolidations would require transporting laundry to inpatient

locations that are generally within a 4-hour or less (one-way) drive, which

is comparable to the driving times required as a result of VA’s previous

consolidations. If those consolidations occurred, VA would operate only 54

laundries and could potentially reduce operating costs by $2 million or

more annually. By taking this action, VA could avoid about $9 million in

one-time costs for equipment and building renovations that would

otherwise be required for the continued operation of the 13 laundries, most

of which have aged equipment or buildings.

In addition, VA has the opportunity to further reduce costs by greater use of

competitive sourcing, which would involve comparing VA operation of its

laundries to private-sector operation of VA laundries or use of commercial

laundries off-site. VA currently uses private-sector companies to operate 2

of the 54 laundries that would remain if the 13 laundries closed. VA also

uses 10 commercial laundries to provide off-site laundry service. Our

review of three of these laundry operations (two VA laundries operated by

contractors and one off-site commercial laundry used by VA) found that

competitive sourcing resulted in lower costs because these three laundries

had higher labor costs or aged equipment compared to the contractors.

Our assessment of the 52 VA-operated laundries that would remain after

consolidation shows that many of these laundries have some of VA’s highest

labor costs and also have aged equipment. Achieving savings from

competitive sourcing of laundry workload at these locations would depend

on factors such as the availability of interested contractors, the price of

contractor services, and VA’s ability to decrease the cost of its in-house
Page 5 GAO-01-61 VA Laundry Service

service delivery as a result of a competitive process. When competitive

sourcing results in contracting out, VA must monitor contractor

performance effectively to ensure that payments and service quality are

consistent with contract terms. For instance, weaknesses in VA’s contract

monitoring at its Albany laundry appear to have resulted in overpayments

that reduced savings.

We recommend that VA assess its laundry operations to determine where

consolidations, competitive sourcing, or both would reduce costs while

maintaining quality, and implement the most cost-effective option

identified. VA agreed with our recommendations, although it did not

provide a plan or timetable for implementing the least-costly options.

By contrast, the American Federation of Government Employees, AFL-CIO

(AFGE) disagreed with our recommendations, citing a number of concerns.

AFGE contended that the options we recommend VA assess

(consolidations and competitive sourcing) would, in its view, exploit our

nation’s most vulnerable workers and undermine their living standard by

either reducing their wages or eliminating their jobs. While we understand

and appreciate AFGE’s legitimate concerns about current workers’ wages

and employment, we believe VA can adequately address these concerns

when implementing our recommendations.

Background In 1995, VA began transforming the delivery and management of health care

to expand access to care and to increase efficiency. VA’s transformation

included decentralization of decision-making and budgeting authority to 22

Veterans Integrated Service Networks, which are responsible for managing

all VA health care. As a result, networks and their health care locations

became responsible for responding to laundry service needs.

Since 1995, networks have focused on providing health care in the most

appropriate setting by following headquarters’ guidance and responding to

performance measurement incentives. This has resulted in an increase in

outpatient care and a decrease in inpatient care. The inpatient average

daily census declined by 35 percent during this period (see fig. 1).
Page 6 GAO-01-61 VA Laundry Service

Figure 1: Reduction in Average Daily Inpatient Census, FY 1995–FY 1999

Source: VA.

The amount of laundry processed by VA decreased by 16 percent from

fiscal year 1994 to fiscal year 1999. VA considers the current average for

laundry usage per inpatient to be about 12.9 pounds of laundry per day.

As with direct health care services, VA’s networks have also explored ways

to improve health care support services such as laundry operations. While

VA networks have the option to focus exclusively on improving the

efficiency of their in-house laundry operations, they also have the option of

competing their in-house operations with the private sector to improve

efficiency. VA could do this through the Office of Management and Budget

(OMB) Circular A-76 process. In the A-76 process, the government

describes the work to be performed in the performance work statement,

0

10,000

20,000

30,000

40,000

50,000

60,000

1995 1996 1997 1998 1999

56,283

50,812

42,798

39,685

36,510

Fiscal Year

Average Daily Census
Page 7 GAO-01-61 VA Laundry Service

prepares an in-house cost estimate based on its most efficient organization,

and compares it with the best offer from the private sector.

Additional

Consolidation of

Laundries Could Save

Millions of Dollars

Our analysis suggests that VA could reduce costs by additional laundry

consolidations. While VA has already enhanced the efficiency of laundry

services by reducing through consolidations the number of laundries (from

116 to 67 between 1979 and 2000), there are still 24 laundries in multilaundry markets—that is, located within 4 hours’ drive time of one or more

other VA laundries. According to a VA headquarters official, VA policy

provides that a one-way 4-hour drive time is reasonable when considering

consolidation. (See app. II for summary information on VA’s 67 laundries.)

The VA laundry at St. Albans (Queens), New York, illustrates how

consolidation can result in more efficient operations in multi-laundry

markets. During a 10-year period, VA consolidated six laundries into one. In

1988 and 1989, the Brooklyn, Northport, and New York laundries were

closed and their workload transferred to St. Albans. In 1997, the other two

laundries (Montrose and Lyons) in the St. Albans laundry market were also

consolidated. These two annually processed 3.2 million and 3.5 million

pounds of laundry, respectively, prior to consolidation. The St. Albans

laundry now provides laundry service—a total of over 13 million pounds

annually—for all of the facilities in Veterans Integrated Service Network 3

(Bronx) (see fig. 2).
Page 8 GAO-01-61 VA Laundry Service

Figure 2: Map of Inpatient Locations Served by the St. Albans Laundry

Note: Mileage and driving time are one-way from St. Albans in Queens, NY.

Source: GAO analysis.

VA consolidated laundry processing at St. Albans because adequate space

was available there and transport distances made consolidation feasible.

Driving distances to St. Albans ranged from 13 to 87 miles one way, and

drive times ranged from 27 minutes to 1 hour and 49 minutes. The St.

Albans management stated that based on quarterly surveys sent to all

inpatient locations served by the laundry, nurses and patients at those

locations report that the quality of laundry service has improved since the

consolidations.

The consolidations of the Montrose and Lyons laundries with St. Albans

resulted in annual savings totaling about $2 million through cost reductions

in labor, supplies, and utilities. Prior to consolidation the Montrose and
Page 9 GAO-01-61 VA Laundry Service

Lyons laundries employed a total of 51 employees. Following the

consolidations most of these employees either transferred to other VA

positions at their inpatient locations or retired, while employment at the St.

Albans laundry increased by 20 employees.

To handle the increased workload resulting from the last two

consolidations, St. Albans spent $6.3 million for capital improvements. By

contrast, continuing laundry processing at Montrose and Lyons would have

required about $18 million in capital improvements. As a result, the

consolidation allowed VA to avoid spending about $11.7 million for onetime capital improvements.

Our analysis suggests that VA could further increase the efficiency of its

laundry operations by closing at least one laundry in 11 markets (see fig. 3).

Our analysis showed that such consolidations could reduce costs because a

single large laundry can operate more efficiently than multiple laundries by

using fewer employees to process comparable amounts of laundry. In

addition, such consolidations could reduce spending for equipment and

building renovations that would otherwise be required for the continued

operation of laundries that have aged equipment and buildings.

VA could potentially save over $2 million annually and avoid about $9

million in one-time capital investments by closing 13 of the 24 laundries

currently located in the 11 multi-laundry markets that we reviewed.6 (See

app. III for summary information about laundries located in multi-laundry

markets.) Currently these 13 laundries employ a total of approximately 150

employees, ranging from about 3 to 26 per location. We made certain

assumptions to illustrate the potential savings from closing these laundries.

We assumed that in most instances the workloads of smaller laundries

could be handled by larger laundries and that laundries needing capital

improvements in the near future could send their workloads to laundries

with newer equipment. However, our savings are for illustrative purposes;

VA’s assessment, based on more detailed information, could determine that

another location would better meet VA’s needs as a consolidation site.

6

Some consolidated locations may need to purchase additional textiles depending on the

frequency with which they deliver laundry. One-time additional costs (for these purchases)

could range from $345,000 to $690,000.
Page 10 GAO-01-61 VA Laundry Service

Figure 3: VA Laundries in Multi-Laundry Markets

Source: GAO analysis.

VA’s actual consolidation savings may differ from our estimates. For

example, our estimate assumes that each laundry, once consolidated, can

meet VA’s production standard of 160,000 pounds of laundry annually per

employee. Some laundries, however, may not be able to achieve this level

due to building configuration or other factors. Such laundries may need

more employees than we estimated, which would reduce potential cost

savings.
Page 11 GAO-01-61 VA Laundry Service

The 24 laundries in multi-laundry markets are located in 11 networks. We

surveyed these 11 networks to determine what actions they had taken to

study laundry consolidations. We found that all networks plan to study

laundry consolidation in the future as the workload at individual facilities

decreases and laundry equipment reaches the end of its useful life.7 Three

are currently studying potential consolidations.

Expanded Use of

Competitive Sourcing

Could Reduce Costs

VA currently has 12 contracts for inpatient laundry service. VA contracting

has reduced costs by lowering labor costs8 and avoiding capital

investments to replace aged laundry equipment or renovate buildings. Our

analysis suggests that expanded competitive sourcing could achieve lowercost laundry service—either by maintaining services in house, possibly

with enhanced efficiency, or by contracting with the private sector.

VA Laundry Competitive

Sourcing Initiatives

VA uses contractors to operate VA-owned laundries and to process VA

laundry at off-site commercial laundries. Two VA laundries accounting for

about 3 percent of VA’s total laundry needs are currently operated by

contractors; one is a for-profit contractor, while the other is a nonprofit

contractor. In addition, VA currently contracts with 10 commercial

laundries to provide laundry service for inpatient locations. Three

commercial laundries serve from two to four inpatient locations each and

seven serve single inpatient locations. Commercial laundries account for

nearly 5 percent of VA’s total laundry needs. (See app. IV for summary

information about these 10 commercial laundries.)

To determine whether costs were reduced, we reviewed several VA

laundries. In one case, VA’s Albany laundry was able to reduce labor costs

because the contractor employed significantly fewer workers to process a

comparable workload. In 1995, using the A-76 process, VA’s Albany laundry

determined it was more cost effective to contract with Universal Linen, a

for-profit contractor, to operate the laundry. Albany paid nearly $350,000 in

wages and benefits to 12 VA employees the last year the laundry was

operated by VA and the following year paid about $270,000a 23 percent

savingsto Universal Linen to operate the laundry with 6 employees. As

7 VA’s official guidance on equipment useful life ranges from 13 to 30 years; actual useful life

varies greatly depending on maintenance and workload levels.

8 Higher labor costs can result from low employee productivity, higher wages, or both.
Page 12 GAO-01-61 VA Laundry Service

shown below, these $80,000 in savings could have been increased if the

contract had been properly managed.

VA’s Battle Creek laundry was also able to reduce labor costs by

contracting for services. In 1998, VA’s Battle Creek laundry contracted with

Summit Point, a nonprofit contractor, to operate VA’s new laundry plant.

Summit Point provides rehabilitation services through employment for

disabled workers. These employees’ wages and benefits are established by

the Department of Labor and must not be less than the prevailing wage for

a laundry worker in the Battle Creek area. VA administrators at the Battle

Creek laundry estimated that on an annualized basis VA saved about

$340,000, or 24 percent, by using workers provided by Summit Point.

In Palo Alto it was more advantageous to VA to close its laundry and have a

commercial laundry provide laundry service. Before contracting with a

commercial laundry, Palo Alto processed laundry for its own inpatient

location, as well as inpatient locations at San Francisco, Menlo Park, and

Livermore. The Palo Alto laundry was facing capital improvement costs in

1995 amounting to nearly $5 million and had relatively high operating costs

of about 49 cents per pound because it had a large number of laundry

employees for the amount of laundry processed.9

Using the A-76 process, Palo Alto determined it was more cost effective to

contract with Sodexho Marriott to provide laundry service for the four

inpatient locations served by the Palo Alto laundry. The contract price was

29 cents per pound in fiscal year 1996 and gradually increased to 32.7 cents

for fiscal year 1999. This contract resulted in avoidance of one-time capital

costs of nearly $5 million. In addition, annual operating costs were 60

percent lower, decreasing from over $2 million to less than $800,000 for a

comparable workload of laundry services.10 VA officials in Palo Alto told us

that nurses and patients are satisfied with the quality of laundry service

provided by Sodexho Marriott. VA oversight includes unannounced

monthly site visits to check on quality.

9

In fiscal year 1995, Palo Alto’s 45 employees processed about 4.5 million pounds of laundry

or about 100,000 pounds per employee per year, which was well below the VA standard of

160,000 pounds.

10Operating costs include direct and administrative labor, supplies, utilities, maintenance

and repair, and transportation.
Page 13 GAO-01-61 VA Laundry Service

VA oversight is critical to ensure that the government receives all the

services paid for under contract arrangements. Our Office of Special

Investigations found that VA failed to properly oversee the Albany laundry

contract with Universal Linen. First, contrary to the contract, the

contractor’s payments were based on estimated laundry weights instead of

actual weights. Second, invoices for payment were submitted by a

government employee instead of the contractor as called for by the

contract. As a result of the poor management of this contract, the

contractor was likely overpaid for the services provided.11 VA’s Inspector

General is reviewing this situation, and Albany’s laundry has taken steps to

improve its internal controls.

Opportunities to Reduce

Costs at 52 VA Laundries

VA may be able to lower costs by competing in-house against private-sector

laundry services. Our work at the Department of Defense shows that

competitive sourcing under OMB Circular A-76 leads to cost reductions

through increased efficiencies whether the government or the private

sector wins the competition to provide services.12 This indicates that

savings are probable for VA, but the magnitude of savings from competitive

sourcing depends on factors such as the availability of interested

contractors at each location, the price of contractor services, and the

extent to which VA laundries are able to decrease their operating costs in a

competitive process.13 Some markets, for example, may have many

contractors competing for contracts and offer greater opportunities for VA.

VA might realize greater savings in such markets. On the other hand, some

VA laundries may increase efficiency by such means as reducing the

number of laundry employees, and thereby offer lower prices than

contractors. While the numbers have varied over time, historically

government agencies have won a large portion of the A-76 competitions.

11See Inadequate Oversight of Laundry Facility at the Department of Veterans Affairs,

Albany, New York, Medical Center (GAO-01-207R, Nov. 30, 2000) for further details on VA

oversight of the Albany laundry contract with Universal Linen.

12See DOD Competitive Sourcing: Some Progress but Continuing Challenges Remain in

Meeting Program Goals (GAO/NSIAD-00-106, Aug. 8, 2000) for a discussion of the benefits of

using the OMB Circular A-76 process.

13See DOD Competitive Sourcing: Savings Are Occurring, but Actions Are Needed to

Improve Accuracy of Savings Estimates (GAO/NSIAD-00-107, Aug. 8, 2000) for a discussion

of calculating savings under the OMB Circular A-76 process.
Page 14 GAO-01-61 VA Laundry Service

Our analysis of VA laundries suggests that VA has opportunities to reduce

costs further through competitive sourcing. Thirty-four of VA’s 52 remaining

laundries appear to be prime candidates for achieving savings through

competitive sourcing (not including the 13 laundries that could be closed

following consolidation and the 2 that could continue to use private

contractors to operate VA laundries). This is because their labor use does

not meet VA’s labor productivity standard of 160,000 pounds per employee

per year, indicating that there are efficiencies to be realized. If VA’s

productivity standard were met at all locations, an estimated $2 million

could be saved annually. This savings estimate is based on reducing the

number of employees to meet the standard and then applying the average

wage rate at each laundry.

Using the competitive sourcing process could help VA overcome

difficulties in meeting the productivity standard. According to VA officials,

for example, some laundries were not meeting the productivity standard

because they are not managed as well as others. In addition, the design of

some laundry plants limits productivity and more employees are needed to

operate them than the productivity standard allows.

In addition, competitive sourcing might help avoid capital investment

costs. Thirteen of the 52 laundries reported that they are facing major

capital investments within the next 5 years to replace aged equipment or to

renovate buildings. Capital investment needs at the 13 laundries range from

$200,000 to $3 million, with an average cost of $1.2 million.

To achieve savings through competitive sourcing, VA would need to

conduct studies of each laundry to weigh alternatives for providing the

lowest-cost laundry service while maintaining quality. In these studies, VA

would need to consider the effect such changes could have on its career

workforce. VA could foster competition among government and

contractors to provide laundry service by using the competitive process

under OMB’s Circular A-76. Although fostering competition among

government and contractors to provide laundry service can be a timeconsuming process, it offers management opportunities to create moreefficient and less-costly operations when in-house organizations win the

competition, or to realize savings when private competitors win.

Management could consider competitive sourcing in combination with

consolidation, which we discussed earlier. This process can be demanding,

however, and requires strong management commitment.
Page 15 GAO-01-61 VA Laundry Service

Conclusions VA has made good progress in consolidating laundries, but more remains to

be done. VA has the opportunity to save millions of dollars by

systematically assessing where it could consolidate laundries, obtain

laundry services through competitive sourcing, or both. VA already has

experience in consolidating laundries and implementing competitive

sourcing at a number of locations. VA has not maximized its cost savings

potential, however, because it has not systematically compared options for

all 67 laundries. Such comparisons, in effect, establish a competition

between VA laundries and contractors to provide laundry service for the

lowest cost. The resulting competition is likely to increase efficiency no

matter which competitor wins—VA or private-sector laundries.

Recommendations for

Executive Action

We recommend that the Acting Secretary for Veterans Affairs require the

Under Secretary for Health to direct the 22 networks to (1) systematically

assess each laundry to determine which option or combination of

options—consolidation and competitive sourcingwould reduce costs

while maintaining or improving quality, and (2) implement the most costeffective option in a timely manner.

Agency Comments and

Our Evaluation

We received written comments on a draft of this report from VA’s Acting

Secretary and from the National President of AFGE. Their comments and

our responses are described in the following sections. The comments in

their entirety from VA and AFGE are in appendixes V and VI, respectively.

Department of Veterans

Affairs

VA concurred with our recommendation to systematically assess each

laundry to determine which option or combination of options—

consolidation and competitive sourcingwould reduce costs while

maintaining or improving quality. In addition, VA stated that selling laundry

services to non-VA facilities could create additional savings by offsetting

VA’s costs. We agree this is a significant factor that should be considered

when assessing consolidation and competitive sourcing.

Also, VA agreed to implement the most cost-effective option in a timely

manner, although no plan or timetable was provided. VA stated that it is in

the process of developing program oversight policy and reporting systems

to be used to obtain comparative information for operational and

opportunity improvement. While VA is to be commended for taking this
Page 16 GAO-01-61 VA Laundry Service

action, we believe that it should move as quickly as possible to develop a

plan and timetable to conduct the comprehensive assessments we

recommended at each laundry. Delaying these assessments could result in

unnecessarily spending millions of dollars a year on laundry services.

AFGE AFGE opposed both options we included for study in our

recommendations. AFGE contended that implementing the options we

recommend that VA assess would, in its view, exploit our nation’s most

vulnerable workers and undermine their living standard by either reducing

their wages or eliminating their jobs. While we understand and appreciate

AFGE’s legitimate concerns about workers’ wages and employment, we

believe that VA can adequately address these concerns when implementing

our recommendations. In the past, VA has demonstrated the ability to

implement comparable options without adversely affecting laundry service

workers. Further, our discussions with VA officials indicate that they

remain sensitive to the importance of taking appropriate steps to prevent

adverse effects on current laundry service workers.

We discuss AFGE’s specific concerns below.

Competitive Sourcing AFGE expressed eight concerns about the increased use of competitive

sourcing. First, AFGE stated that VA might contract out without the benefit

of a public-private competition as set forth in OMB’s Circular A-76. We

agree that VA could, under limited circumstances specified in OMB’s

Circular A-76, contract rather than use in-house service provision without

using competitive sourcing. However, our recommendation is to consider

competitive sourcing rather than to contract out. VA agreed with our

recommendation to assess competitive sourcing. Competitive sourcing is

not new to VA laundries. For example, 43 of its 67 laundries have used the

A-76 process over the past 15 years.

Second, AFGE expressed concern that federal workers currently employed

in VA’s in-house laundry processing could lose their jobs if a contractor

wins the competition. We agree this is possible. As stated in the report, we

believe that VA should include this as a consideration in its assessments of

laundry service at each location. We note, however, that government

employees adversely affected by decisions under the OMB A-76 process

competition often are offered positions with winning contractors. VA could

specify, as other agencies have, that a contractor hire such employees if it

wins the competitive sourcing competition.
Page 17 GAO-01-61 VA Laundry Service

Third, AFGE stated that cost savings are unlikely to be achieved through

privatization, competitive or otherwise. We believe it is important to

distinguish between an objective to privatize or contract out which is an

end in itself, and an objective to compete government service provision

versus private service provision. Our recommendation is that VA consider

competitive sourcing of laundry service operations, which can result in

either the government retaining its service provision role or in contractors

providing services. Either way, competitive sourcing reduces costs through

the increased efficiency that results from competition between the

government and the private sector. For example, over half of VA’s laundries

do not meet VA’s productivity standard of 160,000 pounds of laundry

processed annually per employee. Competition between the government

and the private sector could increase efficiency, whichever competitor

wins, and reduce costs accordingly.

Fourth, AFGE stated that cost savings are achieved by paying lower wages.

We agree that some cost savings may be attributable to lower wages.

However, cost savings are often achieved through increased efficiency

rather than paying workers less. For example, over half of VA’s laundries

use more labor than called for by VA’s productivity standard of 160,000

pounds of laundry annually per employee. Increasing productivity to the

standard could achieve $2 million in savings. Competitive sourcing could

be used to increase productivity to the standard and to achieve savings.

Fifth, AFGE stated that VA laundries with high labor costs were targeted

for competitive sourcing. AFGE further states that these higher labor costs

can only derive from a federal system that pays a premium for longevity to

its workers and that our analysis penalizes a loyal, career workforce. While

we did state that VA laundries with high labor costs could realize savings

from competitive sourcing, we do not agree with the reasons for this cited

by AFGE. The higher labor costs to which we refer are often the result of

low productivity. For example, before the Albany laundry used the

competitive sourcing process it employed 12 people. A contractor won the

competitive sourcing process, and was able to process a workload of

similar size with six employees.

Sixth, AFGE stated that VA laundries with aged equipment were targeted

for competitive sourcing. AFGE further stated that aged equipment reflects

management’s failure to upgrade and maintain equipment. While we did

state that VA laundries with aged equipment could realize savings from

competitive sourcing, we do not agree with the reasons for this cited by

AFGE. Aged equipment is the natural outgrowth of capital depreciation as
Page 18 GAO-01-61 VA Laundry Service

equipment wears out over its useful life. VA management replaced much of

its laundry equipment throughout the system during the 1980s and, given a

13–30 year useful life, it is understandable that many laundries’ equipment

is nearing the end of its useful life. Capital equipment, such as laundry

machines, will need to be replaced at some point, but greatly reduced

workloads in some locations make this a poor investment of capital.

Sending workloads to commercial laundries or combining the workloads of

two or more locations to be processed by one laundry could be a better

business decision.

Seventh, AFGE stated that privatization could be avoided through better

management of VA laundries. We agree. Competitive sourcing can provide

an incentive to increase productivity and correct management deficiencies.

Our report cited VA officials’ acknowledgement that some laundries are not

managed as well as others. Improving management performance may

result in laundries staffed with fewer employees, but the government

retaining its service provision role.

Eighth, AFGE stated that VA has a poor record of contract oversight. We

agree that the Albany contract was poorly managed and likely resulted in

overpaying the contractor. VA’s Inspector General is reviewing this matter.

VA oversight is critical to ensure that the government receives all the

services it pays for under contract arrangements.

Consolidation AFGE expressed four concerns about consolidating VA laundries. First,

AFGE stated that our projected savings are unrealistic because

transportation costs are not included. We do not agree. Our estimated

savings reflect the increased cost of transportation, which we obtained

from local VA officials, for each potential laundry consolidation.

Second, AFGE stated that consolidation should not occur without

considering the revenue potential of providing laundry service to other

federal and nonfederal sources. As stated in our response to VA’s

comments, we agree that potential revenue is a significant factor that

should be considered when assessing consolidation and competitive

sourcing. We already had incorporated revenue earned by VA laundries in

our analysis of consolidation options.

Third, AFGE stated that our work targeted laundries with high labor costs

for consolidation, which raises concerns about age discrimination. Our

draft report did not characterize laundries with high labor costs as

candidates for consolidation, but as candidates for competitive sourcing.
Page 19 GAO-01-61 VA Laundry Service

See our responses above under competitive sourcing regarding high labor

costs.

Fourth, AFGE stated that our work targeted laundries with aged equipment

for consolidation, which raises concerns about proper management. We

disagree. As stated above under competitive sourcing, aged equipment is

the natural outgrowth of capital depreciation as equipment wears out over

its useful life.

As arranged with your staff, we are sending copies of this report to the

Honorable Hershel W. Gober, Acting Secretary of Veterans Affairs;

interested congressional committees; and other interested parties. We will

make copies of the report available to others upon request.

If you have any questions about this report, please call me at (202) 512-7101

or Paul Reynolds at (202) 512-7109. Other major contributors are listed in

appendix VII.

Sincerely yours,

Stephen P. Backhus

Director, Health CareVeterans’ and

Military Health Care Issues
Page 20 GAO-01-61 VA Laundry Service

Appendix I

Scope and Methodology ApApenednxidexiIs

We reviewed the Department of Veterans Affairs (VA) laundry services for

fiscal year 1999 to assess major initiatives it has taken to reduce laundry

service costs by consolidating laundry workloads and by using competitive

sourcing to determine if it is more cost-effective for VA to operate its own

laundries or to contract with the private sector. We estimated potential

savings if VA were to consolidate laundry workloads and conducted case

studies to illustrate savings that have been realized by laundries that have

used competitive sourcing. Savings from competitive sourcing at each

location depend on a number of factors including the availability of

interested contractors, the price of contractor services, and VA’s ability to

decrease the cost of its in-house delivery as part of a competitive process.

We interviewed VA headquarters officials in the Environmental Program

Service, the Office of General Counsel, and other offices, and obtained

historical documents from headquarters on the consolidation of laundry

service and competitive sourcing. We also conducted a nationwide survey

of all VA laundries to obtain data about fiscal year 1999 laundry service

needs, how VA provides services, its costs, and the amount of laundry

processed at each VA laundry. VA laundries also provided us with current

information on consolidating laundries and competitive sourcing. We

obtained fiscal year 1999 data from each of the VA inpatient locations that

use commercial laundries.

We also obtained additional information through interviews, documents,

and physical inspections of VA laundries and commercial laundries that

provide service for VA. For this report we visited VA laundries in St. Albans

and Albany, New York; the VA inpatient location in Palo Alto, California;

and the commercial laundry that provides laundry service for Palo Alto and

three other inpatient locations. For our December 1999 report on VA

laundries, we visited VA laundries in Richmond, Virginia, and Battle Creek,

Michigan. We also visited the VA inpatient location in Denver, Colorado,

and the commercial laundry that provides laundry service for VA inpatients

in Denver and in Cheyenne, Wyoming.

In our review of VA’s laundry in Albany we questioned certain contractor

practices and asked our Office of Special Investigations to investigate.

Their objectives were to (1) observe the weighing and processing of

laundry, and (2) determine whether the contractor was billing VA for

services not provided.

For our analysis of potential savings from consolidation, we identified

multi-laundry markets using VA’s criterion that two or more laundries be
Appendix I

Scope and Methodology

Page 21 GAO-01-61 VA Laundry Service

within 4 hours’ (one-way) driving distance of each other. To select the

potential consolidation site, we interviewed laundry managers in these

markets to determine whether existing equipment could handle the

additional workload.

To determine the number of employees required to process the combined

laundry workload, we used VA’s productivity standard of 160,000 pounds

per direct-labor employee for the potential consolidation sites that were

below the standard, and current productivity rates for the potential

consolidation sites that exceeded the standard. We multiplied the average

direct-labor wage of the potential consolidation site by the total number of

direct-labor employees to determine the consolidated direct-labor costs.

To determine the number of supervisors needed to manage the

consolidated laundries, we used VA’s criterion of one administrative

employee per 25 direct-labor employees. The average administrative labor

salary at potential consolidation sites was multiplied by the number of

administrative employees to determine consolidated administrative costs.

Because transportation costs due to consolidation vary by market, we

contacted each of the laundry managers at potential consolidation sites to

obtain their consolidated transportation cost estimates (based on their

knowledge and experience). We estimated the costs of additional supplies,

utilities, and maintenance and repair costs that would be incurred by the

potential consolidation sites, based on preconsolidation costs per pound of

these elements.

Recurring annual savings from consolidation were computed by

subtracting the estimated consolidation costs from the combined costs of

the unconsolidated laundries.1 A net cost-per-pound savings was computed

by dividing the total consolidated estimated costs by the total consolidated

pounds. We aggregated savings from each laundry to determine total

annual savings from consolidation.

We surveyed each of the laundries to determine whether they need to make

major capital improvements within the next 5 years. A VA headquarters

laundry expert verified that the capital improvement costs the laundries

1

Consolidation costs used to calculate recurring savings do not include the allocation of

capital improvement costs because we accounted for these costs as a one-time cost

avoidance.
Appendix I

Scope and Methodology

Page 22 GAO-01-61 VA Laundry Service

reported were reasonable and needed within the next 5 years. To determine

one-time cost avoidances from consolidation, we totaled capital

improvement costs for the laundries that could close and subtracted capital

improvement costs for the potential consolidation sites.

We performed our review between January 2000 and November 2000 in

accordance with generally accepted government auditing standards.
Page 23 GAO-01-61 VA Laundry Service

Appendix II

Fiscal Year 1999 Data for VA’s 67 Laundries ApendxiI

Laundry State

Total pounds

processed VA employees

Operating cost per

pounda

Albany N.Y. 2,250,962b 1.20c $0.254

Albuquerque N. Mex. 871,213 9.03 0.369

Alexandria La. 1,526,292 11.55 0.429

Augusta Ga. 5,969,548 52.00 0.376

Battle Creek Mich. 3,295,828 1.00c 0.382

Bay Pines Fla. 3,724,402 21.03 0.226

Big Springs Tex. 310,979 7.90 1.037

Biloxi Miss. 5,264,728 41.00 0.334

Boise Idaho 427,450 3.75 0.416

Brockton Mass. 4,806,152 40.00 0.383

Buffalo N.Y. 2,891,771 19.10 0.244

Canandaigua N.Y. 2,101,962 15.55 0.382

Clarksburg W. Va. 600,000 4.75 0.376

Cleveland Ohio 2,985,434 17.00 0.270

Dallas Tex. 2,759,125 18.00 0.319

Dayton Ohio 2,929,043 26.00 0.337

Erie Pa. 854,265 8.10 0.401

Fargo N. Dak. 818,245 6.70 0.301

Fayetteville Ark. 676,379 9.30 0.538

Fayetteville N.C. 2,384,205 20.60 0.318

Fort Harrison Mont. 286,692 3.03 0.541

Fort Lyon Colo. 592,642 6.75 0.433

Fort Meade S. Dak. 1,035,766 8.77 0.387

Fresno Calif. 457,315 5.03 0.317

Grand Island Nebr. 924,823 8.00 0.329

Grand Junction Colo. 264,427 3.52 0.556

Hines Ill. 3,339,727 26.00 0.355

Houston Tex. 3,303,180 21.80 0.222

Huntington W. Va. 740,087 5.40 0.338

Iron Mountain Mich. 328,519 3.49 0.471

Kerrville Tex. 2,295,389 17.60 0.317

Knoxville Iowa 2,718,455 24.56 0.407

Lake City Fla. 2,536,801 18.40 0.270

Leavenworth Kans. 2,985,505 20.70 0.346

Lebanon Pa. 725,987 10.00 0.564
Appendix II

Fiscal Year 1999 Data for VA’s 67 Laundries

Page 24 GAO-01-61 VA Laundry Service

a

Operating costs include direct labor, administration, supplies, utilities, and transportation of laundry to

other locations.

b

VA paid the contractor for processing this amount of laundry, but this was an estimated amount and

likely resulted in overpayments.

c

These numbers do not include the number of private contractor employees who operate these

laundries.

Little Rock Ark. 3,915,302 31.50 $0.396

Louisville Ky. 1,457,539 21.50 0.545

Madison Wis. 3,203,347 15.90 0.250

Martinsburg W. Va. 1,337,473 13.50 0.465

Milwaukee Wis. 4,185,076 24.50 0.218

Minneapolis Minn. 2,991,134 22.58 0.333

Mountain Homed Tenn. 1,411,798 12.00 0.352

Murfreesboro Tenn. 2,187,278 12.50 0.255

Northampton Mass. 1,608,835 12.60 0.367

Oklahoma City Okla. 1,315,468 13.00 0.348

Perry Point Md. 4,903,741 39.90 0.424

Phoenix Ariz. 2,941,250 22.60 0.326

Pittsburgh Pa. 6,033,288 42.50 0.362

Portland Oreg. 1,771,952 14.10 0.305

Reno Nev. 508,330 3.75 0.393

Richmond Va. 5,224,632 44.00 0.331

Roseburg Oreg. 1,353,042 14.18 0.461

Salem Va. 1,473,597 9.40 0.321

Salt Lake City Utah 931,272 9.00 0.383

San Juan P.R. 3,329,245 12.25 0.209

Sheridan Wyo. 363,913 3.75 0.497

Sioux Falls S. Dak. 800,000 8.00 0.336

Spokane Wash. 649,998 7.50 0.325

St. Albans N.Y. 13,113,432 69.00 0.245

St. Cloud Minn. 1,055,064 7.25 0.373

St. Louis Mo. 2,881,664 20.80 0.394

Togus Maine 866,754 6.10 0.327

Tuscaloosa Ala. 2,358,523 29.00 0.453

Waco Tex. 2,327,006 24.00 0.340

Walla Walla Wash. 301,210 2.75 0.432

West Los Angeles Calif. 4,947,378 55.00 0.332

West Palm Beach Fla. 3,686,858 22.35 0.224

Laundry State

Total pounds

processed VA employees

Operating cost per

pounda
Appendix II

Fiscal Year 1999 Data for VA’s 67 Laundries

Page 25 GAO-01-61 VA Laundry Service

d

VA laundries in Asheville and Salisbury, North Carolina, are not listed in this table because they both

recently closed and consolidated with the VA laundry in Mountain Home, Tennessee.
Page 26 GAO-01-61 VA Laundry Service

Appendix III

Laundries Located in Multi-Laundry Markets,

Fiscal Year 1999 ApendxiI

a

As stated earlier, numbers of employees in this report refer to full-time equivalent employees.

b

MapQuest was used to compute drive time.

c

Indicates the laundry used in our assessment to take on additional workload. However, VA’s

assessment, based on more detailed information, could determine that another location would better

meet VA’s needs as the consolidation site.

Number of

laundries in market Laundries Employeesa One-way drive timeb

2 Lebanon, Pa.

Perry Point, Md.c

10.00

39.90

1 hour and 42 minutes

2 Clarksburg, W. Va.

Pittsburgh, Pa.c

4.75

42.50

2 hours and 9 minutes

2 Salem, Va.

Richmond, Va.c

9.40

44.00

3 hours and 44 minutes

2 St. Cloud, Minn.

Minneapolis, Minn.c

7.25

22.58

1 hour and 16 minutes

2 Walla Walla , Wash.

Spokane, Wash.c

2.75

7.50

3 hours and 5 minutes

2 Northampton, Mass.

Brockton, Mass.c

12.60

40.00

2 hours and 7 minutes

3 Huntington, W. Va.

Murfreesboro, Tenn.

Louisville, Ky.c

5.40

12.50

21.50

3 hours and 43 minutes from Huntington to Louisville

3 hours and 54 minutes from Murfreesboro to Louisville

2 Cleveland, Ohio

Dayton, Ohioc

17.00

26.00

4 hours and 1 minute

3 Hines, Ill.

Madison, Wis.

Milwaukee, Wis.c

26.00

15.90

24.50

1 hour and 42 minutes from Hines to Milwaukee

1 hour and 33 minutes from Madison to Milwaukee

2 Fayetteville, Ark.

Little Rock, Ark.c

9.30

31.50

3 hours

2 Dallas, Tex.

Waco, Tex.c

18.00

24.00

1 hour and 42 minutes
Page 27 GAO-01-61 VA Laundry Service

Appendix IV

Commercial Laundries Used by VA ApendxiIV

a

All data for this location are for fiscal year 1998.

b

This contract also serves VA inpatient locations in San Francisco, Menlo Park, and Livermore.

VA facility Contractor

Type of

patients

FY 1999 pounds

processed Price basis

FY 1999 total

cost

Amarillo, Tex. Panhandle Laundry Inpatient Not available Per piece $303,000

Anchorage, AKa Portland

Rehabilitation Center

Inpatient 18,814 Per pound 14,111

Danville, Ill. Human Resource

Center of Edgar and

Clark Counties

Inpatient/

outpatient

1,200,000 Per pound 399,600

Denver, Colo.

Cheyenne, Wyo.

Proserve Laundry Inpatient/

outpatient

1,039,938 Per pound 450,522

Hilo, HI Tykes Laundry Inpatient Not available Per piece 2,490

Honolulu, HI Queens Medical

Center Health Care

Linen

Inpatient 123,843 Per pound 83,000

Miles City, Mont. Miles City Laundry

and Cleaners

Inpatient/

outpatient

86,800 Per pound/piece 65,000

Palo Alto, Calif.b Sodexho Marriott Inpatient/

outpatient

3,602,970 Per pound 1,124,049

Seattle, Wash.

American Lake, Wash.

University of

Washington Hospital

Laundry

Inpatient 1,637,396 Per pound/piece 852,907

Wilmington, Del. General Healthcare

Laundry

Inpatient 300,000 Per pound 90,000

Total 8,009,401 $3,334,679
Page 28 GAO-01-61 VA Laundry Service

Appendix V

Comments From the Department of Veterans

Affairs ApendxiV
Appendix V

Comments From the Department of Veterans

Affairs

Page 29 GAO-01-61 VA Laundry Service
Page 30 GAO-01-61 VA Laundry Service

Appendix VI

Comments From the American Federation of

Government Employees ApendxiVI
Appendix VI

Comments From the American Federation of

Government Employees

Page 31 GAO-01-61 VA Laundry Service
Appendix VI

Comments From the American Federation of

Government Employees

Page 32 GAO-01-61 VA Laundry Service
Appendix VI

Comments From the American Federation of

Government Employees

Page 33 GAO-01-61 VA Laundry Service
Page 34 GAO-01-61 VA Laundry Service

Appendix VII

GAO Contacts and Staff Acknowledgments ApendxiVI

GAO Contacts Stephen P. Backhus, (202) 512-7101

Paul R. Reynolds, (202) 512-7109

Staff

Acknowledgments

In addition to those named above, Deborah L. Edwards, Jean N. Harker,

Michael L. Gorin, John Borrelli, James C. Musselwhite, Thomas A. Walke,

Susan Lawes, Donald G. Fulwider, John J. Ryan, Norman M. Burrell,

Woodrow H. Hunt, John G. Brosnan, and Roger J. Thomas made key

contributions to this report.
Page 35 GAO-01-61 VA Laundry Service

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