VA CONSTRUCTION

VA’s Actions to Address 

Cost Increases and 

Schedule Delays at Denver 

and Other Major MedicalFacility Projects

Statement of Lorelei St. James, 

Director, Physical Infrastructure Issues

Testimony Before the Subcommittee 

on Oversight and Investigations, 

Committee on Veterans’ Affairs, House 

of Representatives

For Release on Delivery

Expected at 9 a.m. MT 

Tuesday, April 22, 2014, 

In Denver, Colorado

GAO-14-548T

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-14-548T, a testimony

before the Subcommittee on Oversight and 

Investigations, Committee on Veteran’s Affairs 

House of Representatives

April 2014

VA CONSTRUCTION 

VA’s Actions to Address Cost Increases at Denver

and Other Major Medical-Facility Projects

Why GAO Did This Study

The VA operates one of the nation’s 

largest health care delivery systems. In 

April 2013, GAO reported that VA was 

managing the construction of 50 major 

medical-facility projects costing between 

$10 million and hundreds of millions of

dollars, including the ongoing project in 

Denver. This statement is based on 

GAO’s April 2013 report and includes 

selected updates. It discusses VA 

construction management issues, 

specifically, (1) changes to costs, 

schedule, and scope of the Denver 

project and the reasons for these 

changes, (2) actions VA has taken since 

2012 to improve its construction 

management practices, and (3) VA’s 

response to opportunities identified in 

GAO’s 2013 report for it to further 

improve its management of the costs, 

schedule, and scope of these 

construction projects. For this testimony, 

GAO 1) summarized information from the 

2013 report, including cost and schedule 

issues related to the Denver facility, and 

2) provided updates on how VA 

responded to the report’s 

recommendations and on the status of 

the Denver project by obtaining 

documentation from VA in April 2014. 

The methodology for our 2013 review is 

detailed in that report.

What GAO Recommends

In its April 2013 report, GAO 

recommended that VA (1) develop and 

implement agency guidance for 

assignment of medical equipment 

planners; (2) develop and disseminate 

procedures for communicating to 

contractors clearly defined roles and 

responsibilities of VA officials; (3) issue 

and take steps to implement guidance on 

streamlining the change-order process. 

VA implemented GAO’s 

recommendations.

What GAO Found

The costs associated with the Veterans Affairs’ (VA) medical-center construction 

project in Denver have substantially increased, its schedule significantly delayed, and 

its scope modified. In fact, GAO reported in April 2013 that of VA’s four largest 

medical-facility construction projects, Denver had the highest cost increase—from 

$328 million in 2004 to $800 million in November, 2012. Further, VA’s initial 

estimated completion date for the project was February 2014, however, it has now 

changed that estimate to May 2015—the longest construction timeline of the four 

largest projects. As of April 2014, VA officials currently project the cost estimates are 

still accurate; however, VA’s primary contractor on the project has expressed 

concerns that the project will ultimately cost more and take more time to complete. 

Two primary factors contributed to cost increases and schedule delays at the Denver 

project: a decision to change plans from a shared medical center with a local medical 

university to a stand-alone VA medical center and unanticipated difficulties, including 

removing asbestos and replacing faulty electrical systems in pre-existing buildings. 

 

In its April 2013 report, GAO found that VA had taken some actions to address 

problems managing major construction projects since 2012. Specifically, VA 

established a Construction Review Council in April 2012 to oversee the department’s 

development and execution of its real property programs. VA took steps to implement 

a new project delivery method, called Integrated Design and Construction, which 

involves the construction contractor early in the design process to identify any 

potential issues early and speed the construction process. However, in Denver, VA 

did not implement this method early enough to garner the full benefits of having a 

contractor early in the design phase. 

VA has taken actions to implement the recommendations in GAO’s April 2013 report. 

In that report, GAO identified systemic reasons that contributed to overall schedule 

delays and cost increases at one or more of four reviewed projects and 

recommended ways VA could improve its construction management of major medical 

facilities. In response, VA has

• issued guidance on assigning medical equipment planners to major medical 

facility projects who will be responsible for matching the equipment needed 

for the facility to the construction of the facility in order to avoid late design 

changes leading to cost increases and delays;

• developed and disseminated procedures for communicating to contractors 

clearly defined roles and responsibilities of the VA officials who manage 

major medical-facility projects to avoid confusion that can affect the 

relationship between VA and the contractor; and

• issued a handbook for construction contract modification (change-order) 

processing which includes milestones for completing processing of 

modifications based on their dollar value and took other actions to streamline 

the change order process to avoid project delays. 

However, GAO did not review the extent to which these actions have been employed 

for or affected the cost and schedule of the Denver project, since our work for the 

April 2013 report was completed. View GAO-14-548T. For more information, 

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

mailto:stjamesl@gao.gov. 
Page 1 GAO-14-548T 

Chairman Coffman, Ranking Member Kirkpatrick, and Members of the 

Subcommittee:

I am pleased to be here today to discuss information regarding the 

construction of the new major medical facility in Denver from our April 

2013 report; which examined VA’s actions to address cost increases and 

schedule delays at the Department of Veterans Affairs’ (VA) Denver and 

other major medical-facility construction projects.1 At the time of our 

review, from April 2012 to April 2013, VA had 50 major medical-facility 

projects2 under way, including new construction and renovation of existing 

medical facilities, at a cost of more than $12 billion. Among these 

projects was the facility in Denver that was initially estimated to cost $328 

million as of June 2004. 

My statement today discusses VA construction management issues, 

specifically (1) the extent to which the cost, schedule, and scope for 

selected new medical-facility projects changed for the Denver project 

since this information was first submitted to VA’s authorizing committees3

and the reasons for these changes, (2) actions VA has taken since 2012 

to improve its construction management practices, and (3) VA’s response 

to opportunities we identified in our report for it to further improve its 

management of the costs, schedule, and scope of these construction 

projects. This testimony is based on our April 2013 report and includes 

selected updates on actions VA has taken to address our 

recommendations from that report. GAO shared the new information on 

updates it used to prepare this statement with VA, however, officials did 

not provide comments. For this testimony, we summarized the cost and 

schedule issues concerning the Denver facility that we identified and 

 

1GAO, VA Construction: Additional Actions Needed to Decrease Delays and Lower Costs 

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

2The term ―major medical-facility project‖ means a project for the construction, alteration, 

or acquisition of a medical facility involving the total expenditure of more than $10 million. 

See 38 U.S.C. § 8104. While these projects cost at least $10 million, some cost in the 

hundreds of millions of dollars. The project types include new construction, renovation of 

existing structures, expansion, or a combination of types. The total number of major VA 

medical-facility projects is based on agency data from November 2012.

3No funds may be used for any major medical facility construction project over $10 million 

unless funds have been specifically authorized by law, and VA is required to submit a 

prospectus to the House and Senate Committees on Veterans’ Affairs that contains 

information about each planned medical facility project. See 38 U.S.C. § 8104. 
Page 2 GAO-14-548T 

discussed in our 2013 report. We updated information for this testimony 

as appropriate by reviewing documents outlining actions VA took to 

address our recommendations and on the current status of the Denver 

project. For a more detailed explanation of our scope and methodology, 

see the April 2013 report. We conducted the work for this statement 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

We reported in April 2013 that of the four largest medical-facility 

construction projects VA had underway, Denver had the highest cost 

increase and the longest estimated years to complete. We reported that 

the estimated cost increased from $328 million in June 2004 to $800 

million, as of November 2012. Further, VA’s initial estimated completion 

date for the project was February 2014, subsequently VA estimated the 

project would be completed in May 2015. However, VA’s primary 

contractor on the project has expressed concerns that the project will 

ultimately cost more to complete and that a completion date of May 2015 

is no longer realistic based on schedule delays.

In our April 2013 report, we stated that costs increased and schedules 

were delayed considerably for all four of VA’s largest medical-facility 

construction projects, when comparing November 2012 construction 

project data with the cost and schedule estimates first submitted to 

Cost Increases and 

Schedule Delays at 

the Denver Facility 

Occurred Because of 

Scope Changes and 

Other Reasons

Cost Increases and 

Schedule Delays
Page 3 GAO-14-548T 

Congress. Cost increases ranged from 59 percent to 144 percent,4

representing a total cost increase of nearly $1.5 billion and an average 

increase of approximately $366 million per project. The schedule delays 

ranged from 14 to 74 months with an average delay of 35 months per 

project.

In commenting on a draft of our April 2013 report, VA stated that using 

the initial completion date from the construction contract would be more 

accurate than using the initial completion date provided to Congress; 

however, using the initial completion date from the construction contract 

would not account for how VA managed these projects before it awarded 

the construction contract. Cost estimates at this earlier stage should be 

as accurate and credible as possible because Congress uses these initial 

estimates to consider authorizations and make appropriations decisions. 

We used a similar methodology to estimate changes to cost and schedule 

of construction projects in a previous report issued in 2009 on VA 

construction projects.5 We believe that the methodology we used in our 

April 2013 and December 2009 report on VA construction provides an 

accurate depiction of how cost and schedules for construction projects 

can change from the time they are first submitted to Congress. It is at this 

time that expectations are set among stakeholders, including the 

veterans’ community, for when projects will be completed and at what 

cost. In our April 2013 report, we made recommendations to VA to help 

address these cost and schedule delays which are discussed later in this 

statement.

 

4According to the Office of Management and Budget (OMB), federal agencies should keep 

a contingency fund of 10 to 30 percent above total estimated costs to address increased 

costs on construction projects. OMB Circular No. A–11, Appendix 8 (2012). However, this 

guidance applies after construction has begun, and many of the cost increases we 

observed occurred before that time. The construction contractor is generally responsible 

for cost increases and schedule overruns under the terms of the fixed-price contract. 

5GAO, VA Construction: VA is Working to Improve Initial Project Cost Estimates, but 

Should Analyze Cost and Schedule Risks, GAO-10-189 (Washington, D.C: Dec. 14, 

2009). 
Page 4 GAO-14-548T 

For the Denver facility, we identified two primary factors that contributed 

to cost increases and schedule delays: (1) decisions to change plans 

from a shared university/VA medical center to a stand-alone VA medical 

center and (2) unanticipated events.

 Decision to change plans from a shared university/VA medical 

center to a stand-alone VA medical center. VA revised its original 

plans for shared facilities with a local university to stand-alone 

facilities after proposals for a shared facility could not be finalized. 

Plans went through numerous changes after the prospectus was first 

submitted to Congress in 2004. In 1999, VA officials and the 

University of Colorado Hospital began discussing the possibility of a 

shared facility on the former Fitzsimons Army base in Aurora, 

Colorado.6 Negotiations continued until late 2004, at which time VA 

decided against a shared facility with the University of Colorado 

Hospital because of VA concerns over the governance of a shared 

facility. In 2005, VA selected an architectural and engineering firm for 

a stand-alone project, but VA officials told us that the firm’s efforts 

were suspended in 2006 until VA acquired another site at the former 

Army base adjacent to the new university medical center. Design 

restarted in 2007 before suspending again in January 2009, when VA 

reduced the project’s scope because of lack of funding. By this time, 

the project’s costs had increased by approximately $470 million, and 

the project’s completion was delayed by 14 months. The cost 

increases and delays occurred because the costs to construct 

operating rooms and other specialized sections of the facility were 

now borne solely by VA, and the change to a stand-alone facility also 

required extensive redesign.

 Unanticipated events. VA officials at the Denver project site 

discovered they needed to eradicate asbestos and replace faulty 

electrical systems from pre-existing buildings. They also discovered 

and removed a buried swimming pool and found a mineral-laden 

underground spring that forced them to continually treat and pump the 

water from the site, which impacted plans to build an underground 

parking structure.

 

6 Fitzsimmons Army base was closed in 1999 as part of the Department of Defense’s 

base realignment and closure process. 

Scope Modifications and 

Other Reasons for Cost 

Increases and Schedule 

Delays at Denver
Page 5 GAO-14-548T 

In our April 2013 report we stated that VA had taken steps to improve its 

management of major medical-facility construction projects, including 

creating a construction-management review council. In April 2012, the 

Secretary of Veterans Affairs established the Construction Review 

Council to serve as the single point of oversight and performance 

accountability for the planning, budgeting, executing, and delivering of 

VA’s real property capital-asset program.7 The council issued an internal 

report in November 2012 that contained findings and recommendations 

that resulted from meetings it held from April to July 2012.8 The report 

revealed that the challenges identified on a project-by-project basis were 

not isolated incidents but were indicative of systemic problems facing VA. 

In our 2013 report we stated that VA had taken steps to implement a new 

project delivery method—called Integrated Design and Construction (IDC)

method.

9

 In response to the construction industry’s concerns that VA and 

other federal agencies did not involve the construction contractor early in 

the design process, VA and the Army Corps of Engineers began working 

to establish a project delivery model that would allow for earlier contractor 

involvement in a construction project, as is often done in the private 

sector. However, in Denver, VA did not implement IDC early enough to 

garner the full benefits. 

VA officials stated that Denver was initiated as design-bid-build project

and later switched to IDC after the project had already begun. According 

to VA officials, the IDC method was very popular with industry, and VA 

wanted to see if this approach would effectively deliver a timely medical 

facility project. Thus, while the intent of the IDC method is to involve both 

the project contractor and architectural and engineering firm early in the 

process to ensure a well coordinated effort in designing and planning a 

 

7The Construction Review Council was comprised of 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.

8VA, The Construction Review Council Activity Report (Washington, D.C.: November 

2012).

9 The Integrated and Design Construction method allows the construction contractor to be 

involved in the project from design to completion. VA believes this can help identify any 

potential issues early and speed the construction process. IDC is similar to a private 

sector approach called Construction Management At-Risk.

VA Has Taken Steps 

to Improve Its 

Construction 

Management 

Practices
Page 6 GAO-14-548T 

project, VA did not hire the contractor for Denver until after the initial 

designs were completed. According to VA, because the contractor was

not involved in the design of the projects and formulated its bids based on 

a design which had not been finalized, these projects required changes 

that increased costs and led to schedule delays. VA staff responsible for 

managing the project said it would have been better to maintain the 

design-bid-build model throughout the entire process rather than 

changing mid-project because VA did not receive the value of having 

contractor input at the design phase, as the IDC method is supposed to 

provide. For example, according to Denver VA officials, the architectural 

design called for curved walls rather than less expensive straight walls 

along the hospital’s main corridor. The officials said that had the 

contractor been involved in the design process, the contractor could have 

helped VA weigh the aesthetic advantages of curved walls against the 

lower cost of straight walls.

In our April 2013 report we identified systemic reasons that contributed to 

overall schedule delays and cost increases, and we recommended VA 

take actions to improve its construction management of major medical 

facilities: including (1) developing guidance on the use of medical 

equipment planners;10 (2) sharing information on the roles and 

responsibilities of VA construction project management staff; and (3) 

streamlining the change order process.11 Our recommendations were 

aimed at addressing issues we identified at one or more of the four sites 

we visited during our review. VA implemented our recommendations; 

however, the impact of these actions may take time to show 

improvements, especially for ongoing construction projects, depending on 

several issues, including the relationship between VA and the contractor. 

Since completing our April 2013 report, we have not reviewed the extent 

to which these actions are being employed for or have affected the 

 

10Given the complexity and sometimes rapidly evolving nature of medical technology, 

many health care organizations employ medical equipment planners to help match the 

medical equipment needed in the facility to the construction of the facility. 

11Most construction projects require some degree of change to the facility design as the 

project progresses, and typically, organizations have a process to initiate and implement 

these changes through change orders. VA requires multiple levels of review for many of 

VA’s change orders, which can be another factor that can increase the time it takes to 

finalize them. According to VA, these reviews are necessary to ensure that VA is in 

accordance with its regulations and reduce the risk that changes will result in unwarranted 

costs to the government.

VA Implemented GAO 

Recommendations
Page 7 GAO-14-548T 

Denver project or other projects, or the extent to which these actions may 

have helped to avoid the cost overruns and delays that occurred on that 

specific project. 

On August 30, 2013, VA issued a policy memorandum providing 

guidance on the assignment of medical equipment planners to major 

medical construction projects. The memorandum states that all VA major 

construction projects involving the procurement of medical equipment to 

be installed in the construction will retain the services of a Medical 

Equipment Specialist to be procured through the project's architectural 

engineering firm.

Earlier, VA officials emphasized that they need the flexibility to change 

their heath care processes in response to new technologies, equipment, 

and advances in medicine.12 Given the complexity and sometimes rapidly 

evolving nature of medical technology, many health care organizations 

employ medical equipment planners to help match the medical equipment 

needed in the facility to the construction of the facility. Federal and private 

sector stakeholders during our review reported that medical equipment 

planners have helped avoid schedule delays. VA officials told us that they 

sometimes hire a medical equipment planner as part of the architectural 

and engineering firm services to address medical equipment planning. 

However, we found that for costly and complex facilities, VA did not have 

guidance for how to involve medical equipment planners during each 

construction stage of a major hospital and has sometimes relied on local 

Veterans Health Administration (VHA) staff with limited experience in 

procuring medical equipment to make medical equipment planning 

decisions. Thus, in our April 2013 report, we recommended that the 

Secretary of VA develop and implement agency guidance to assign 

medical equipment planners to major medical construction projects. As 

mentioned earlier, in August 2013, VA issued such guidance.

 

VA, Strategic Plan Refresh: FY2011–FY2015, (Washington, D.C).

Using Medical Equipment 

Planners
Page 8 GAO-14-548T 

In September 2013, in response to our recommendation, VA put 

procedures in place to communicate to contractors the roles and 

responsibilities of VA officials that manage major medical facility 

construction projects, including the change order process. Among these 

procedures is a Project Management Plan that requires the creation of a 

communications plan and matrix to assure clear and consistent 

communications with all parties.

Construction of large medical facilities involves numerous staff from 

multiple VA organizations. Officials from the Office of Construction and 

Facilities Management (CFM) stated that during the construction process, 

effective communication is essential and must be continuous and involve 

an open exchange of information among VA staff and other key 

stakeholders.13 However, in our April 2013 report, we found that the roles 

and responsibilities of CFM and VHA staff were not always well 

communicated and that it was not always clear to general contracting 

firms which VA officials hold the authority for making construction 

decisions. This can cause confusion for contractors and architectural and 

engineering firms, ultimately affecting the relationship between VA and 

the general contractor. Participants from VA’s 2011 industry forum also 

reported that VA roles and responsibilities for contracting officials were 

not always clear and made several recommendations to VA to address 

this issue. Therefore, in our 2013 report, we recommended that VA 

develop and disseminate procedures for communicating—to 

contractors—clearly defined roles and responsibilities of the VA officials 

who manage major medical-facility projects, particularly those in the 

change-order process. As discussed earlier in this statement, VA 

disseminated such procedures in September 2013. 

On August 29, 2013, VA issued a handbook for construction contract 

modification (change-order) processing which includes milestones for 

completing processing of modifications based on their dollar value. In 

addition, as of September 2013, VA had also hired four additional 

attorneys and assigned on-site contracting officers to the New Orleans, 

Denver, Orlando, Manhattan and Palo Alto major construction projects to 

expedite the processing and review of construction contract modifications. 

By taking steps to streamline the change order process, VA can better 

 

13VA, Construction Primer (Washington, D.C.: January 2013).

Sharing Information on the 

Roles and Responsibilities 

of VA’s ConstructionManagement Staff

Streamlining the ChangeOrder Process
Page 9 GAO-14-548T 

ensure that change orders are approved in a prompt manner to avoid 

project delays.

Most construction projects require, to varying degrees, changes to the 

facility design as the project progresses, and organizations typically have 

a process to initiate and implement these changes through change 

orders. Federal regulations14 and agency guidance15 state that change 

orders must be made promptly, and agency guidance states in addition 

that there be sufficient time allotted for the government and contractor to 

agree on an equitable contract adjustment. VA officials at the sites we 

visited, including Denver, stated that change orders that take more than a 

month from when they are initiated to when they are approved can result 

in schedule delays, and officials at two federal agencies that also 

construct large medical projects told us that it should not take more than a 

few weeks to a month to issue most change orders.16 Processing delays 

may be caused by the difficulty involved in VA’s and contractors’ coming 

to agreement on the costs of changes and the multiple levels of review 

required for many of VA’s change orders. By taking steps to streamline 

the change order process, VA can better ensure that change orders are 

approved in a prompt manner to avoid project delays.

Chairman Coffman and Ranking Member Kirkpatrick, and Members of the 

Subcommittee, this completes my prepared statement. I would be 

pleased to respond to any questions that you may have at this time.

If you have any questions about this testimony, please contact Lorelei St. 

James at (202) 512-2834 or stjamesl@gao.gov. Other key contributors to 

this testimony include are Ed Laughlin (Assistant Director), Nelsie 

Alcoser, George Depaoli, Raymond Griffith, Colin Fallon, Amy 

Rosewarne, and Crystal Wesco.

 

1448 C.F.R. § 43.201

15VA, VA Resident Engineer Handbook, “Chapter 3: Major Construction: Contract 

Changes‖ (3.24) (Washington, D.C.)

16Specifically, we interviewed the U.S. Army Corps of Engineers and Naval Facilities 

Engineering Command. We recognize that the Department of Veterans Affairs serve 

different populations in the defense community—active duty military personnel and 

veterans, respectively. However, these organizations construct similar medical facilities, in 

addition to abiding by federal government regulations for construction projects.

Contacts and 

Acknowledgments

(544210)
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