VA REAL PROPERTY

Action Needed to 

Improve the Leasing 

of Outpatient Clinics

Report to Congressional Requesters

April 2014

GAO-14-300

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-14-300, a report to

congressional requesters

April 2014

VA REAL PROPERTY

Action Needed to Improve the Leasing of Outpatient 

Clinics

Why GAO Did This Study

VA operates one of the nation’s largest 

health-care delivery systems. To help 

meet the changing medical needs of 

the veteran population, VA has 

increasingly leased medical facilities to 

provide health care to veterans. As of 

November 2013, VHA’s leasing 

program has long-term costs of $5.5

billion and growing. Given previous 

problems that GAO has identified with 

VA’s hospital construction program, 

GAO was asked to review VA’s leasing 

program. 

This report examined (1) the extent to 

which schedule and costs changed for 

selected VA outpatient clinics’ leased 

projects since they were first submitted 

to Congress and factors contributing to 

the changes and (2) actions, if any, VA 

has taken to improve its leasing 

practices for outpatient clinics and any 

opportunities for VA to improve its 

project management. GAO analyzed 

agency documents as well as VA data 

for 41 ongoing major outpatient-clinic 

lease projects, for which a prospectus 

was submitted to Congress with an 

average annual rent of more than $1 

million as of January 2014. We also

interviewed VA officials and 

representatives from private 

companies, involved in VA leasing 

projects.

What GAO Recommends

GAO recommends that VA update 

VHA’s guidance for the leasing of 

outpatient clinics. VA concurred with 

GAO’s recommendation and discussed 

actions under way to implement the 

recommendation. VA also provided 

technical comments, which GAO 

incorporated as appropriate.

What GAO Found

Schedules were delayed and costs increased for the majority of the Department 

of Veterans Affairs’ (VA) leased outpatient projects reviewed. As of January 

2014, GAO found that 39 of the 41 projects reviewed—with a contract value of 

about $2.5 billion—experienced schedule delays, ranging from 6 months to 13.3

years, with an average delay of 3.3 years. The large majority of delays occurred

prior to entering into a lease agreement, in part due to VA’s Veterans Health 

Administration (VHA): 1) providing project requirements late or changing them or

2) using outdated guidance. Costs also increased for all 31 lease projects for 

which VA had complete cost data, primarily due to delays and changes to the 

scope of a project. First-year rents increased a total of $34.5 million—an annual 

cost which will extend for 20 years (the life of these leases).

VA has begun taking some actions to address problems managing clinic-leased

projects. First, it established the Construction Review Council in April 2012 to 

oversee the department’s real property programs, including the leasing program. 

Second, consistent with the council’s findings and previous GAO work

(December 2009, January 2011, and April 2013), VA is planning the following 

improvements:

• Requiring detailed design requirements earlier in the facility-leasing process. 

VA issued a guidance memorandum in January 2014 directing that beginning 

with fiscal year 2016, VA should develop detailed space and design

requirements before submitting the prospectus to Congress. 

• Developing a process for handling scope changes. In August 2013, VA 

approved a new concept to better address scope changes to both major 

construction and congressionally authorized lease projects. According to VA 

officials, among other improvements, this process ensures a systematic 

review of the impact of any ad-hoc changes to projects in scope, schedule, 

and cost.

• Plans to provide Congress with more complete information on costs of 

proposed projects. VA’s 2014 budget submission did not clarify that its 

estimates for future lease projects included only one year’s rent, which does 

not reflect the total costs over the life of the leases, costs that VA states 

cannot be accurately determined in early estimates. VA officials clarified this 

estimate beginning with VA’s 2015 budget submission.

However, these improvements are in the early stages, and their success will 

depend on how quickly and effectively VA implements them.

• Finally, VA is also taking steps to refine and update guidance on some 

aspects of the leasing process, for example the VA’s design guides, but VHA 

has not updated the overall guidance for clinic leasing (used by staff 

involved with projects) since 2004. Specifically, VHA’s Handbook on 

Planning and Activating Community Based Outpatient Clinics, which 

established planning criteria and standardized expectations for outpatient 

clinics, was based on past planning methodologies that no longer exist.

Standards for Internal Control in the Federal Government calls for federal 

agencies to develop and maintain internal control activities, which include 

policies and procedures, to enforce management’s directives and help 

ensure that actions are taken to address risks.

View GAO-14-300. For more information, 

contact Lorelei St. James, at (202) 512-2834 

or stjamesl@gao.gov
Page i GAO-14-300 VA Real Property

Letter 1

Background 5

Project Delays and Cost Increases for Outpatient Leases Mostly 

Occurred Prior to Entering into the Lease Agreement 9

VA Has Taken Some Actions to Improve Its Leasing-Management 

Practices for Outpatient Clinics; However, Its Guidance Could 

Be Improved 16

Conclusions 21

Recommendation for Executive Action 21

Agency Comments and Our Evaluation 22

Appendix I Scope and Methodology 23

Appendix II Changes in Schedule for Department of Veterans Affairs’ Major 

Medical Facility Leases 25

Appendix III Changes in Cost for Department of Veterans Affairs’ Major Medical 

Facility Leases 28

Appendix IV Comments from the Department of Veterans Affairs 30

Appendix V GAO Contact and Staff Acknowledgments 32

Tables

Table 1: VA Leased Facilities Used for Medical and Non-Medical 

Functions, Fiscal Years 2004 to 2013 5

Table 2: VA’s Two-Part Leasing Process, 2013 8

Table 3: Description of Key VA Cost Data Elements 13

Table 4: Schedule of VA’s 41 Major Outpatient-Clinic Lease 

Projects as of January 2014 25

Table 5: Cost of VA’s 31 Major Outpatient-Clinic Lease Projects 

as of January 2014 28

Contents
Page ii GAO-14-300 VA Real Property

Figures

Figure 1: Range of Pre-Lease Schedule Changes in Years among 

VA’s 41 Major Outpatient-Clinic Projects, January 2014 10

Figure 2: Build-Out Costs and First Year Rent and Total First Year 

Costs for 31 VA Lease Projects, January 2014 15

Abbreviations 

CFM Office of Construction and Facilities Management

CRC Construction Review Council

OIG Office of Inspector General 

OMB Office of Management and Budget

RPS Real Property Service 

SCIP Strategic Capital Investment Planning 

VA Department of Veterans Affairs 

VHA Veterans Health Administration 

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United States. The published product may be reproduced and distributed in its entirety 

without further permission from GAO. However, because this work may contain 

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Page 1 GAO-14-300 VA Real Property

441 G St. N.W.

Washington, DC 20548

April 30, 2014

The Honorable Jeff Miller

Chairman

Committee on Veterans Affairs

House of Representatives

The Honorable John Mica

Chairman

Subcommittee on Government Operations

Committee on Oversight and Government Reform

House of Representatives

The Department of Veterans Affairs (VA) operates one of the largest 

integrated health care networks in the United States through the Veterans 

Health Administration (VHA), serving more than 8-million enrolled 

veterans each year at over 1,600 health care sites, including hospitals 

and outpatient clinics. To help meet the changing medical needs of the 

veteran population, including a greater need for outpatient services, VA 

has increasingly leased the facilities from which it provides its health care 

services. According to VA, leasing medical facilities rather than owning 

them allows VA to provide more veterans with accessible health-care 

services and gives VA the flexibility to respond to changing service 

demands, demographic shifts, and improvements in medical technology.1

 1

The purpose of this report is not to determine whether it is more appropriate for VA to 

lease versus own. Instead, the report identifies changes to schedule and costs of major 

VA leasing projects, actions VA has taken to improve its management of these projects, 

and further opportunities for improving management of the VA leasing program. Although 

not addressed in this report, GAO has previously reported on some federal agencies 

overreliance on costly leasing, which is one reason that federal real property has 

remained on GAO’s high-risk list. See GAO, Greater Transparency and Strategic Focus 

Needed for High-Value GSA Leases,

Depending on the facility’s size and scope of services, VA outpatient 

clinics can provide primary care; dental care; pharmacy, laboratory, and 

radiology services; nutritional medicine; women’s health care; mental 

health and suicide prevention services; and other types of specialty care.

GAO-13-744 (Washington, D.C.: Sept. 19, 2013).
Page 2 GAO-14-300 VA Real Property

VA is required to submit a prospectus to Congress for all major medicalfacility leases and construction projects.2 A major medical-facility lease 

project is one with average annual rent of more than $1 million.3 VA may 

contract for space either by leasing space in an existing building or the 

construction of new facilities that VA then leases back from the 

developer.4

In April 2013, we found that costs substantially increased and schedules 

were delayed for VA’s largest medical-center construction projects.5

 2

38 U.S.C. § 8104(b). A prospectus is a statement required to justify a proposed project 

when its cost exceeds a legislatively established threshold. A prospectus includes 

information on the project’s size, cost, location, and other features and is submitted to the 

appropriate House and Senate authorizing committees. VA. Directive 7815: Acquisition of 

Real Property by Lease and by Assignment from General Services Administration

(Washington, D.C.: January 2012). Generally, VA submits its prospectuses as part of its 

annual budget submission.

To 

address the factors contributing to this situation and help VA better 

manage its construction projects, we recommended that VA (1) develop 

and implement agency guidance for assigning medical equipment 

planners to major medical-construction projects; (2) develop and 

disseminate procedures for communicating to contractors clearly defined

roles and responsibilities of VA officials who manage major medicalfacility projects, particularly the change-order process; and (3) issue and 

take steps to implement guidance on streamlining the change-order 

process. VA has implemented each of the recommendations by taking 

such actions as (1) issuing a memorandum for each major medical 

facilities construction project involving the procurement of medical 

equipment to be installed during construction ensure that the 

architectural-engineering firm retain the services of a medical equipment 

planner and (2) requiring for each major medical facilities construction 

project a VA Contracting Officer appointment letter to the contractor that 

3

38 U.S.C. § 8104(a)(3). VA considers major medical facility leases as those with 

unserviced rent costs of more than $1 million. Unserviced rent includes base or shell rent, 

real estate taxes and insurance, and excludes all operating expenses and utilities. VA 

currently has 97 major medical leases; however an additional 32 active major medical 

leases are currently being procured or built.

4

The use of a landlord or developer to construct a building according to VA’s requirements 

is known as a build-to-suit lease. A build-to-suit lease is one type of lease that VA uses for 

its outpatient clinics and other facilities, in addition to procuring leases in existing space.

5 GAO, VA Construction: Additional Actions Needed to Decrease Delays and Lower Costs 

of Major Medical-Facility Projects, GAO-13-302 (Washington, D.C.: Apr. 14, 2013).
Page 3 GAO-14-300 VA Real Property

clearly delineates the responsibilities and limits of authority to execute

project changes; and (3) issuing a handbook for construction changeorder processing that includes milestones for completing processing of 

change orders based on their dollar value.

Because of the cost increases and schedule delays for VA’s major 

construction projects, you asked us to review how VA manages its major 

leasing projects. This report examines (1) the extent to which schedule 

and costs changed for selected VA leased outpatient clinic projects and 

the factors that have contributed to any changes, and (2) actions, if any, 

VA has taken to improve its leasing practices for outpatient clinics, and 

any opportunities that may exist for VA to improve its management of 

project schedules and costs.

To address these objectives, we selected 41 current major medical 

leases that are outpatient clinic projects for which a prospectus has been 

submitted to Congress, as required by law.6 The total contract value of 

these 41 projects is $2.5 billion.7

 6

38 U.S.C. § 8104. VA provided data for its 82 major lease facility projects; however, for 

the purpose of this report, we reviewed VA’s outpatient clinics since these facilities are 

leased by VA. In total, 69 of the 82 leasing projects VA provided data for were outpatient 

clinics; however, 24 of these outpatient clinics were submitted in VA’s fiscal year 2014 

budget request and have yet to be authorized by Congress. Furthermore, 4 additional 

outpatient clinic projects were eliminated from our review for the following reasons: (1) 

Peoria, IL and Columbus, GA – these facilities were added to VA’s budget request as 

“extra” projects and were not included in VA’s official budget submission. As such, a 

prospectus was never submitted for these projects; (2) Boston, MA – The procurement for 

this project was canceled due to lack of competition and has not yet been restarted; and 

(3) Norfolk, VA – This project was not procured. As such, the scope of our review focuses 

on the 41 ongoing outpatient clinic lease projects already authorized by Congress. The 

following non-outpatient clinic leases were also excluded from our review: (1) VA’s 7 

larger health care centers which were recently reviewed as part of a VA Office of Inspector 

General audit; (2) VA’s 5 new leased research center projects; and (3) one community 

care center project. 

These projects were authorized by 

Congress from 1997 to 2011. We reviewed VA data as of January 2014 

on each of these projects. We reviewed and analyzed original cost 

estimates and completion dates from when a project’s prospectus was 

7

Total contract value includes annual rent for the duration of the contract (in some cases, 

20 years) and build-out costs, which are paid to the developer by VA as a one-time lump 

sum payment once a project is completed.
Page 4 GAO-14-300 VA Real Property

first submitted to Congress8

To examine specific outpatient projects in greater detail, we selected 11 

clinic projects in 8 locations: (1) Jacksonville, Florida; (2) Baltimore, 

Maryland; (3) Las Vegas, Nevada (four facilities);

and the projects’ current status. We 

assessed the reliability of VA’s leasing data through interviews with 

knowledgeable VA officials and a review for completeness and any 

unexpected values. We determined that the VA’s leasing data were 

sufficiently reliable for the purposes of this report. We reviewed VA’s 

leasing guidance and directives, VA’s Strategic Plan Fiscal Year 2011 to 

2015, and other relevant documents. In addition, we reviewed prior GAO 

reports, Office of Management and Budget guidance on leasing practices, 

and relevant legislation pertaining to VA’s leasing authority and amounts 

appropriated for these projects. We interviewed VA officials from the 

Office of Construction and Facilities Management (CFM), CFM’s Real 

Property Service (RPS) division, and VHA. We also interviewed 

representatives from private companies, involved in VA leasing projects, 

including a general contractor construction firm, and development leasing 

firm. Our findings from these select sites should not be used to make 

generalizations about VA sites agency-wide.

9 (4) Austin, Texas; (5) 

McAllen, Texas; (6) Corpus Christi, Texas; (7) Parma, Ohio; and (8) Ft. 

Wayne, Indiana. We selected these projects and locations based on the 

following criteria: (1) projects status; (2) project costs; (3) scope and cost 

changes; and (4) schedule delays.10

 8

38 U.S.C. § 8104. For the purposes of this report, when we refer to submitting a 

prospectus to Congress, we mean submitting the prospectus to relevant congressional 

committees.

For these projects, we interviewed 

officials either on site or by phone discussing the reasons for changes in 

costs and schedules and possible improvements for VA’s leasing 

program. Our findings from our site visits are illustrative and provide 

examples of the issues faced by specific projects; our findings should not 

be used to make generalizations about VA sites agency-wide. See 

appendix I for more information about our scope and methodology.

9

In Las Vegas, Nevada, we visited four clinics that were accepted by VA from between 

September 2011 to January 2012 and interviewed officials from each site.

10We selected projects that were far enough along in the leasing process to have actual or 

projected scope, cost, and schedule data, which allowed us to identify projects that 

experienced changes in scope, cost, and schedule.
Page 5 GAO-14-300 VA Real Property

We conducted this performance audit from May 2013 to April 2014 in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.

VA generally provides inpatient care at large VA medical facilities that are 

owned by the federal government and provides outpatient care at leased 

facilities.11 As of fiscal year 2013, VA had 1,889 leases, of which 1,192 

were medical outpatient clinics and other medical facilities, varying in size 

and cost.12

Table 1: VA Leased Facilities Used for Medical and Non-Medical Functions, Fiscal Years 2004 to 2013

Leased medical space generally consists of outpatient clinics, 

mental health clinics, readjustment-counseling centers, research, and 

other types of clinical leases. Non-medical space generally consists of 

administrative, warehouse, data center, parking, and regional office 

leases. According to VA, much of the non-medical space is integral to 

providing medical services in other locations. See table 1 for the numbers 

of VA leased properties from fiscal years 2004 through 2013.

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Medical space 665 689 721 770 829 931 1,030 1,107 1,193 1,192

Non-medical space 332 355 365 395 458 525 588 633 688 697

Total 997 1,044 1,086 1,165 1,287 1,456 1,618 1,740 1,881 1,889

Source: VA data.

VA has recognized the need to modernize its facilities and realign its real 

property portfolio to provide accessible, high-quality, and cost-effective 

 11VA owned 1,344 medical space facilities and 4,668 non-medical space facilities, as of 

November 2013.

12As of November 2013, the leasing liability of these 1,889 leased facilities was $5.5

billion. According to VA, lease term liability includes long-term VA direct leases and leases 

that are administered through the General Services Administration. The liability is 

calculated as the base term, i.e., the number of years for the term of the lease, times the 

annual rent; however, this calculation does not include past payments. VA has leased 848 

of 1,393 total outpatient clinics.

Background
Page 6 GAO-14-300 VA Real Property

services. However, much of VHA’s infrastructure was designed and built 

decades ago when there was a greater focus on hospital-centered, 

inpatient care.13 VA officials recognize that VHA’s infrastructure does not 

fully align with the health care needs of the current veteran population14

• providing medical services for returning veterans from Afghanistan 

and Iraq, who increasingly require specialized care for injuries such as 

the treatment of spinal cord and traumatic brain injuries;

and that VHA faces challenges in updating its infrastructure, such as:

• keeping pace with advancements in health care services and 

technologies that often dramatically change the physical infrastructure 

requirements of hospitals and clinics; and

• addressing changes in veteran demographics, including the differing 

treatments and care required for veterans of different generations and 

the shifts in veteran populations among different areas of the country 

that place continued demands on the capital-asset portfolio.

To plan for future infrastructure needs, VA established its Strategic 

Capital Investment Planning (SCIP) process for its fiscal year 2012 

budget submission to Congress.15

VA is authorized to lease property for use as a medical facility.

As part of this planning effort, VA 

annually reviews its real property priorities and conducts a gap analysis to 

identify its need for medical facilities. The SCIP process includes major 

construction projects and leasing projects. Local plans are centrally 

validated, evaluated, and consolidated into a prioritized national project 

list. VA also uses this planning process to develop a 10-year long-range 

plan, which prioritizes a list of projects targeted to reduce service gaps.

16

 13VA, Fiscal Year 2014 Budget Request. Summary Volume I (Washington, D.C.: 2014). 

VHA is 

responsible for developing the requirements for build-to-suit and 

remodeled lease facilities. CFM’s Office of Real Property Service (RPS) is 

responsible for acquiring land and leasing space for the construction of 

medical and medically-related facilities for VA, and provides guidance to 

regional and local VA offices regarding real property. VA is required to 

14VA, Fiscal Year 2013 Budget Request, Construction IV (Washington, D.C.: 2012).

15VA, Fiscal Year 2013 Budget Request, Construction IV (Washington, D.C.: 2012).

1638 U.S.C. §§ 8103, 8104
Page 7 GAO-14-300 VA Real Property

submit a prospectus to Congress for all major medical facility leases.17 VA 

submits a prospectus for new projects (property that it has never before 

leased) as well as succeeding or follow-up leases that have expired or will 

soon expire. VA’s annual budget submissions provide Congress with the 

prospectuses for all proposed new major-medical lease projects for which 

VA is seeking authorization for the next fiscal year, including life-cycle 

costs.18

VA’s process for procuring major leases is two-part: (1) CFM and VHA 

plan and prepare for a leasing project prior to entering into a lease 

agreement, and (2) CFM oversees the build out of the leasing project, not 

the administration of the lease. CFM has the overall responsibility for 

managing VA’s nationwide leasing program, including negotiating and 

executing development of the lease project. After completion of the 

facility, VHA activates it to provide medical care. See table 2 for 

information on VA’s two-part leasing process.

In addition, VA provides estimates for future leasing needs.

However, according to VA officials, VA does not submit a prospectus 

when exercising pre-negotiated options to extend the lease within the 

stipulated maximum lease term.

 17A major medical facility lease project is a lease for space for use as a new medical 

facility at an average annual rental of more than $1 million. 38 U.S.C. § 8104(a)(3)(B).

18Life-cycle cost is the total cost of a capital asset in addition to the construction costs, 

including all direct and indirect costs for planning, procurement, operations and 

maintenance, and disposal.
Page 8 GAO-14-300 VA Real Property

Table 2: VA’s Two-Part Leasing Process, 2013

Planning

and

preparing 

VA first identifies the need for a major lease facility. The Secretary must then approve the project and a prospectus is 

developed, which is subsequently included in VA’s budget submission. When a project is authorized by Congress, VA 

then begins developing an acquisition plan and market analysis and determines the best procurement methodology 

for the lease.a Afterward, VA selects a lease site using established criteria that include a review of (1) the surrounding 

area, (2) accessibility issues, and (3) site characteristics.b VA uses the listed criteria to evaluate sites and either 

determine a preferred site or prequalify all sites that meet the minimum criteria, depending on the procurement 

methodology selected by the contracting officer. In some cases, VA can contract with an agent to identify parcels of 

land and an appraiser to assess the value. Once a site is selected, VA then develops the “schematic design”

c using its 

design guides and solicitation offers to prospective developers of the facility.

VA commonly enters into a 20-year lease agreement to occupy space. Once the agreement is completed, the 

developer contracts with a construction firm to build the outpatient clinic. Once offers have been submitted in response 

to VA’s solicitation for sites, VA then conducts a multi-stage review of the proposals prior to selecting a developer. 

Finally, after VA has selected a developer and has cleared all needed reviews, it then enters into a lease agreement 

with the selected development firm.

Managing

and 

overseeing

Once VA has entered into a lease agreement with the development firm, VA CFM officials then host a project kickoff 

meeting to introduce the lessor to the VHA officials responsible for providing medical services at the facility and 

establish roles and responsibilities for the project. The responsibility of the project then changes from VA’s Central 

Office contracting officer and project manager to VA’s on-site resident engineer, who ensures the facility is built to 

VHA specifications.d

Prior to accepting a project, VA conducts a final inspection of the constructed facility. Once accepted, in some cases, 

VA pays the developer a one-time lump-sum payment for all tenant improvements, depending on the lease. First 

years’ rent is not paid in lump sum, but rather it is paid in arrears on a monthly basis following commencement of the 

lease contract. VA does not make any payments to the developer until construction of the leased premises is 

completed and subsequently accepted by VA. VA then transfers responsibility for managing the leased space to the 

local contracting officer, a step that is followed by activation of the facility by VHA staff. CFM local officials are 

responsible for the day–to-day operations of maintaining the facilities thereafter. 

Source: GAO Analysis of VA data.

a

When procuring a lease, VA has three leasing options: leasing existing space; 1-step build-to-suit 

leases; and 2- step build-to-suit leases. The existing lease option requires VA to retrofit the 

incorporated space to all governmental physical-security and sustainability requirements. The 1-step 

leasing process involves procuring the site and developer in one procurement process. The 2-step 

leasing process includes separate procurements for the site and for the developer.

b

In a 2-step lease, VA negotiates and enters into an Assignable Option to Purchase contract that 

allows VA to select a developer to buy the land, construct the clinic, and lease it back to VA for the 

duration of the lease. Notably, VA never takes title to the property.

c

According to VA officials, a “schematic design” is a conceptual design that is approximately 35 

percent complete.

d

It should be noted that since the developer owns the property, the developer contracts with a 

construction firm and assumes the risk for the project. In some cases the developer or the 

construction firm can enter into a contract with the architectural and engineering firm for the design of 

the facility. However, CFM officials also work with the architectural and engineering firm to review 

design documents for the leased facility. Post-lease agreement design efforts then begin, followed by 

facility construction.
Page 9 GAO-14-300 VA Real Property

VA has experienced substantial delays in executing new outpatient clinic 

lease projects, nearly all of them occurred prior to entering into a lease 

agreement with the developer.19 We found that 39 of the 41 

congressionally authorized outpatient clinic projects we reviewed 

experienced schedule delays, ranging from 6 months to 13.3 years, with 

an average delay of 3.3 years, while 2 projects experienced schedule 

time decreases. Our data analysis showed that 94 percent of these 

delays occurred prior to entering into the lease agreement. For all but one 

of the projects that experienced a delay, the delay occurred during the 

pre-lease agreement stage. We also compared the length of delays that 

occurred during the pre-lease agreement stage to the length of delays 

that occurred once a lease agreement was entered into with the 

development firm. We found that the average delay during the pre-lease 

agreement stages for all 41 projects totaled nearly 3.1 years.20

 19In this report, the term “delay” refers to an increase in the scheduled or actual 

acceptance date for a VA major outpatient clinic lease project when compared to the 

acceptance date identified in the prospectus first submitted to Congress.

Conversely, the average project delay once a lease agreement was 

finalized totaled approximately 2.5 months, and 11 outpatient clinic 

projects actually experienced schedule decreases during this stage. VA 

officials at 6 of our 11 outpatient clinic projects selected for detailed 

review mentioned that the large majority of schedule delays occur during 

the period prior to entering into a lease agreement. See figure 1 for an 

overview of schedule changes experienced by the 41 outpatient clinic 

projects we reviewed during the pre-lease agreement stage. (See app. II 

for schedule information for individual clinic projects.)

20The average schedule delay was determined by calculating the average schedule 

change for all 41 projects including the 39 that experienced delays and the 2 that 

experienced schedule time decreases.

Project Delays and 

Cost Increases for 

Outpatient Leases 

Mostly Occurred Prior 

to Entering into the

Lease Agreement

Project Delays
Page 10 GAO-14-300 VA Real Property

Figure 1: Range of Pre-Lease Schedule Changes in Years among VA’s 41 Major 

Outpatient-Clinic Projects, January 2014

For the 41 lease projects we reviewed, we found that several factors 

contributed to delays:

VHA’s Late or Changing Requirements. According to data we analyzed 

and VA officials we interviewed, late or changing requirements were the 

most common reasons for delays. Requirements can pertain to facility 

size, types of treatment rooms, types of medical equipment, electrical 

voltage needs, and other details. We found that in many instances, CFM 

either did not receive VHA’s requirements on time, or VHA changed its 

requirements during the solicitation of offers,21

 21As we describe in table two, once a site is selected, VA then develops the schematic 

design using its design guides and solicitation offers to prospective developers of the 

facility.

necessitating a re-design 

that affected the schedule. In evaluating VA data, we found that 23 of the 
Page 11 GAO-14-300 VA Real Property

41 leasing projects (56 percent) experienced delays because VHA was 

late in submitting space requirements to CFM, or VHA changed space 

requirements and thus the scope of the project. For example, the size of 

the Jacksonville outpatient clinic had increased by 29 percent, and the 

Austin outpatient clinic site we visited had increased by 36 percent from 

the time the prospectuses for these projects were submitted to Congress.

Furthermore, officials at the Austin outpatient clinic said delays or 

changes to VHA’s requirements necessitated the project’s re-design, 

which, in turn, caused a delay of 19 months. Specifically, the initial 

authorization request for the Austin project was for 85,000 square feet 

and 400 parking spaces. VHA revised the space plan to 135,322 square 

feet to accommodate projected increases in patient visits, and 

subsequently approved a second revised space plan of 185,822 square 

feet and 1,200 parking spaces. VA did notify Congress of its intent to 

increase the size of clinic by more than 10 percent. The completed 

solicitation for offers was not finalized until July 2009, though several 

amendments were issued in October 2009 due to revised specifications. 

Consequently, VA had to extend the due date for the offers to provide 

bids.

Site Selection Challenges. In analyzing VA data, we found that 20 of the 

41 outpatient clinic projects we reviewed (49 percent) experienced delays 

due to difficulties in locating or securing a suitable site. For example, an 

increase in scope to the Jacksonville project resulted in a larger building 

design that then required more land. To accommodate these changes, 

the landowner worked to acquire additional properties around the already 

selected site. Although the developer was ultimately successful in 

obtaining additional land for the project, this process led to delays. 

According to VA officials, prior to entering into the lease agreement, there 

were delays associated with difficult negotiations with the developer. In 

addition, there were significant environmental clean-up requirements at 

the site, which needed to occur before construction began. The original 

site’s location was obtained in December 2002, but the larger site was not 

obtained until December 2009, a delay of 7 years. VA officials said that 

without these negotiations, it is likely that the project would have been

significantly more expensive. Site selection challenges were also noted 

by VA officials in Las Vegas. According to those officials, the site VA 

selected for a new outpatient clinic was located under the Nellis Air Force 

Base fly-over space, and VA discovered contamination issues on the 

property. These problems forced VA to alter the location of the outpatient 

clinic on the property, contributing to delays.
Page 12 GAO-14-300 VA Real Property

Outdated Guidance. We found that outdated policy and guidelines 

resulted in challenges for VA staff in completing leasing projects on time 

at the sites we reviewed. For example, officials from the four Las Vegas 

outpatient sites we visited stated that VA’s policies for managing leases 

seem to change for each project, creating uncertainty regarding CFM job 

responsibilities. An official from the Ft. Wayne outpatient clinic also stated 

that VA’s leasing process is confusing and seems to frequently change. A 

contracting official from one of the Las Vegas clinics said she had to call 

various VA headquarters officials while involved in the planning phase to 

obtain the latest management procedures, because some of VA’s 

guidance had not been updated since 1998. VA is now drafting its leasing 

Handbook Guidance 7815, which VA officials said they plan to finalize by 

the end of fiscal year 2014. As we will discuss in more detail later in the 

report, this handbook covers the authorities, roles and responsibilities, 

policies, procedures, administration, and management of VA’s real 

property leasing program.22

In commenting on our draft, VA noted that many lease delays resulted 

from external influences to VA’s leasing process and out of VA’s control. 

VA also noted that other factors could cause delays including site 

selection issues involving the National Environmental Policy Act 

requirements, stakeholder concerns, procurement and lessor issues, 

solicitation/award protects, and post-award contracting issues. 

Furthermore, these comments stated that some projects required updates 

to space requirements to accommodate improved delivery of care for 

veterans. VA noted that as delays to a lease occur, VHA re-evaluates and 

updates the design and space program to ensure the contemplated lease 

project will meet VA’s latest requirements and optimally serve veterans.

In addition to substantial delays, VA also experienced cost increases to 

its outpatient clinic projects when compared to the costs in the projects’

prospectuses. VA provided cost data for its outpatient clinic lease projects 

in January 2014. Table 3 includes a description of the key cost data 

elements we reviewed.

 22VA. Handbook Guidance 7815 [ Draft]. (Washington, D.C.: July 2012.) VA expects to 

publish and finalize the draft handbook in fiscal year 2014. 

Project Cost Increases
Page 13 GAO-14-300 VA Real Property

Table 3: Description of Key VA Cost Data Elements

Data element Description

Prospectus cost This cost provided by VA in its annual budget submission represents the total amount 

estimated to be paid by VA in the first year of the lease (first year’s rent and the lump sum 

payment for special-purpose, medically related improvements).

Prospectus first year rent This cost provided by VA in its annual budget submission represents the total amount of rent 

estimated to be paid by VA in the first year of the lease.

Prospectus build-out cost This cost provided by VA in its annual budget submission represents the estimated first year 

lump sum payment for special-purpose, medically related improvements the developer 

makes specifically for VA.

Awarded rent (first year) The rent due to the lessor for the first year of the lease. The amount of rent due is 

determined by the competitive selection of the lessor and is the amount offered by the lessor 

as part of its proposal. This is memorialized in the lease when the lease contract is awarded.

Awarded build-out cost (lump-sum 

payment)

VA structures its leases so that the cost of the basic building is included in the rental rate, 

and special-purpose, medically-related special improvements (the items that make the space 

“clinical”) are paid by VA as a lump sum upon acceptance.

Total first year cost Total of awarded rent and awarded build-out cost, which yields the total amount due to the 

lessor in the first year of the lease.

Source: GAO analysis of VA data.

When compared to the prospectus costs for the 31 projects with complete 

cost data,23

The causes of the total cost increase can be attributed primarily to 

increases in the projects’ awarded first-year rent due to the schedule 

delays and changes to the design or scope of a project that we discussed 

previously. Schedule delays can increase costs because of changes in 

we found that total first-year costs increased from $153.4 

million to $172.2 million, an increase of nearly $19 million (12 percent).

For the 31 projects, the total prospectus’ first year rent was estimated at 

$58.2 million, but the total awarded first-year rent for these projects 

equaled $92.7 million as of January 2014, an increase of $34.5 million (59 

percent). Such increases in rent have long term implications for VA, 

because the Department must pay the higher rent over the lifetime of the 

lease agreement. For example, all 31 VA lease projects included in this 

cost analysis have lease terms of 20 years, and the increase in rent must 

be paid for the duration of the contract.

 23Of the 41 projects included in our review, 10 projects are not included in our cost 

analysis. Nine of these projects did not have reported first year rent and build-out costs 

because the projects have yet to be awarded to a developer. In addition, the Baltimore 

clinic project is not included in this analysis because its build-out costs were amortized 

across multiple years rather than included as a lump sum payment for the first year.
Page 14 GAO-14-300 VA Real Property

the local leasing market during the period of the delay. Therefore, when 

VA estimates costs as part of the prospectuses submitted to Congress in 

the annual budget request, an automatic annual escalation is applied to 

each project to account for rising costs and market forces that make 

construction and leased space more expensive over time. VA officials 

said the escalation ensures that the authorized cost of the project is in 

line with the realities of the real estate and construction markets. As 

discussed earlier, the average schedule delay for the 41 outpatient clinics 

we reviewed was approximately 3.3-years per project. Because VA 

annually adjusts a project’s cost by an increase of 4 percent for each year 

the project is delayed, project delays directly result in cost increases.

Additionally, we found that projects we reviewed increased in total size by 

203,000 square feet. Changes in a project’s size expand the scope of the 

project, requiring design changes, which can result in schedule delays, 

further adding to costs. More specifically, the VA outpatient clinic in 

Austin, Texas, discussed above, increased in size by 36 percent and first 

year rent and build-out costs increased from $6.2 million to $19.8 million, 

a total increase of $13.6 million, or 219 percent.

Although first year rents increased for the 31 projects—increasing overall 

total costs—VA’s total build-out costs were lower than reported in the 

projects’ prospectuses. As described in table 3, build-out costs are onetime, lump-sum payments VA makes to developers for special purpose, 

medically related improvements to buildings when VA accepts the 

projects as completed. For example, once a building is constructed to 

provide standard office space, changes to transform the building to a 

medical clinic, such as providing a nurses’ station, would be considered a 

build-out cost. In the prospectuses, VA estimated that build-out costs for 

the 31 projects would total $95.2 million, but the total awarded build-out 

costs totaled $79.5 million as of January 2014, a decrease of $15.7 

million (16.5 percent). VA officials said the decrease in build-out costs 

from those originally estimated in the prospectuses was due to the 

national downturn in the commercial real estate market starting in 2008.

According to VA officials, this created more competition among 

developers and helped VA realize more competitive pricing on its medical 

build-out requirements than was anticipated in the prospectuses. Figure 2 

provides an overview of first year rent and build-out costs for VA’s 31 

outpatient clinics with complete cost data. (See app. III for cost 

information for individual clinic projects.)
Page 15 GAO-14-300 VA Real Property

Figure 2: Build-Out Costs and First Year Rent and Total First Year Costs for 31 VA 

Lease Projects, January 2014

Note: Of the 41 projects included in our review, 10 projects are not included in our cost analysis. Nine 

of the 10 projects did not have reported first year rent and build-out costs because the projects have 

yet to be awarded to a developer. In addition, the Baltimore clinic project is not included because its 

build-out costs were amortized across multiple years rather than as a lump sum payment for the first 

year.
Page 16 GAO-14-300 VA Real Property

VA has made some progress in addressing issues with its major medicalfacilities leasing program. In 2012, VA formed a high level council, the 

Construction Review Council, to oversee its capital asset program, 

including leasing. Based on the findings of the council and our work, VA is 

planning the following improvements to the major medical facilities 

leasing program:

• requiring detailed design requirements earlier in the design process to 

help avoid the delays, scope changes, and cost increases, and

• providing Congress with more complete information on the cost of 

proposed future lease projects.

However, we also found that while VA has updated and refined some 

guidance for specific aspects of lease projects—including design 

guidance for the construction of outpatient clinics—to better support VA’s 

leasing staff and prevent project delays; it has not updated its overall 

guidance for staff involved in leasing projects.

In April 2012, the Secretary of Veterans Affairs established a Construction 

Review Council (CRC) to serve as the single point of oversight and 

performance accountability for the planning, budgeting, execution, and 

delivery of the VA’s real property capital-asset program, including the 

leasing program.24 The council issued an internal report in November 

2012 that contained findings and recommendations resulting from 

meetings it held from April 2012 to July 2012. The CRC also held a 

meeting specifically focused on VA’s leasing program in June 2012.25

 24The Council comprised officials from the VA, including the secretary, deputy secretary, 

chief of staff, under secretaries, and assistant secretaries, as well as key leaders across 

the department. The Secretary of VA chaired nine meetings from April 18 through June 

15, 2012, to review the VA construction program and identify challenges that led to 

changes in scope, cost over-runs, and scheduling delays of major projects.

The objectives for that meeting were to create an efficient and effective 

leasing process that would help make projects available to the veteran 

community more quickly and improve collaboration between leasingprogram stakeholders (such as CFM and VHA officials and contractors), 

thus reducing the risk of projects’ experiencing the previously described 

cost increases and delays. The CRC report, along with GAO’s past work 

25VA, The Construction Review Council Activity Report, (Washington, D.C.: November 

2012).

VA Has Taken Some 

Actions to Improve Its 

Leasing-Management 

Practices for 

Outpatient Clinics; 

However, Its 

Guidance Could

Be Improved

Creating a Review

Council
Page 17 GAO-14-300 VA Real Property

on VA leasing,26 provided the impetus for many of the actions discussed 

below.

In part based on CRC findings, VA recognizes that firm design 

requirements need to be established earlier to help major lease projects 

avoid delays and cost increases. As part of the review of the leasing 

program, the CRC reviewed three leasing-project case studies where it 

found that VA was taking too long to initiate leasing projects after VA had 

submitted the required prospectus to Congress, and that VA’s multiple 

changes to requirements before or during the acquisition and construction 

process contributed to delays. As noted earlier in the report, we also

found that delays occurred prior to entering into a lease agreement, due 

in part to changing requirements. To limit the need for making changes to 

design requirements, VA is moving forward with plans to provide detailed 

requirements prior to submitting a prospectus to Congress for major 

construction and lease projects for congressional authorization. During 

our review in January 2014, VA issued a guidance memorandum 

directing that beginning with fiscal year 2016, VA would develop more 

detailed space requirements before a prospectus is submitted to 

Congress for major construction and major leased projects.27

 26 GAO, VA Construction: VA Is Working to Improve Initial Project Cost Estimates, but 

Should Analyze Cost and Schedule Risks, 

According 

to VA officials, the more detailed requirements should be prepared as part 

of a business case for each major construction and lease project during 

the SCIP planning process that occurs before a prospectus is prepared.

The business case will be required to include a detailed Space and 

Equipment Planning System plan documenting space requirements to a 

more detailed level than previously required. Officials stated that this 

process should help ensure that the prospectus is supported by more 

detailed space planning and thus provides more accurate scope and cost 

information to Congress. We did not evaluate the effectiveness of this 

new process because it has not been fully implemented.

GAO-10-189 (Washington, D.C.: Dec. 14, 

2009. GAO: VA Real Property: Realignment Progressing, but Greater Transparency about 

Future Priorities Is Needed GAO-11-197, (Washington, D.C., Jan 31, 2011); and GAO, VA 

Construction: Additional Actions Needed to Decrease Delays and Lower Costs of Major 

Medical-Facility Projects, GAO-13-302 (Washington, D.C.: Apr. 4, 2013).

27VA, Additional VHA Guidance to the FY2016 SCIP Call Memo, (Washington D.C.: Jan.

2, 2014).

Requiring More Detailed 

Design Requirements 

Earlier in the Process
Page 18 GAO-14-300 VA Real Property

VA has also taken steps to better manage scope changes to project 

leases. The CRC’s review of the three leasing projects noted that certain 

changes in requirements, such as to facility size or layout, required 

additional approvals and notifications, which consequently delayed the 

signing of the lease. During our review, on August 30, 2013, the 

Secretary of Veterans Affairs approved a new concept—the Capital 

Program Requirements Management Process—to better address scope 

changes to both major-construction and “prospectus-level”28 lease 

projects that have been approved through the SCIP process. According to 

VA officials, this process will help ensure review and approval of any 

proposed scope changes by the appropriate department officials and will 

require a systematic review of projects at pre-defined stage-gates, as well 

as reviews of the effects of any changes to scope, schedule, and cost. 

We did not evaluate the effectiveness of this new process because it has 

not been fully implemented.

VA provided incomplete information to Congress on the estimate of total 

costs for proposed future projects as a part of the SCIP Long Range 

Capital Plan program.29 VA’s 2014 budget submission includes an 

estimate of total costs for proposed future lease projects for the next 10 

years; however, this estimate only provides the first year’s annual rent 

and build-out costs, and not the complete lifecycle costs for these leases. 

Thus, in the budget submission, VA reported that future leasing costs for 

more than 221 leasing projects were $779 million30—less than the 

estimated total lifecycle cost of the Myrtle Beach outpatient clinic alone.31

 28“Prospectus level” lease projects are VA-leased projects that require VA to submit a 

prospectus to Congress and are required to be authorized by Congress. 

29These estimates are located in the 2014 VA budget submission, page 1-4 in Table 1-1: 

VA Estimated Cost of Full SCIP Implementation by Investment Type, by Administration. 

30According to VA officials, of the $779 million, $588 million are for 221 new leases and 

$191 million are for an unspecified amount of future leases planned for the out years of 

the SCIP long range plan. This $191-million estimate is based on leases that are expiring 

or new leases needed for those out years to close SCIP gaps or maintain access and 

capacity to meet workload demand. 

31In its budget prospectus, VA does provide total costs—the estimated annual costs, 

build-out costs, and lifecycle costs—for each individual leasing project it wants Congress 

to authorize for the fiscal year. For example, the fiscal year 2014 budget submission, VA 

reported that the Myrtle Beach, South Carolina, outpatient clinic has an annual rent cost of 

$3.4 million and build-out cost of $4.6 million, with a total lifecycle cost of $805 million.

Developing a Process for 

Handling Scope Changes

Providing Congress

with More Complete 

Information on Costs

for Proposed Projects
Page 19 GAO-14-300 VA Real Property

Because many of VA’s leases are 20 year leases, reporting only one 

year’s rent underestimates the cost considerably. VA officials stated that 

the lifecycle costs cannot be accurately determined until the leases are 

closer to being entered into because of potential changes in market 

conditions and demographic demand that could affect terms of the lease. 

However, at the time of our review, it was not clear what was included 

and excluded from the estimate of total costs for proposed future lease 

projects presented to Congress. In January 2014, VA officials told us they 

plan to clarify information presented on these leases beginning in the 

fiscal year 2015 budget submission. VA’s 2015 budget submission stated 

that estimated costs presented are first year annual rent and build-out 

costs, and do not include future annual rent payments.32

The CRC report recognized the need to improve the guidance for 

planning and implementing major construction projects. In addition, our 

past work has documented that insufficient guidance can cause confusion 

among VA officials and contractors.33

• VA is updating its solicitation for offers, which describes the 

requirements for the leases.

VA decided to apply this lesson 

learned to its leasing program and is taking steps to update and refine 

some of its guidance.

34

• CFM is updating its design guides, such as its design guide for leasebased outpatient clinics, which is intended to help speed the design 

process, control cost, and avoid errors and omissions. According to 

VA officials, design guides are in a continual process of refinement, 

and new design guides are always being developed.

The solicitation for offers is issued 

during the planning phase. According to CFM officials, these efforts 

are scheduled to conclude in 2014.

• VA is implementing more stringent procedures for CFM to validate the 

representations made by developers as part of their proposals, 

 32VA, Fiscal Year 2015 Budget Request. IV Construction, Long Range Capital Plan, and 

Appendix. (Washington, D.C.: 2014); pp.1.4; 9.2-8, 9.2-9. 

33GAO, VA Construction: Additional Actions Needed to Decrease Delays and Lower Costs 

of Major Medical-Facility Projects, GAO-13-302 (Washington, D.C.: Apr. 4, 2013). 

34Subsequently, VA reviews the offers, accepts an offer, and then enters into a lease 

agreement.

Refining and Updating 

Leasing Guidance
Page 20 GAO-14-300 VA Real Property

including providing leasing officials with new checklists, having VA 

officials provide peer reviews, and having leadership clear project 

documents before awarding leases.

• VA has created standardized project schedules to ensure uniformity in 

reporting, tracking, and managing projects, in an effort to provide 

realistic timelines across all leased facilities.

VHA efforts have primarily focused on updating guidance on specific 

aspects of the leasing process, such as design and offer solicitation, 

rather than the overall guidance that is used by all headquarters and field 

staff involved in leasing projects. Although VA has taken steps to improve 

guidance on specific aspects of the leasing program, it has not made 

changes to its handbook for planning outpatient clinics. We reviewed 

VHA’s 2004 Handbook on Planning and Activating Community Based 

Outpatient Clinics, which is VHA’s overall guidance for leasing outpatient 

clinics. The Handbook is intended to establish consistent planning criteria 

and standardized expectations.35 The handbook is widely used by VA 

officials and provides important guidance, in particular, clarifying the 

differing responsibilities of officials and departments and the legal 

authorities of the leasing process. However, this guidance is so out of 

date that it no longer adequately reflects the roles and responsibilities of 

the various VA organizations involved in major medical facilities leasing 

projects.36 According to VA officials, the close collaboration of these 

offices is necessary for a successful lease project. The lack of updated 

guidance can affect coordination among stakeholders, which could 

contribute to schedule delays and cost increases. Using outdated 

guidance can lead to miscommunications and errors in the planning and 

implementing of veterans’ leased clinics. Furthermore, the policy, 

planning criteria, and business plan format were developed based on an 

old planning methodology37 that VA no longer uses,38

 35VA. VHA’s Handbook 1006.1, Planning and Activating Community-Based Outpatient 

Clinics. (Washington, D.C.: May 19, 2004). 

thus the guidance 

does not reflect VA’s current process.

36The guidance makes no specific reference to Office of Construction and Facilities 

Management or the Real Property Services, whose officials play an instrumental role in 

working with VHA to plan and execute the lease agreement.

37The Capital Asset Realignment for Enhanced Services’ planning methodology.

38VA now uses SCIP for its infrastructure planning.
Page 21 GAO-14-300 VA Real Property

As of November 2013, VHA’s leasing program has a long-term liability of 

$5.5 billion and growing, but its guidance on outpatient clinics is a decade 

old and no longer relevant. Standards for Internal Control in the Federal 

Government calls for federal agencies to develop and maintain internal 

control activities, which include policies and procedures, to enforce 

management’s directives and help ensure that actions are taken to 

address risks.39 Such activities are an integral part of an entity’s planning, 

implementing, reviewing, and accountability for stewardship of 

government resources and achieving effective results.

Similar to VA’s largest medical-center construction projects, we found that 

its major leasing projects have experienced substantial delays as well as 

cost increases. In looking closer at the leasing program, we found that VA 

is taking steps toward improving its management of the program; steps 

that may help address these issues. Most notably, VA’s Construction 

Review Council should improve management of both the construction and 

leasing program. Furthermore, the improvements VA is planning based 

on the findings of the council and our work—1) requiring more detailed 

design requirements, 2) improving the process for handling scope 

changes, and 3) providing Congress with more complete information—

represent a good start. However, these efforts are still in the early stages, 

and some were undertaken during the course of our review. Thus, the 

success of those efforts will depend on how quickly and effectively VA 

implements them. Furthermore, the guidance used by all staff involved in 

planning and implementing leasing projects is outdated and does not 

reflect recent organizational changes affecting the way leasing projects 

are managed. Without current guidance, stakeholders may have difficulty 

knowing with whom to coordinate, and projects could continue to 

experience delays and cost increases resulting from late-stage design 

changes.

To improve the management of VA’s leased outpatient-clinic projects, we 

recommend that the Secretary of Veterans Affairs update VHA’s guidance 

for leasing outpatient clinics to better reflect the roles and responsibilities 

of all VA staff involved in leasing projects.

 39GAO, Standards for Internal Control in the Federal Government, AIMD-00-21.3.1

(Washington, D.C.: Nov. 1, 1999). 

Conclusions

Recommendation for 

Executive Action
Page 22 GAO-14-300 VA Real Property

We provided a draft of this report to VA for review and comment. In its 

written comments, VA concurred with our recommendation and discussed 

actions under way to implement it. However, VA cited concerns that the 

report did not fully reflect the reasons for lease delays. VA noted that 

many lease delays resulted from influences external to VA’s leasing 

process and out of VA’s control. For example, other factors that could 

cause delays include site selection issues involving the National 

Environmental Policy Act’s requirements, stakeholders’ concerns, 

procurement and lessor issues, solicitation/award protects, and postaward contracting issues. Furthermore, these comments stated that some 

projects required updates to the space requirements to accommodate 

improved delivery of care for veterans. VA also noted that as delays to a 

lease occur, VHA re-evaluates and updates the design and space 

program to ensure the contemplated lease project will meet VA’s latest 

requirements and optimally serve veterans. We added this information in 

the section of the report that discussed contributing factors to delays at 

VA projects. VA suggested a number of technical corrections, which we 

incorporated as appropriate. VA’s letter is reprinted in appendix IV.

As agreed with your offices, unless you publicly announce the contents of 

this report earlier, we plan no further distribution until 30 days from the 

report date. At that time, we will send copies to the appropriate 

congressional committees, the Secretary of Veterans Affairs, and other 

interested parties. In addition, the report will be available at no charge on 

GAO’s website at http://www.gao.gov.

If you or your staff have any questions regarding this report, please 

contact me at (202) 512-2834 or stjamesl@gao.gov. Contact points for 

our Offices of Congressional Relations and Public Affairs may be found 

on the last page of this report. GAO staff who made key contributions to 

this report are listed in appendix V.

Lorelei St. James

Director

Physical Infrastructure Issues

Agency Comments

and Our Evaluation
Appendix I: Scope and Methodology

Page 23 GAO-14-300 VA Real Property

To determine the extent to which costs and schedules changed for 

selected Department of Veterans Affairs’ (VA) outpatient clinic lease 

projects, we obtained and analyzed data that VA provided on VA’s 41 

authorized major outpatient-clinic projects as of January 2014.1

To identify factors contributing to cost and schedule changes in VA’s 

leased outpatient-clinic projects, we interviewed VA’s headquarters 

officials regarding the status of all major outpatient clinic lease projects 

and examined project documents and interviewed on-site managers and 

engineers. We selected eleven clinic projects in eight locations including 

(1) Jacksonville, Florida; (2) Baltimore, Maryland; (3) Las Vegas, Nevada 

(four facilities)

The data 

included a short project description, project location, the original and 

current total estimated cost of the project, and the original and current 

completion date. We analyzed the current cost and completion dates to 

determine any increases in costs and the extent to which projects may 

have exceeded original schedules and summarized the results. We also 

collected VA information on reasons for cost increases and schedule 

changes to VA’s outpatient-clinic leased projects. We assessed the 

reliability of the data through interviews with knowledgeable VA officials 

and a review for completeness and any unexpected values. We 

determined that the data were sufficiently reliable for the purpose of this 

report.

2

 1

VA provided data for its 82 major lease facility projects; however, for the purpose of this 

report, we reviewed VA’s outpatient clinics since these facilities are leased by VA. In total, 

69 of the 82 leasing projects VA provided data for were outpatient clinics; however, 24 of 

these outpatient clinics were submitted in VA’s fiscal year 2014 budget request and have 

yet to be authorized by Congress. Furthermore, 4 additional outpatient clinic projects were 

eliminated from our review for the following reasons: (1) Peoria, IL, and Columbus, GA—

these facilities were added to VA’s budget request as “extra” projects and were not 

included in VA’s official budget submission. As such, a prospectus was never submitted 

for these projects; (2) Boston, MA—the procurement for this project was canceled due to 

lack of competition and has not yet been restarted; and (3) Norfolk, VA—this project was 

not procured. As such, the scope of our review focuses on the 41 ongoing outpatient clinic 

lease projects already authorized by Congress. The following non-outpatient clinic leases 

were also excluded from our review: (1) VA’s 7 larger health-care centers, which were 

recently reviewed as part of a VA Office of Inspector General audit; (2) VA’s 5 newly 

leased research center projects; and (3) one community-care center project.

; (4) Austin, Texas; (5) McAllen, Texas; (6) Corpus Christi, 

Texas; (7) Parma, Ohio; and (8) Ft. Wayne, Indiana. We selected these 

projects and locations based on the following criteria: (1) projects status; 

2 In Las Vegas, Nevada, we visited four clinics that were accepted by VA between 

September 2011 and January 2012 and interviewed officials from each site.

Appendix I: Scope and Methodology
Appendix I: Scope and Methodology

Page 24 GAO-14-300 VA Real Property

(2) project costs; (3) scope and cost changes; and (4) schedule delays.3

To identify any actions VA has taken to improve its leasing management, 

and any opportunities that exist for VA to further improve its management 

of leased projects, we reviewed VA’s management practices of leased 

projects at the 11 locations we selected. We interviewed VA 

headquarters’ officials from the Veterans Health Administration, Office of 

Construction and Facilities Management, Office of General Counsel, as 

well as contract specialists and senior resident engineers at the leased 

sites we visited. We reviewed and analyzed leasing documents, 

directives, agency policy and guidance, previous VA reports, and 

interviewed representatives from a project development firm and general 

contractor construction firm. We also reviewed the Office of Management 

and Budget’s (OMB) Capital Programming Guide, Supplement to Office of 

Management and Budget Circular A-11, VA’s Strategic Plan, VA Office of 

Inspector General (OIG), Congressional Budget Office, and GAO’s past 

reports related to federal leasing issues.

We conducted site visits to the projects in Las Vegas (four projects), 

Baltimore, and Austin based on the status, size, and costs for these 

projects. For these projects, we talked to officials either on site or by 

phone discussing the reasons for changes in costs and schedules and 

possible improvements for VA’s leasing program. We obtained specific 

information for VA’s ongoing major outpatient- clinic lease projects as of 

January 2014. The information from our site visits is illustrative of issues 

affecting particular sites and should not be used to make generalizations 

about VA sites agency-wide.

We conducted this performance audit from May 2013 to April 2014 in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.

 3

We selected projects that were far enough along in the leasing process to have actual or 

projected scope, cost, and schedule data, which allowed us to identify projects that 

experienced changes in scope, cost, and schedule.
Appendix II: Changes in Schedule for 

Department of Veterans Affairs’ Major Medical 

Facility Leases

Page 25 GAO-14-300 VA Real Property

In January 2014, VA provided us with data for its 411 ongoing major 

outpatient-clinic lease projects.2

Table 4: Schedule of VA’s 41 Major Outpatient-Clinic Lease Projects as of January 2014

We calculated the “total years changed”

column by counting years from the prospectus acceptance date, which 

was the date first submitted to Congress, to the actual or anticipated 

acceptance date, as reported by VA. There are no reported data for VA 

outpatient clinic projects submitted as part of VA’s fiscal year 2014 budget 

submission because these projects have yet to be authorized. Of the 

outpatient clinic projects reviewed, 39 of 41 (95 percent) experienced 

schedule delays. Table 4 provides a summary of schedule data for each 

of VA’s 41 major medical facility lease projects.

Location 

Project 

description Date authorized

Prospectus 

acceptance date 

Actual or 

anticipated 

acceptance

date as of 

January 2014 

Total years 

changed

Projects experiencing schedule delays

Jacksonville, FL Satellite 

outpatient clinic

11/21/97 July 1999 November 2012 13.25

Greenville, NC Outpatient clinic 11/30/04 June 2007 November 2013 6.5

Brandon, FL Outpatient clinic 10/10/08 June 2011 December 2016 5.5

 1

VA provided data for its 82 major lease facility projects; however, for the purpose of this 

report, we reviewed VA’s outpatient clinics since these facilities are leased by VA. In total, 

69 of the 82 leasing projects VA provided data for were outpatient clinics; however, 24 of 

these outpatient clinics were submitted in VA’s fiscal year 2014 budget request and have 

yet to be authorized by Congress. Furthermore, 4 additional outpatient clinic projects were 

eliminated from our review for the following reasons: (1) Peoria, IL and Columbus, GA –

these facilities were added to VA’s budget request as “extra” projects and were not 

included in VA’s official budget submission. As such, a prospectus was never submitted 

for these projects; (2) Boston, MA – The procurement for this project was canceled due to 

lack of competition and has not yet been restarted; and (3) Norfolk, VA – This project was 

not procured. As such, the scope of our review focuses on the 41 ongoing outpatient clinic 

lease projects already authorized by Congress. The following non-outpatient clinic leases 

were also excluded from our review: (1) VA’s 7 larger health care centers which were 

recently reviewed as part of a VA Office of Inspector General audit; (2) VA’s 5 new leased 

research center projects; and (3) one community care center project. 

2

VA officials define a “major medical lease project” as a facility that meets the following 

three criteria: (1) lease for space for use as a new medical facility with an average annual 

rental that exceeds $1 million, (2) at least 75% of space is occupied by VHA staff, and (3) 

project is fully funded by VHA.

Appendix II: Changes in Schedule for 

Department of Veterans Affairs’ Major 

Medical Facility Leases
Appendix II: Changes in Schedule for 

Department of Veterans Affairs’ Major Medical 

Facility Leases

Page 26 GAO-14-300 VA Real Property

Location 

Project 

description Date authorized

Prospectus 

acceptance date 

Actual or 

anticipated 

acceptance

date as of 

January 2014 

Total years 

changed

Grand Rapids, MI Satellite 

outpatient clinic

12/22/06 May 2009 November 2014 5.5

Wilmington, NC Outpatient clinic 11/30/04 July 2007 December 2012 5.5

Corpus Christi, TX Outpatient clinic 11/30/04 June 2007 September 2012 5.25

Bakersfield, CA Outpatient clinic 10/26/09 May 2012 June 2017 5

Toledo, OH Outpatient clinic 11/30/04 June 2007 June 2012 5

Savannah, GA Satellite 

outpatient clinic

10/10/08 June 2011 February 2016 4.75

Crown Point, IN Outpatient clinic 11/30/04 June 2007 August 2011 4.25

Eugene, OR Satellite 

outpatient clinic

10/10/08 June 2011 July 2015 4

Austin, TX Satellite 

outpatient clinic

12/22/06 May 2009 February 2013 3.75

San Juan, PR Mental health 

clinic

10/13/10 September 2013 June 2017 3.75

Tallahassee, FL Outpatient clinic 10/26/09 May 2012 March 2016 3.75

Atlanta, GA Specialty care 

clinic

10/26/09 May 2012 July 2015 3.25

Birmingham, AL Annex clinic and 

parking garage

10/26/09 May 2012 September 2015 3.25

Colorado Springs, CO Outpatient clinic 10/10/08 June 2011 August 2014 3.25

Huntsville, AL Outpatient clinic 10/26/09 May 2012 September 2015 3.25

Anderson, SC Outpatient clinic 10/26/09 May 2012 June 2015 3

Tampa, FL Primary care 

annex

10/10/08 June 2011 May 2014 3

Las Vegas, NV Northeast Satellite 

outpatient clinic

12/22/06 May 2009 January 2012 2.75

Mesa. AZ (Gilbert) Satellite 

outpatient clinic

10/10/08 June 2011 April 2014 2.75

Parma, OH Satellite 

outpatient clinic

12/22/06 May 2009 January 2012 2.75

Evansville, IN Satellite 

outpatient clinic

12/22/06 May 2009 November 2011 2.5

Las Vegas, NV Northwest Satellite 

outpatient clinic

12/22/06 May 2009 December 2011 2.5

Mansfield, OH Satellite 

outpatient clinic

10/10/08 June 2011 January 2014 2.5

Rochester, NY Outpatient clinic 10/5/11 January 2015 June 2017 2.5
Appendix II: Changes in Schedule for 

Department of Veterans Affairs’ Major Medical 

Facility Leases

Page 27 GAO-14-300 VA Real Property

Location 

Project 

description Date authorized

Prospectus 

acceptance date 

Actual or 

anticipated 

acceptance

date as of 

January 2014 

Total years 

changed

Mayaguez, PR Satellite 

outpatient clinic

10/10/08 June 2011 October 2013 2.25

Las Vegas, NV Southwest Satellite 

outpatient clinic

12/22/06 May 2009 September 2011 2.25

Las Vegas, NV Southeast Satellite 

outpatient clinic

12/22/06 May 2009 September 2011 2.25

Mobile, AL Outpatient clinic 10/5/11 January 2015 March 2017 2.25

San Jose, CA Outpatient clinic 10/5/11 January 2015 March 2017 2.25

Baltimore, MD Satellite 

outpatient clinic

12/22/06 June 2009 June 2011 2

Springfield, MO Communitybased outpatient 

clinic

10/5/11 January 2015 February 2017 2

Green Bay, WI Outpatient clinic 10/10/08 June 2011 March 2013 1.75

Greenville, SC Outpatient clinic 10/10/08 June 2011 March 2013 1.75

McAllen, TX Outpatient clinic 10/26/09 May 2012 August 2013 1.25

South Bend, IN Outpatient clinic 10/5/11 January 2015 May 2016 1.25

Billings, MT Satellite 

outpatient clinic

10/13/10 September 2013 February 2014 .5

Projects experiencing schedule decreases

Ft. Wayne, IN Outpatient clinic 10/5/11 January 2015 May 2014 .75

Salem, OR Communitybased outpatient 

clinic

10/5/11 June 2014 May 2014 0 (1 month)

Source: GAO analysis of VA data.
Appendix III: Changes in Cost for Department 

of Veterans Affairs’ Major Medical Facility 

Leases

Page 28 GAO-14-300 VA Real Property

In January 2014, VA provided us with data for its 411 ongoing major 

outpatient-clinic lease projects.2 Of these 41 projects, 31 projects 

contained complete cost data.3

Table 5: Cost of VA’s 31 Major Outpatient-Clinic Lease Projects as of January 2014

We compared the prospectus cost 

submitted to Congress for authorization to the total current estimated first 

year cost for the 31 projects with complete cost data. We found that the 

costs for these projects increased from $153.4 million to $172.2 million, 

an increase of nearly $19 million (12 percent). Table 5 provides a 

summary of cost data for the 31 projects.

Location

Prospectus 

rent (first 

year) 

Prospectus 

build-out 

cost

Prospectus 

cost

Awarded 

rent (first 

year)

Awarded 

build-out 

cost

Total first 

year rent 

and buildout

Change in 

first year 

cost

Projects experiencing increases to total first year Costs

Austin, TX $2,337,500 $3,825,000 $6,162,500 $10,764,098 $9,036,141 $19,800,239 $13,637,739

Jacksonville FL $1,009,519 $2,085,335 $3,094,854 $4,330,000 $4,690,000 $9,020,000 $5,925,146

 1

VA provided data for its 82 major lease facility projects; however, for the purpose of this 

report, we reviewed VA’s outpatient clinics since these facilities are leased by VA. In total, 

69 of the 82 leasing projects VA provided data for were outpatient clinics; however, 24 of

these outpatient clinics were submitted in VA’s fiscal year 2014 budget request and have 

yet to be authorized by Congress. Furthermore, 4 additional outpatient clinic projects were 

eliminated from our review for the following reasons: (1) Peoria, IL and Columbus, GA –

these facilities were added to VA’s budget request as “extra” projects and were not 

included in VA’s official budget submission. As such, a prospectus was never submitted 

for these projects; (2) Boston, MA – The procurement for this project was canceled due to 

lack of competition and has not yet been restarted; and (3) Norfolk, VA – This project was 

not procured. As such, the scope of our review focuses on the 41 ongoing outpatient clinic 

lease projects already authorized by Congress. The following non-outpatient clinic leases 

were also excluded from our review: (1) VA’s 7 larger health care centers which were 

recently reviewed as part of a VA Office of Inspector General audit; (2) VA’s 5 new leased 

research center projects; and (3) one community care center project. 

2

VA officials define a “major medical lease project” as a facility that meets the following 

three criteria: (1) lease for space for use as a new medical facility with an average annual 

rental that exceeds $1 million; (2) at least 75% of space is occupied by VHA staff; and (3) 

project is fully funded by VHA.

3

Of the 41 projects included in our review, 10 projects are not included in our cost analysis 

for the following reasons: (1) Nine projects do not have reported first year rent and buildout costs because the projects have yet to be awarded to a developer, and (2) the 

Baltimore clinic project is not included in this analysis because its build-out costs were 

amortized across multiple years, rather than including it as a lump sum payment for the 

first year.

Appendix III: Changes in Cost for 

Department of Veterans Affairs’ Major 

Medical Facility Leases
Appendix III: Changes in Cost for Department 

of Veterans Affairs’ Major Medical Facility 

Leases

Page 29 GAO-14-300 VA Real Property

Location

Prospectus 

rent (first 

year) 

Prospectus 

build-out 

cost

Prospectus 

cost

Awarded 

rent (first 

year)

Awarded 

build-out 

cost

Total first 

year rent 

and buildout

Change in 

first year 

cost

Las Vegas, NVa $3,604,000 $4,914,000 $8,518,000 $7,100,000 $4,377,101 $11,477,101 $2,959,101

Green Bay, WI $2,008,000 $3,883,000 $5,891,000 $5,624,632 $3,050,671 $8,675,303 $2,784,303

Eugene, OR $2,196,000 $3,630,000 $5,826,000 $4,029,577 $4,571,067 $8,600,644 $2,774,644

Mayaguez, PR $2,421,000 $3,885,000 $6,306,000 $5,089,216 $3,648,036 $8,737,252 $2,431,252

Greenville, NC $1,216,000 $2,880,000 $4,096,000 $3,843,391 $2,626,926 $6,470,317 $2,374,317

Grand Rapids, MI $1,447,600 $2,961,000 $4,408,600 $3,323,035 $3,085,591 $6,408,626 $2,000,026

Greenville, SC $1,206,000 $2,525,000 $3,731,000 $2,600,439 $3,081,780 $5,682,219 $1,951,219

Atlanta, GA $2,207,500 $2,964,500 $5,172,000 $3,262,652 $3,348,437 $6,611,089 $1,439,089

Tallahassee, FL $5,300,000 $7,865,000 $13,165,000 $5,888,423 $8,651,500 $14,539,923 $1,374,923

Toledo, OH $1,440,000 $2,700,000 $4,140,000 $2,400,670 $3,085,518 $5,486,188 $1,346,188

Crown Point, IN $800,000 $1,800,000 $2,600,000 $1,719,390 $2,155,500 $3,874,890 $1,274,890

McAllen, TX $1,600,500 $2,843,500 $4,444,000 $1,983,199 $2,823,776 $4,806,975 $362,975

Parma, OH $1,702,000 $3,330,000 $5,032,000 $1,954,541 $3,300,000 $5,254,541 $222,541

Projects experiencing decreases to total first year costs

Wilmington, NC $1,305,150 $2,796,750 $4,101,900 $3,164,216 $928,384 $4,092,600 -$9,300

Salem, OR $1,119,320 $1,430,000 $2,549,320 $936,000 $1,430,000 $2,366,000 -$183,320

Mansfield, OH $700,000 $1,512,000 $2,212,000 $959,894 $740,811 $1,700,705 -$511,295

Birmingham, AL $3,501,500 $2,777,500 $6,279,000 $3,887,875 $1,357,724 $5,245,599 -$1,033,401

Anderson, SC $1,622,500 $3,151,500 $4,774,000 $1,898,410 $1,697,608 $3,596,018 -$1,177,982

Corpus Christi, TX $1,200,000 $2,700,000 $3,900,000 $1,525,504 $1,103,591 $2,629,095 -$1,270,905

Huntsville, AL $1,745,000 $2,629,000 $4,374,000 $1,904,830 $1,102,325 $3,007,155 -$1,366,845

Mesa. AZ (Gilbert) $1,806,000 $3,300,000 $5,106,000 $1,957,684 $1,141,383 $3,099,067 -$2,006,933

Evansville, IN $3,291,600 $5,697,000 $8,988,600 $4,044,552 $2,827,493 $6,872,045 -$2,116,555

Ft. Wayne, IN $1,359,720 $1,485,000 $2,844,720 $469,224 $239,000 $708,224 -$2,136,496

Tampa, FL $3,152,000 $5,500,000 $8,652,000 $3,291,645 $1,892,969 $5,184,614 -$3,467,386

Billings, MT $3,298,400 $3,850,000 $7,148,400 $1,801,356 $1,770,801 $3,572,157 -$3,576,243

Colorado Springs, CO $3,600,000 $6,300,000 $9,900,000 $2,903,420 $1,780,982 $4,684,402 -$5,215,598

Project Totals $58,196,809 $95,220,085 $153,416,894 $92,657,873 $79,545,115 $172,202,988 $18,786,094

Source: GAO analysis of VA data.

a

Cost data for the four Las Vegas outpatient clinic projects have been combined in this table; 

however, these projects remain four separate projects in our review.
Appendix IV: Comments from the Department 

of Veterans Affairs

Page 30 GAO-14-300 VA Real Property

Appendix IV: Comments from the 

Department of Veterans Affairs
Appendix IV: Comments from the Department 

of Veterans Affairs

Page 31 GAO-14-300 VA Real Property
Appendix V: GAO Contact and Staff 

Acknowledgments

Page 32 GAO-14-300 VA Real Property

Lorelei St. James, (202) 512-2834 or stjamesl@gao.gov.

In addition to the contact named above, Ed Laughlin, Assistant Director; 

Nelsie Alcoser; George Depaoli; Raymond Griffith; Amy Rosewarne; and 

Crystal Wesco made key contributions to this report.

Appendix V: GAO Contact and Staff 

Acknowledgments

GAO Contact

Staff 

Acknowledgments

(544194)
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