GAO 

United States Government Accountability Office

Report to the Ranking Member, 

Committee on Veterans’ Affairs, House 

of Representatives 

VA CONSTRUCTION

VA Is Working to 

Improve Initial Project 

Cost Estimates, but 

Should Analyze Cost 

and Schedule Risks 

December 2009 

GAO-10-189 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

December 2009

VA CONSTRUCTION

VA Is Working to Improve Initial Project Cost 

Estimates, but Should Analyze Cost and Schedule 

Highlights of GAO-10-189, a report to the Risks

Ranking Member, Committee on Veterans’ 

Affairs, House of Representatives 

The Department of Veterans Affairs 

(VA) operates one of the largest 

health care systems in the country. 

As of August 2009, VA’s Veterans 

Health Administration (VHA) had 

32 major ongoing construction 

projects with an estimated total 

cost of about $6.1 billion and 

average cost per project of about 

$191 million. Some of these 

projects were initiated as part of 

VA’s Capital Asset Realignment for 

Enhanced Services (CARES) 

process, which was a 

comprehensive assessment of 

VHA’s capital asset requirements. 

In response to a congressional 

request, GAO (1) described how 

costs and schedules of current VHA 

major construction projects have 

changed, (2) determined the 

reasons for changes in costs and 

schedules, and (3) described the 

actions VA has taken to address 

cost increases and schedule delays. 

To do its work, GAO reviewed 

construction documents, visited 

three construction sites, and 

interviewed VA officials. 

What GAO Recommends

To provide a better estimate of the 

cost and completion date of a 

construction project, GAO 

recommends that the VA Secretary, 

for all major projects, conduct a 

cost risk analysis, a schedule risk 

analysis when appropriate, and 

require the use of an integrated 

master schedule. VA concurred 

with our recommendations. 

While about half of the 32 major ongoing construction projects are within 

their budget, 18 projects have experienced cost increases and 11 have 

experienced schedule delays since they were first submitted to Congress. 

Five projects have experienced a cost increase of over 100 percent. For 

example, the cost of a new medical center in Las Vegas rose from an initial 

estimate of $286 million to over $600 million, an increase of about 110 percent. 

Thirteen projects have experienced cost increases of between 1 and 100 

percent. In addition, 11 projects have experienced schedule delays, 4 of 

which are more than 24 months. 

There are several reasons for construction project cost increases and 

schedule delays, including VA preparing initial cost estimates that were not 

thorough, significant changes to project scope after the initial estimate was 

submitted, and unforeseen events such as an increase in the cost of 

construction materials. According to VA officials, VA prepared numerous 

estimates during the CARES process, and some of these estimates used 

rudimentary estimating techniques such as average cost-per-square-foot and 

were completed by VA staff that did not have cost estimating expertise. The 

scope of some projects changed after VA submitted an estimate to Congress, 

which increased the projects’ costs. For example, the scope for the original 

design for a new medical center in Las Vegas did not fully account for the 

amount of medical services the center would need to provide. As a result, the 

original estimate of $286 million rose to over $600 million. 

VA has taken steps to improve initial construction project cost estimates, but 

could better assess the risks to costs and schedules. VA plans to prepare more 

comprehensive estimates after approving projects and before submitting them 

to Congress. It is not clear how effective this new process will be, but it could 

improve VA’s estimates. While VA contractors follow construction scheduling 

procedures that generally meet best practices, VA does not conduct cost or 

schedule risk analyses, which use statistical techniques to predict risks that 

can lead to cost increases and schedule delays. Thus, VA cannot quantify the 

largest risks to a project or mitigate those risks. For example, GAO 

conducted a schedule risk analysis for a medical center in Las Vegas and 

found that there is a 50 percent chance that the project won’t be finished until 

more than 6 months after its estimated completion date. VA also does not 

require an integrated master schedule that includes VA and contractor efforts 

for all project phases, which can be critical to a project’s success. 

Range of Cost Changes in Ongoing Projects 

Percent change in cost estimate

Number of projects

Source: GAO analysis of VA data.

0 2 4 6 8 10 12 14

100+

51 to 100

0 to 50 

No change

-25 to 0

View GAO-10-189 or key components.

For more information, contact Terrell G. Dorn 

at (202) 512-6923 or dornt@gao.gov. 
Page i GAO-189 VA Construction 

Letter 1

Background 2 

Costs Have Increased for 18 of the 32 Construction Projects and 

Schedules for 11 Construction Projects Have Been Delayed 5 

Cost Increases and Schedule Delays Result from a Number of 

Factors 9 

VA Is Working to Improve Estimates but Could Better Assess Risks 

to Costs and Schedules 12 

Conclusions 16 

Recommendations for Executive Action 17 

Agency Comments and Our Evaluation 18 

Appendix I Scope and Methodology 19 

Appendix II Comments from the Department of Veterans 

Affairs 26 

Appendix III Consolidation and Expansion of Medical Centers in 

Cleveland, Ohio 29 

Appendix IV Construction of Spinal Cord Injury/Disease 

Center in Syracuse, New York 42 

Appendix V Construction of New Medical Center Complex 

in Las Vegas, Nevada 58 

Appendix VI Cost Increases and Schedule Delays 78 

Appendix VII GAO Contact and Staff Acknowledgments 80 

Contents 
Page ii GAO-189 VA Construction 

Tables 

Table 1: Ongoing Projects That Experienced a Cost Increase as of 

August 2009 7 

Table 2: Projects That Have Experienced Schedule Delays 9 

Table 3: Extent Construction Schedules Met Best Practices 14 

Table 4: Extent That Bed Tower Cost Estimate Met Best Practices 30 

Table 5: Extent That Bed Tower Construction Schedule Met Best 

Practices 38 

Table 6: Extent That SCI/D Center Cost Estimate Met Best 

Practices 43 

Table 7: Extent That Parking Garage Schedule Met Best Practices 53 

Table 8: Extent That Cost Estimate for Las Vegas Medical Center 

Met Best Practices 61 

Table 9: Extent That Construction Schedule for Las Vegas Hospital 

Met Best Practices 68 

Table 10: Probability of Project Completion 73 

Table 11: Risks at the 80th Percentile 76 

Table 12: Projects That Experienced a Cost Increase and/or a 

Schedule Delay 78 

Figure 

Figure 1: Range of Cost Changes in Ongoing Projects 6 
Page iii GAO-189 VA Construction 

Abbreviations 

A/E architect/engineering 

CARES Capital Asset Realignment for Enhanced Services 

CFM Office of Construction and Facilities Management 

NCA National Cemetery Administration 

OMB Office of Management and Budget 

PVA Paralyzed Veterans of America 

SCI/D Spinal Cord Injury/Disease 

SRA Schedule Risk Analysis 

VA The Department of Veterans Affairs 

VBA Veterans Benefits Administration 

VHA Veterans Health Administration 

VISN Veterans’ Integrated Service Network 

This is a work of the U.S. government and is not subject to copyright protection in the 

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Page 1 GAO-189 VA Construction 

December 14, 2009 

The Honorable Steve Buyer 

Ranking Member 

Committee on Veterans’ Affairs 

House of Representatives 

Dear Mr. Buyer: 

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

care systems in the country. VA, through its Veterans Health 

Administration (VHA), provided health care to almost 5.5 million veterans 

in 2008. VA constructs new medical facilities and also maintains and 

renovates existing medical facilities. Any major medical facility 

construction project over $10 million must be specifically authorized by 

law.1

 As part of that approval process, VA sends a prospectus to Congress2

that contains information about each planned major project. This 

information includes an initial estimate of the overall cost of the project 

and, in some cases, a completion date of the project.3

 As of August 2009, 

VHA had 32 ongoing major construction projects with an estimated total 

cost of about $6.1 billion and average project cost of about $191 million. 

While VA has undertaken a number of major construction projects in 

recent years, you have expressed concern that some of these projects have 

increased in cost, are behind schedule, or both. To provide you with 

information on the costs and schedules of VA’s major construction 

projects, this report (1) describes how costs and schedules of current VHA 

major construction projects have changed since they were first submitted 

to Congress, (2) determines the reasons for changes in costs and 

schedules, and (3) describes the actions VA has taken to address cost 

 

1

The 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. For purposes of this report, we are referring to these projects as 

“major construction projects.” 

2

According to 38 U.S.C. §§ 8101 and 8104, the prospectus, or initial estimate, is sent to the 

House and Senate Committees on Veterans’ Affairs. For purposes of this report, we refer to 

this as sending the prospectus to Congress. 

3

We refer to this prospectus as the “initial estimate” throughout this report because the 

prospectus contains the first estimate that VA provides to Congress. 

 

United States Government Accountability Office

Washington, DC 20548 
 

Page 2 GAO-189 VA Construction 

increases and schedule delays as well as the challenges VA faces in 

managing its major construction program. 

To do our work, we reviewed VA data on current major construction 

projects, including the original cost estimates and completion dates 

submitted to Congress and the project’s current status. We reviewed and 

analyzed construction documents and interviewed VA officials. To obtain 

detailed information on specific projects, we selected three major 

construction sites to visit based on their phase of construction and overall 

estimated cost. We visited construction sites in Cleveland, Ohio, Las 

Vegas, Nevada, and Syracuse, New York to determine the reasons for 

changes in costs and schedules. In addition, we researched and reviewed 

relevant laws relating to the amounts that were authorized and 

appropriated for these projects. We also performed a risk analysis of the 

construction schedule for a new medical center in Las Vegas—one of VA’s 

largest ongoing projects—to determine, among other things, the likelihood 

of its being completed on time. We selected each site based on their 

relatively high construction costs and the fact that construction was in 

progress. The information from our site visits is illustrative and cannot be 

generalized to sites agencywide. 

We conducted this performance audit from October 2008 through 

December 2009 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 

determined the data were sufficiently reliable for the purposes of this 

report. Appendix I contains a detailed description of our scope and 

methodology. 

Most VA major construction projects are for VHA medical facilities.4

 To 

determine potential new major construction projects, VHA officials 

identify gaps in health service during their strategic planning process, and 

VHA officials in field offices develop capital needs plans to fill these 

service gaps. These capital plans are then reviewed by a Capital 

Investment Panel that gives each proposed project a score based on a 

 

4

While the Veterans Benefits Administration (VBA) and the National Cemetery 

Administration (NCA) are also authorized to construct major projects, as of August 2009, 

VBA had no active major construction projects and NCA had 20 projects with a total cost of 

about $450 million. For the purposes of this report, we focused on VHA projects. 

Background 
 

Page 3 GAO-189 VA Construction 

number of factors, including, among other things, the plan’s effect on 

health care, safety, and energy use. The Capital Investment Panel then 

produces a priority list of projects, and the Secretary of VA determines 

how many projects to request for funding each year and works with the 

Office of Management and Budget (OMB) to produce VA’s part of the 

President’s budget. Some large projects, such as the construction of a new 

medical center, can be divided into distinct phases and funded over 

several years. When the President submits VA’s budget to Congress, the 

budget includes a prospectus for each proposed major construction 

project. This prospectus includes, among other things, a cost estimate for 

the project that VA staff has assembled. In addition, some prospectuses 

include an estimated month and year that the project will be completed, 

although this is not required by law. This prospectus is the initial estimate 

that VA sends to Congress. Congress uses this information to authorize 

and appropriate funds for the project. 

In 1999, we reported that with better management of its large, aged capital 

assets, VA could significantly reduce the funding used to operate and 

maintain underused, unneeded or inefficient properties.5

 We further noted 

that the savings could be used to enhance health care services for 

veterans. Thus, we recommended that VA develop market-based plans for 

realigning its capital assets. In response, VA initiated a process known as 

the Capital Asset Realignment for Enhanced Services (CARES)—a 

comprehensive, long-range assessment of its health care system’s capital 

asset requirements. As a result of CARES, VA requested funding for about 

30 new major construction projects in fiscal years 2004 and 2005. While 8 

of these projects have been completed, many are among the 32 ongoing 

projects. This effort required VA to prepare initial estimates for each 

project over the course of a few months. In the 2 years prior to CARES, VA 

proposed fewer than five major construction projects each fiscal year. 

According to VA, the CARES process was a onetime major initiative. 

However, its lasting result was to provide a set of tools and processes that 

allow VA to continually determine the future resources needed to provide 

health care to our nation’s veterans. 

VA’s Office of Construction and Facilities Management (CFM) is 

responsible for administering major construction projects. Once a project 

has been authorized by law and Congress appropriates funds for it, CFM 

 

5

GAO, VA Health Care: Capital Asset Planning and Budgeting Need Improvement, 

GAO/T-HEHS-99-83 (Washington, D.C.: Mar. 10, 1999). 
 

Page 4 GAO-189 VA Construction 

staff contracts with an architect/engineering (A/E) firm to design the 

project. The A/E firm develops an architectural design for the project and 

also produces a cost estimate for the entire project. This cost estimate is 

generally more detailed and accurate than the initial cost estimate. After 

the project has been designed, CFM then solicits bids for project 

construction and awards a construction contract. The construction 

contractor is responsible for developing a detailed construction schedule. 

CFM reviews the construction schedule and also assigns CFM engineers to 

work on-site as project managers to monitor the construction process 

until the facility is ready to be turned over to local VA staff. Once 

construction begins, the construction company is generally responsible for 

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

contract, unless VA and the contractor agree to a change order to the 

construction contract to modify scope, account for unforeseen conditions, 

or remedy a design error. 

We have reported that cost estimates that are completed when a project is 

in the conceptual stage have a high degree of uncertainty.6

 As a project 

progresses, this degree of uncertainty decreases because risks are 

mitigated or realized. However, we have also found that cost estimates 

tend to be lower than the final project costs because program managers 

and decision-makers do not always consider all of the potential risks to a 

project and tend to be optimistic when planning a project. 

Cost estimating requires both science and judgment. Since answers are 

seldom—if ever—precise, the goal is to find a reasonable “answer.”7

 Cost 

estimates are based on many assumptions, including the rate of inflation 

and when construction will begin. Generally, the more information that is 

known about a project and is used in the development of the estimate, the 

more accurate the estimate is expected to be.8

 OMB’s guidance for 

preparing budget documents identifies many types and methods of 

estimating project costs. The expected accuracy of the resulting project 

cost estimates varies, depending on the estimating method used. 

 

6

GAO, GAO Cost Estimating and Assessment Guide: Best Practices for Developing and 

Managing Capital Program Costs, GAO-09-3SP (Washington, D.C.: March 2009). 

7

GAO-09-3SP. 

8

Office of Management and Budget, Capital Programming Guide, Supplement to OMB 

Circular A-11, Part 7, “Planning, Budgeting, Acquisition, and Management of Capital Assets” 

(Washington, D.C.: June 2006); and GAO-09-3SP. 
 

Page 5 GAO-189 VA Construction 

While about half of VHA’s ongoing major construction projects are within 

budget, 18 projects have experienced cost increases and 11 have 

experienced schedule delays. The cost for one project has decreased since 

the original estimate for it was submitted to Congress. 

Eighteen of the 32 ongoing VHA major construction projects have 

experienced cost increases.9

 When a project’s cost increases, VA can 

receive a new authorization and an additional appropriation from 

Congress. Without additional funds from Congress, VA must alter the 

scope of the project to ensure that the project does not exceed the amount 

Congress has appropriated for the project by more than 10 percent.10 The 

cost increases that these 18 projects have experienced since the estimates 

were initially submitted to Congress range from 2 to 285 percent. In 

addition to those 18 projects, the costs of 13 projects have not changed, 

and 1 project has experienced a cost decrease. Figure 1 shows the range of 

cost changes in ongoing VHA major construction projects. 

 

9

In this report, we only discuss costs of construction. However, the total cost of a capital 

asset is its full life cycle cost, including all direct and indirect costs for planning, 

procurement, operations and maintenance, and disposal in addition to construction. See 

OMB Circular A-11, Capital Programming Guide. 

10VA must notify the House and Senate Committees on Veterans’ Affairs at least 30 days 

before obligating funds for a major medical construction project that would exceed the 

amount authorized in law by more than 10 percent and provide the reasons for the amount 

being exceeded. See 38 U.S.C. § 8104(c). 

Costs Have Increased 

for 18 of the 32 

Construction Projects 

and Schedules for 11 

Construction Projects 

Have Been Delayed 

Several Projects Have 

Experienced Cost 

Increases 
 

Page 6 GAO-189 VA Construction 

Figure 1: Range of Cost Changes in Ongoing Projects 

Five projects have experienced a cost increase of more than 100 percent. 

These projects include new construction and seismic corrections (which 

are improvements to a structure to make it less susceptible to 

earthquakes). For example, in its fiscal year 2006 budget submission, VA 

submitted a $286 million estimate to Congress for a new medical center in 

Las Vegas, Nevada. However, VA estimated in 2007 that the project would 

cost just over $600 million (an increase of 110 percent) and in 2008 the 

project’s authorization was modified and the project received an 

additional appropriation from Congress. However, VA now estimates that 

the project will cost about $100 million less than it anticipated.11 More 

information about the new medical facility in Las Vegas is in appendix V. 

Seven projects experienced a cost increase between 51 and 100 percent 

and six projects experienced a cost increase between 0 and 50 percent. 

These projects vary in size and type, from a modernization of patient 

wards in Georgia that is estimated to cost about $24.5 million to a new 

 

11VA officials told us that construction costs have decreased since 2008 largely because of 

the economic downturn and construction projects that are awarded now and in the near 

future may be completed at a lower cost than they had estimated. According to VA officials, 

VA is considering using the remaining unobligated appropriated funds for the project in Las 

Vegas for additional construction at the medical center site, such as adding administrative 

offices or a utility tunnel. 

Percent change in cost estimate

Number of projects

Source: GAO analysis of VA data.

0 246 8 10 12 14

100+

51 to 100

0 to 50 

No change

-25 to 0
 

Page 7 GAO-189 VA Construction 

medical center in Louisiana that is estimated to cost $925 million. All 

projects that experienced a cost increase are listed in table 1. 

Table 1: Ongoing Projects That Experienced a Cost Increase as of August 2009 

Location Description Initial estimate

Estimated 

cost as of 

August 2009 Cost increase

Percent 

increase

Las Vegas, NV New medical facility $286,000,000 $600,400,000 $314,400,000 110

Orlando, FL New medical facility 347,700,000 656,800,000 309,100,000 89

New Orleans, LA New medical facility 636,000,000 925,000,000 289,000,000 45

Denver, CO New medical facility 621,000,000 800,000,000 179,000,000 29

San Juan, PR Seismic corrections 145,200,000 299,200,000 154,000,000 106

St. Louis, MO Medical facility and 

cemetery improvement 

69,053,000 211,300,000 142,247,000 206

Biloxi, MS Hospital 

restoration/consolidation 

174,600,000 310,000,000 135,400,000 78

Pittsburgh, PA Medical center 

consolidation 

185,076,000 295,600,000 110,524,000 60

Bay Pines, FL New outpatient clinic 65,100,000 131,800,000 66,700,000 102

Gainesville, FL Renovate patient rooms 85,200,000 136,700,000 51,500,000 60

San Juan, PR Seismic corrections 50,000,000 89,473,968 49,473,965 79

Palo Alto, CA Seismic corrections 14,013,000 54,000,000 39,987,000 285

Fayetteville, AR Clinical addition 56,163,000 93,000,000 36,837,000 66

Syracuse, NY Spinal cord 

injury/disease center 

53,900,000 84,969,000 31,069,000 58

Tampa, FL Polytrauma expansion 223,800,000 231,500,000 7,700,000 3

Long Beach, CA Seismic corrections 107,845,000 112,845,000 5,000,000 5

Atlanta, GA Modernize patient wards 20,700,000 24,534,000 3,834,000 18

Des Moines, IA Extended care building 25,000,000 25,550,000 550,000 2

Total $3,166,350,000 $5,082,671,968 $1,916,321,968 61

Source: GAO analysis of VA data. 

As of August 2009, the costs of 13 projects have not changed from their 

initial estimated cost. We found that VA reduced the scope of some 

projects so that the projects would not exceed their budget. For example, 

one project we visited in Cleveland, Ohio, is designed to consolidate two 

medical centers and construct a new facility at one of the medical centers. 

According to VA officials in Cleveland, VA reduced the original scope of 

the project by excluding room for 30 new patient beds in the new facility 

so that the project could stay within its budget. However, VA will make 

space for the 30 beds by expanding part of its existing facility through 
 

Page 8 GAO-189 VA Construction 

separate facility funds. VA staff made other changes to the original plan for 

the new facility, such as deleting balconies from patient’s rooms and using 

more concrete and less steel in the structure, so that the facility could be 

completed within budget. More information about the medical center 

consolidation in Cleveland is in appendix III. In addition to those projects 

that did not experience a cost increase, one project experienced a cost 

decrease. Specifically, the cost to construct a data center in West Virginia 

decreased from $35 million to $33.7 million, or about 4 percent. 

Eleven of the 32 ongoing projects are projected to be completed later than 

originally estimated. Even if the cost of a project has not increased, a 

schedule delay can lead to an increased cost to VA because CFM project 

managers must stay on to monitor the project as it is being built. A 

schedule delay can also affect veterans’ access to medical care, since VA 

constructs facilities where they are needed to serve the local veteran 

population and a schedule delay results in veterans waiting longer for the 

services to be available. Of the 11 projects that have experienced a 

schedule delay, 2 are scheduled to be completed within 2 months of their 

originally scheduled end date, 5 are scheduled to be completed between 12 

and 24 months of their originally scheduled end date, and 4 are scheduled 

to be completed more than 24 months after their originally scheduled end 

date. These projects range from an electrical upgrade in Florida that is 

estimated to end less than a month after its initial estimated completion 

date to seismic corrections at a facility in Puerto Rico that are estimated to 

end about 7 years after their initial estimated completion date. The original 

estimated completion dates, the latest estimated completion dates, and the 

change in dates for those projects are in table 2. Information on the 

number of projects that experienced both a schedule delay and a cost 

increase is in appendix VI. 

Schedule Delays Have 

Occurred in 11 Projects 
 

Page 9 GAO-189 VA Construction 

Table 2: Projects That Have Experienced Schedule Delays 

Location Description 

Initial estimated 

completion date

Estimated 

completion date 

 as of August 2009 

Change in 

monthsa

Tampa, FL Electrical upgrade 7/2/10 7/14/2010 0.5

Anchorage, AK Outpatient clinic 1/10/2010 2/15/2010 1

Martinsburg, WV Capital region data center 5/30/09 7/7/2010 13

Milwaukee, WI Spinal cord injury center 12/31/2009 2/11/2011 13.5

American Lake, WA Seismic corrections 3/31/2009 7/10/2010 15.5

Las Vegas, NV New medical center 9/6/2009 8/22/2011 23.5

Columbia, MO Operating suite replacement 5/31/2010 5/30/2012 24

Cleveland, OH Medical center consolidation 9/1/2008 2/21/2011 29.5

Syracuse, NY Spinal cord injury center 12/6/2009 5/19/2012 29.5

Palo Alto, CA Seismic corrections 11/30/2006 5/27/2011 54

San Juan, PR Seismic corrections 10/30/2002 11/18/2009 84.5

Source: GAO analysis of VA data. 

a

The change in months is rounded to the nearest half month. 

Cost increases and schedule delays have been caused by factors that have 

generally occurred before construction of the project begins. These 

factors include initial estimates that were not thorough because they were 

completed quickly, scope changes that occurred after the initial estimate, 

and unforeseen events and market conditions such as a rise in 

construction costs. 

The CARES process required VA to quickly provide initial cost estimates 

for about 30 major construction projects. Specifically, in 2004 VA had 

about 3 months to provide initial cost estimates to Congress so that 

Congress could consider authorizing these projects and appropriating 

funds for them in fiscal years 2004 and 2005. According to VA, a number of 

VA staff worked to produce these initial estimates, including staff that had 

limited cost estimating expertise. The 30 projects included three new large 

medical centers in Las Vegas, Nevada; Denver, Colorado; and Orlando, 

Florida. Estimates prepared for these 30 projects were prepared quickly 

and sometimes based on rudimentary designs. For example, VHA officials 

in Syracuse told us that they had about 6 weeks to prepare their initial 

estimate for a new spinal cord injury center, which they did by using 

analogous estimating techniques such as the cost-per-square foot of new 

construction in Syracuse. As a result, the initial estimate was only a rough 

Cost Increases and 

Schedule Delays 

Result from a Number 

of Factors 

Some Cost Estimates Were 

Not Thorough 
 

Page 10 GAO-189 VA Construction 

order-of-magnitude estimate. We have reported that, while it is possible to 

develop a rough order-of-magnitude estimate in days, a first-time budgetquality estimate would likely require many months.12 VA officials in 

Syracuse who worked to prepare this estimate told us that they were 

surprised when the project was included in VA’s fiscal year 2005 budget 

request because they knew that the estimate was only a rough order-ofmagnitude estimate. 

In two of our case studies, the scope of the project changed substantially 

after VA submitted its estimate to Congress. VA officials also told us that 

scope changes have occurred in other projects. In Las Vegas, the initial 

estimate to Congress was based on plans for a large VA clinic. However, 

VA later determined that a much larger medical center was needed in Las 

Vegas after it became clear that an inpatient medical facility it shares with 

the Department of Defense would not be adequate to serve the medical 

needs of local veterans. This decision greatly increased the cost, delayed 

the completion date of the project, and required a modified authorization 

and an additional appropriation from Congress. Since the estimate for the 

Las Vegas medical center was based on a preliminary design for an 

expanded clinic, additional functions had to be added to the clinic design 

to provide the services necessary for the medical center. This expansion of 

the scope of the project resulted in both a cost increase and schedule 

delay for the project. 

In Syracuse, New York, the original design of a new Spinal Cord 

Injury/Disease (SCI/D) center that is being built on the campus of the VA 

medical center did not include money for additional parking. However, 

after the project had been authorized by Congress and was in design, VA 

officials in Syracuse commissioned a study to examine future parking 

needs at the medical center. The study concluded that, based on the new 

SCI/D center and projected demand from patients and staff, there should 

be an additional 429 to 528 parking spaces at the medical center. As a 

result of this study, VA officials in Syracuse decided to add two floors to 

the existing parking garage at an estimated cost of $10 million. Based on 

the parking garage addition and other changes to the project, VA received 

a modified authorization in 2006 and an appropriation of $23.8 million in 

fiscal year 2008 for the SCI/D center. More information about the new 

SCI/D center in Syracuse is in appendix IV. 

 

12GAO-09-03SP. 

Some Cost Estimates and 

Schedules Were Affected 

by Scope Changes 
 

Page 11 GAO-189 VA Construction 

Failure to involve stakeholders early in the process can also lead to 

changes in scope. In Syracuse, the Paralyzed Veterans of America (PVA) 

objected to some aspects of the design of the SCI/D center. For example, 

PVA advocated for a dedicated entrance from the parking garage to the 

SCI/D center, which is being built on the fourth floor of the medical center. 

This dedicated entrance would allow veterans with spinal cord injuries to 

enter the center directly from the parking garage, without requiring the 

veterans to go down to the street from the parking garage, outside to the 

main entrance of the medical center, then up to the 4th floor of the 

medical center for treatment. According to VA staff in Syracuse, VA agreed 

to make changes that would improve access to the facility, and this 

increased the cost of the project. 

Changes in construction market conditions can escalate the costs of VA 

construction projects. The cost of many materials used in construction—

from concrete to electrical equipment—increased more than the consumer 

price index (indicating that construction costs increased more than other 

costs) from 2003 through 2007. Specifically, the cost of these construction 

materials increased over 28 percent between 2003 and 2007, whereas the 

consumer price index increased about 13 percent over the same period.13

Hurricane Katrina drove up the cost of construction materials nationwide 

because the high demand for construction in the New Orleans region 

strained supplies of material and labor. In Las Vegas, several large billiondollar projects created competition for construction services, and this area 

experienced an even greater cost increase as the demand for new 

construction exceeded supply of materials and labor. 

The schedule for one of our case studies was delayed by land acquisition 

issues. In Cleveland, while the project remains within budget, the project 

schedule was delayed 9 months because a property acquisition took longer 

than expected. Part of the land that the bed tower is being built on had 

been donated to the City of Cleveland for use as parkland. The city could 

not give the land to VA until the city was able to change the designated use 

of the donated land from parkland to a more general use. More 

information about the construction project in Cleveland is in appendix III. 

 

13We used national data from the Department of Labor, Bureau of Labor Statistics’ Inputs 

to Construction Industries Producer Price Index to identify nationwide trends in the costs 

of many of the materials used in construction. 

Some Cost Estimates Were 

Affected by Market 

Conditions and Some 

Schedules Were Affected 

by Unforeseen Events 
 

Page 12 GAO-189 VA Construction 

VA has developed a new process for determining its initial estimates that 

allows for more time between VA approving a project and submitting a 

cost and schedule estimate to Congress. However, VA does not analyze 

cost risks to examine the changing assumptions on the cost estimate. VA 

also does not have an integrated master schedule, which includes both VA 

and contractor effort for all phases of the entire project, and does not 

conduct a schedule risk analysis to help determine when projects will be 

completed. While VA is not required to develop an integrated master 

schedule and cost and schedule risk analyses,14 we have identified these 

steps as best practices in project scheduling and cost estimating.15

VA has developed a new process to improve its initial estimates for major 

construction projects. This new process allows VA to increase the time 

between VA approving a project and submitting that project, and its initial 

estimate, to Congress. According to VA officials, with this additional time, 

VHA will be able to gather more information about a project and begin 

preliminary design work. These officials noted that VA will ideally have as 

much as 35 percent of the design work completed before the project’s first 

estimate is submitted to Congress. Cost estimators can then use these 

designs to develop the initial cost estimate that VA sends to Congress. 

According to VA officials, the initial estimate should be more precise than 

estimates provided to Congress in the past because the scope of the 

project will be more developed. 

Until the fiscal year 2010 budget cycle, field staff in VHA produced the first 

estimate for a project. Beginning with the fiscal year 2010 budget cycle, for 

any project in the top 10 of the priority list, CFM will work with VHA staff 

in the field to produce the first estimate of the project’s cost. CFM staff 

includes professionals with estimating and construction engineering skills, 

whereas VHA staff in the field generally does not possess these skills. 

 

14VA stated that it has cost and risk assessment guidance that requires that risk 

assessments should be performed at the initial concept stage and then monitored and 

controlled throughout the life cycle of the project, and should include risk information 

from all stakeholders. However, VA does not conduct cost or schedule risk analyses that 

would allow it to quantify its level of confidence to finish a project at a specific cost and 

time. 

15GAO-09-03SP. While the cost guide was issued in March 2009, the guide identifies best 

practices that have been widely accepted in the cost estimating field for many years. 

VA Is Working to 

Improve Estimates 

but Could Better 

Assess Risks to Costs 

and Schedules 

VA Is Working to Improve 

Initial Estimates, but 

Needs to Analyze Cost 

Risks 
 

Page 13 GAO-189 VA Construction 

These new requirements were not in effect when the projects we studied 

were developed. Therefore, we were not able to evaluate the process. 

While it is unclear how much design work will actually occur before VA 

submits a project and its estimate to Congress, the new process holds 

promise to improve VA’s initial estimates, particularly if the new process 

requires early stakeholder input on a proposed project so that any 

resulting changes in the project scope can be incorporated into the 

estimate before it is submitted to Congress. 

After a project has been authorized and funded based on VA’s initial 

estimate, VA hires an architect/engineering firm to design the major 

construction project. The firm hires a contractor to develop a cost 

estimate for the project. We visited three major construction sites—

Cleveland, Ohio, Las Vegas, Nevada, and Syracuse, New York. At these 

sites, we found that these cost estimates were generally comprehensive 

and well documented. Specifically, the estimate included an estimating 

plan, structure, purpose, and documentation. However, we also found that 

the cost estimates for projects in Cleveland and Las Vegas were not 

adequately maintained during construction because they did not include 

updated information based on actual costs as the project progressed. 

We also found that the estimates for projects in Syracuse and Las Vegas 

did not include a cost risk analysis to examine the effect of changing 

assumptions on the cost estimate. Conducting a cost risk analysis is 

particularly important because only by quantifying cost risk can 

management make informed decisions about risk mitigation strategies. 

Quantifying cost risk also provides a benchmark for measuring future 

progress. We identified best practices for estimating and managing 

program costs in a cost assessment guide we issued in 2009.16 As we note 

in our cost assessment guide, agencies should begin to follow these best 

practices at the earliest stages of the cost estimation process, which 

includes the preparation of the initial estimate submitted to Congress. Our 

cost estimating guide has been endorsed by OMB. More information on the 

cost estimates for these three sites is in appendices III through V. 

 

16GAO-09-3SP. 
 

Page 14 GAO-189 VA Construction 

After the design is complete, VA hires a contractor to construct the project 

by the completion date set in the contract. The contractor then develops a 

construction schedule that details all of the activities that the contractor 

plans to finish by the completion date. Generally, the contractor must 

finish by the completion date or face financial penalties. At the sites we 

visited, we found that these schedule estimates, which occur after VA has 

submitted its initial estimate to Congress, generally followed best 

practices for scheduling. For example, we found that the contractor 

regularly updated the construction schedule with actual dates as the work 

progressed. All best practices for schedules, and the extent that they were 

met at our site visits, are in table 3. More detailed information is included 

in appendices III through V. 

Table 3: Extent Construction Schedules Met Best Practices 

Best practice Cleveland, OH Las Vegas, NV Syracuse, NY 

Capturing key activities Met Substantially met Met 

Sequencing key activities Met Substantially met Met 

Assigning resources to key activities Met Substantially met Met 

Establishing the duration of key activities Met Met Met 

Integrating schedule activities horizontally and vertically Met Met Met 

Establishing the critical path for all activities Met Substantially met Met 

Identifying the float between activitiesa Met Met Met 

Conducting a schedule risk analysis Not met Not met Not met 

Updating the schedule using logic and duration to determine dates Met Partially met Met 

Source: GAO analysis of VA data. 

a

“Float” is the amount of time an activity can slip before delaying the entire project. 

Although VA met or partially met nearly all scheduling best practices at the 

three sites, VA does not conduct a schedule risk analysis of its major 

construction projects, and therefore cannot predict a project’s completion 

date with confidence. A schedule risk analysis, which is one of our best 

practices in project scheduling, uses statistical techniques to predict a 

level of confidence in meeting a project’s completion date. The objective 

of the analysis is to develop a probability distribution of possible 

completion dates that reflect the project and its quantified risks. This 

analysis can help project managers both understand the most important 

risks to the project and to focus on mitigating these risks. We conducted a 

schedule risk analysis of the construction schedule for the new medical 

center in Las Vegas, Nevada, that is scheduled to be completed on August 

22, 2011. We conducted on-site interviews with staff who are working on 

VA Generally Follows Best 

Practices for Construction 

Schedules at the Projects 

We Visited, but Does Not 

Conduct a Schedule Risk 

Analysis 
 

Page 15 GAO-189 VA Construction 

the project in Las Vegas and asked them to discuss potential risks to the 

project, including how the risk would affect the project’s timeline and the 

likelihood of the risk occurring. Using this information, we developed a list 

of risks to the project (such as the chance that the design is inadequate or 

that labor is not available) and how each risk would impact the duration of 

specific activities in the schedule. We then used modeling software to run 

a Monte Carlo17 simulation, which consisted of the computer-generated 

results of 3,000 estimates of the future schedule based on the activities in 

the schedule, the chance that some activities would be affected by some 

risks, and the predicted affect of those risks on the duration of each 

activity. This analysis showed that there is a 50 percent probability that the 

project will be completed by March 1, 2012 (about 6 months after the 

current estimated completion date) and an 80 percent probability that the 

project will be completed by May 17, 2012 (about 9 months after the 

current estimated completion date). Although we did not conduct a 

schedule risk analysis for other VA major construction projects, the result 

of our analysis for the Las Vegas Medical Center project shows the types 

of risks that major construction projects face and the impact those risks 

can have on meeting project milestones. More information on our 

schedule risk analysis can be found in appendix V. 

We shared the results of our schedule risk analysis with CFM staff in Las 

Vegas. Specifically, we noted that we found the two biggest risks to the 

project are that the design may be inadequate and that the occupancy 

needs may change. CFM staff in Las Vegas told us that they are working to 

mitigate the risk of inadequate design and have discovered architectural 

drawings that do not include utilities. As a result, CFM has directed the 

architect/engineer firm to revise the drawings to include utilities. CFM 

staff also stated that they can deny any changes to the project scope and 

that they can choose not to allow changes that will affect the scheduled 

completion date. 

VA does not require an integrated master schedule for major construction 

projects that encompasses both VA and contractor effort for all phases of 

the entire project and shows the relationships between various project 

phases (such as design, construction, and when the project is “activated” 

for occupancy and use). However, we have stated that the success of any 

 

17A Monte Carlo simulation involves the use of random numbers and probability 

distributions to examine outcomes. 

VA Does Not Have an 

Integrated Master 

Schedule for Major 

Construction Projects 
 

Page 16 GAO-189 VA Construction 

project depends, in part, on having an integrated and reliable schedule.18

Without a fully integrated and reliably derived schedule, it is difficult to 

estimate the overall cost and schedule of a project. In addition, individual 

phases of a multiphase project can be completed on time, but the project 

as a whole can be delayed and construction phases that are not part of an 

integrated master schedule may not be completed in the most efficient 

manner. For example, a VA nursing home in Las Vegas was completed in 

2009 but cannot be put into service until another phase of the construction 

project—the on-site medical center—is completed and can provide 

medical care to residents of the nursing home. The medical center is 

scheduled to be completed in 2011. According to VA officials, VA decided 

to construct the new nursing home because construction costs in Las 

Vegas were escalating quickly, and VA officials thought that they could 

save money by constructing the nursing home as soon as possible. 

However, construction costs have recently decreased in the Las Vegas 

area, and VA must pay to maintain the new nursing home from 2009 to 

2011 even though the nursing home will not be used for VA patients. 

Estimates for major construction projects, like any estimate of a future 

activity, can never be exact. Some of VA’s past estimates have been offbase, although the reasons for this are sometimes outside of VA’s control. 

These imprecise estimates resulted in Congress authorizing and 

appropriating millions of dollars for projects based on estimates that 

proved to be inaccurate. In some of these cases, VA was forced to change 

the scope of the project in order to stay within the original estimate or the 

projects’ authorizations were modified and Congress has had to 

appropriate more funds to allow VA to finish some projects. 

VA is taking steps to make its initial estimates more accurate in the future. 

VA is working to complete some preliminary design work on projects and 

improve initial estimates so that they are more likely to be closer to the 

actual costs and schedules of a project, but the effect of these changes on 

VA’s initial estimates remains to be seen. While VA is taking steps to 

improve its initial estimates, it does not always conduct a cost risk 

analysis, which would allow project managers to better identify issues that 

could lead to cost escalation and improve managers’ ability to make 

 

18GAO, Homeland Security: US-VISIT Exit Initiatives at Varying Stages of Completion 

but Integrated and Reliable Schedule for Completing Comprehensive Exit Project Needed, 

GAO-10-13 (Washington, D.C.: Oct. 28, 2009). 

Conclusions 
 

Page 17 GAO-189 VA Construction 

informed decisions on how to minimize cost risks. VA has also not used a 

schedule risk analysis to determine the likelihood of a major project being 

completed on time. We recognize that conducting a cost risk and schedule 

risk analysis takes both financial resources and some time and that it may 

only be appropriate to conduct these analyses when a project is 

particularly costly, complex, or has a compressed schedule. However, the 

overall effect of the analyses is to provide VA, congressional 

decisionmakers, and other stakeholders with more precise information 

about when a project will be completed and the main risks to a project 

being completed on time. With this information, VA could provide more 

accurate schedule estimates to stakeholders and could also work to 

mitigate risks to the project and ensure that the project is completed on 

time. We have identified cost risk and schedule risk analysis as best 

practices in our cost assessment guide, which has been endorsed by OMB. 

While the construction schedules we reviewed generally met best 

practices, VA’s lack of an integrated master schedule—which would 

integrate VA and contractor effort for all phases of a project, including all 

design and construction work—hampers VA’s ability to provide accurate 

information on the schedule for a project. Many factors that can delay a 

project, such as changes in scope and unforeseen site conditions, occur 

before construction begins. The use of an integrated master schedule 

could assist VA in monitoring the progress of a major construction project 

before construction begins and allow VA to increase the accuracy of its 

schedule estimates. 

To improve estimates of the cost of a major construction project as well as 

the risks that may influence the cost and how these risks can be mitigated, 

GAO recommends that the Secretary of Veterans Affairs direct CFM to 

conduct a cost risk analysis of major construction projects. 

To provide a realistic estimate of when a construction project may be 

completed as well as the risks to the project that could be mitigated, we 

recommend that the Secretary of Veterans Affairs direct CFM to take the 

following two actions. First, require the use of an integrated master 

schedule for all major construction projects. This schedule should 

integrate all phases of project design and construction. Second, conduct a 

schedule risk analysis, when appropriate, based on the project’s cost, 

schedule, complexity, or other factors. Such a risk analysis should include 

a determination of the largest risks to the project, a plan for mitigating 

those risks, and an estimate of when the project will be finished if the risks 

are not mitigated. 

Recommendations for 

Executive Action 
 

Page 18 GAO-189 VA Construction 

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

generally agreed with our conclusions and concurred with our 

recommendations. In reference to our statement that some cost increases 

and schedule delays were attributable to scope changes, VA stated that it 

is important to note that VA followed all applicable laws and congressional 

notification requirements during the execution of the projects, and 

maintained the integrity and intent of each project as authorized by 

Congress. While we did not find any instances where VA did not follow 

applicable laws or congressional notification requirements, we did not 

specifically evaluate VA’s compliance with such laws and requirements 

because this was outside the scope of our review. VA’s letter is contained 

in appendix II. In addition, VA made a number of technical corrections, 

which we incorporated as appropriate. 

We are sending copies of this report to the Secretary of Veterans Affairs. 

Additional copies will be sent to interested congressional committees. The 

report will also be available at no charge on the GAO Web site at 

http://www.gao.gov. 

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

2834 or at dornt@gao.gov. Contact points for our Offices of Congressional 

Relations and Public Affairs may be found on the last page of this report. 

GAO staff who made key contributions to this report are listed in appendix 

VII. 

Sincerely yours, 

Terrell G. Dorn 

Director, Physical Infrastructure Issues 

Agency Comments 

and Our Evaluation 
Appendix I: Scope and Methodology 

Page 19 GAO-189 VA Construction 

In this report, we examined: (1) how costs and schedules of current 

Veterans Affairs (VA) major medical construction projects have changed 

since they were first submitted to Congress,1

 (2) the reasons for cost and 

schedule changes in VA’s major medical construction projects, and (3) the 

actions VA has taken to address cost increases and schedule delays as well 

as the challenges VA faces in managing its major medical construction 

program. 

To address these issues, we reviewed pertinent laws relating to 

construction, authorization and appropriation of VA projects. We also 

examined the documents VA submitted to Congress, including the Office 

of Management and Budget’s form 300 provided with VA’s budget that has 

been required since 2006 and a project prospectus. We obtained and 

analyzed data that VA provided on the status of VA’s active major medical 

construction projects, as of August, 2009. We also reviewed VA’s 

management of construction projects at three locations and interviewed 

VA headquarters’ officials from the Veterans Health Administration (VHA) 

and the Office of Construction and Facilities Management (CFM) as well 

as project managers at the construction sites we visited. 

To determine how costs and schedules of current VA major medical 

construction projects have changed since they were first submitted to 

Congress, we reviewed VA data on current major medical construction 

projects, including the original cost estimates and completion dates 

submitted to Congress and the projects’ current status as of August 2009. 

We analyzed the current cost and completion dates against the information 

provided to Congress to determine the increase in costs and the extent to 

which projects exceeded or were expected to exceed the original time 

allotted and summarized the results. VA officials confirmed the reliability 

of the data provided for these projects. 

To identify the reasons for cost and schedule changes in VA’s construction 

projects, we interviewed VA headquarters officials regarding the status of 

all projects and examined project documents and interviewed on-site 

managers and engineers at three projects we selected. We selected 

projects based on VA-provided data on all of VA’s ongoing major medical 

construction projects as of March 2009. The data included a short project 

 

1

The 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. For purposes of this report, we are referring to these projects as 

“major construction projects.” 

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

Page 20 GAO-189 VA Construction 

description, project location, the original and current total cost of the 

project, the original and current completion date, and the percent of 

construction completed. VA officials confirmed the reliability of the data 

provided. We selected projects for site visits based on the following 

criteria and the results cannot be applied to all of VA’s major construction 

projects: 

• Construction projects were between 20 percent and 70 percent completed. 

• Projects were estimated to cost $75 million or more. 

• Projects were among those experiencing the greatest cost increases or 

schedule delays relative to other VA major medical construction projects. 

• Projects were of different types of major construction projects because 

there could be factors in cost and scheduling that relate to one project 

type or factors that are systemic trends that occur across all project types. 

Project types include new construction, renovation of existing structures, 

expansion, or a combination of project types. 

• Projects were selected from each of VA’s three regions to account for 

differences in management at VA regional offices that could impact cost 

increases and schedule delays. 

Based on our criteria, we selected three major medical construction sites: 

• consolidation of the Brecksville Veterans Affairs Medical Center and the 

Wade Park Veterans Affairs Medical Center and construction of a new 90-

bed tower for patient care in Cleveland, Ohio, estimated to cost $102.3 

million and to be completed by September 2009 and now scheduled for 

February 2011; 

• construction of Spinal Cord Injury Center, surgical suite renovation, and 

expansion of the parking garage in Syracuse, New York, originally 

estimated to cost $53.4 million and be completed by December 2009 and 

now estimated to cost $84,969,000 and be completed by May 19, 2012; and 

• construction of a new, comprehensive Medical Center Complex in Las 

Vegas, Nevada, that will include a nursing home, ambulatory care center, 

primary and specialty care, surgery, mental health, rehabilitation, geriatric 

and extended care. Originally estimated to cost $286 million and be 

completed by September 2009, it is now expected to open in March 2012 

and cost $600.4 million. The Las Vegas project will also include 

administrative and support functions and Veterans Benefits 
Appendix I: Scope and Methodology 

Page 21 GAO-189 VA Construction 

Administration offices. 

To identify the actions VA has taken to address cost increases and 

schedule delays as well as the challenges VA faces in managing its major 

medical construction program we reviewed the procedures that VA’s 

Office of Construction and Facilities Management put in place beginning 

in 2007. We also reviewed documentation and interviewed VA 

headquarters officials and project managers for the sites we visited to 

determine how estimated costs and schedules had been prepared. We then 

analyzed the cost estimates and schedules prepared for the three projects 

we visited and interviewed VA project managers and engineers, 

contractors, and cost estimators and schedulers to ascertain the extent to 

which their estimates and schedules compared with the best practices 

identified in previous GAO work. 

We used the GAO Cost Estimating and Assessment Guide2

 (GAO-09-3SP), 

as criteria to analyze cost estimates. For this guide, GAO cost experts 

assessed 12 measures consistently applied by cost-estimating 

organizations throughout the federal government and industry and 

considered best practices for developing reliable cost-estimates. We 

analyzed the cost estimating practices used by VA in developing its cost 

estimates against these 12 best practices. After reviewing documentation 

submitted by the VA and information obtained during interviews, we 

determined the extent that the cost estimates met the characteristics of 

cost estimating best practices for the three projects we reviewed. For the 

purpose of this review, we grouped these practices into four 

characteristics of a high-quality and reliable cost estimate. They are 

• Comprehensive: The cost estimates should include both government and 

contractor costs of the project over its full life cycle, from inception of the 

project through design, development, deployment, and operation and 

maintenance to retirement of the project. They should also provide a level 

of detail appropriate to ensure that cost elements are neither omitted nor 

double counted, and they should document all cost-influencing ground 

rules and assumptions. 

• Well-documented: The documentation should address the purpose of the 

estimate, the project background and system description, its schedule, the 

 

2

GAO, GAO Cost Estimating and Assessment Guide: Best Practices for Developing and 

Managing Capital Program Costs, GAO-09-3SP (Washington, D.C.: March 2009). 
Appendix I: Scope and Methodology 

Page 22 GAO-189 VA Construction 

scope of the estimate (in terms of time and what is and is not included), 

the ground rules and assumptions, all data sources, estimating 

methodology and rationale, the results of the risk analysis, and a 

conclusion about whether the cost estimate is reasonable. Therefore, a 

good cost estimate—while taking the form of a single number—is 

supported by detailed documentation that describes how it was derived 

and how the expected funding will be spent in order to achieve a given 

objective. For example, the documentation should capture in writing such 

things as the source data used and their significance, the calculations 

performed and their results, and the rationale for choosing a particular 

estimating method or reference. Moreover, this information should be 

captured in such a way that the data used to derive the estimate can be 

traced back to, and verified against their sources. Finally, the cost estimate 

should be reviewed and accepted by management to ensure that there is a 

high level of confidence in the estimate and the estimating process. 

• Accurate: The cost estimates should provide for results that are unbiased, 

and they should not be overly conservative or optimistic. Estimates are 

accurate when they are based on an assessment of most likely costs, 

adjusted properly for inflation, and contain few, if any, minor mistakes. In 

addition, the estimates should be updated regularly to reflect material 

changes in the project, such as when schedules or other assumptions 

change so that the estimate is always reflecting current status. Among 

other things, the estimate should be grounded in documented assumptions 

and a historical record of cost estimating and actual experiences on other 

comparable projects. 

• Credible: The cost estimates should discuss any limitations of the 

analysis because of uncertainty or biases surrounding data or 

assumptions. Major assumptions should be varied, and other outcomes 

recomputed to determine how sensitive they are to changes in the 

assumptions. Risk and uncertainty analysis should be performed to 

determine the level of risk associated with the estimate. Further, the 

estimate’s results should be crosschecked, and an independent cost 

estimate conducted by a group outside the acquiring organization should 

be developed to determine whether other estimating results produce 

similar results. 

Our review of project schedules was based on research that identified a 

range of best practices associated with effective schedule estimating.3

 In 

addition, we obtained the consulting services of David Hulett, Ph.D., to 

 

3

GAO-09-3SP. 
Appendix I: Scope and Methodology 

Page 23 GAO-189 VA Construction 

assist in our risk analysis of the Las Vegas Medical Center project 

schedule.4

 We analyzed documentation submitted by the VA project office 

and construction staff for three of VA’s major medical construction 

projects. We also conducted multiple interviews with project managers, 

contractors, and schedulers to determine the extent that projects’ current 

schedule met the best practice criteria. These practices include 

• Capturing all activities: The schedule should reflect all activities (steps, 

events, outcomes, etc.) as defined in the project’s work breakdown 

structure, to include activities to be performed by both the government 

and its contractors. 

• Sequencing all activities: The schedule should be planned so that it can 

meet project critical dates. To meet this objective, activities need to be 

logically sequenced in the order that they are to be carried out. In 

particular, activities that must finish prior to the start of other activities 

(i.e., predecessor activities) as well as activities that cannot begin until 

other activities are completed (i.e., successor activities) should be 

identified. Identifying interdependencies among activities that collectively 

lead to the accomplishment of events or milestones can be used as a basis 

for guiding work and measuring progress. 

• Assigning resources to all activities: The schedule should realistically 

reflect what resources (i.e., labor, material, and overhead) are needed to 

do the work, whether all required resources will be available when they 

are needed, and whether any funding or time constraints exist. 

• Establishing the duration of all activities: The schedule should reflect 

how long each activity will take to execute. In determining the duration of 

each activity, the same rationale, data, and assumptions used for cost 

estimating should be used for preparing the schedule. Further, these 

durations should be as short as possible and should have specific start and 

end dates. Excessively long periods needed to execute an activity should 

prompt further decomposition of the activity so that shorter execution 

durations will result. 

• Integrating schedule activities horizontally and vertically: The 

schedule should be horizontally integrated, meaning that it should link the 

products and outcomes associated with already sequenced activities (see 

previous section). These links are commonly referred to as “hand offs” and 

serve to verify that activities are arranged in the right order to achieve 

 

4

Hulett & Associates, LLC, Los Angeles, Calif. 
Appendix I: Scope and Methodology 

Page 24 GAO-189 VA Construction 

aggregated products or outcomes. The schedule should also be vertically 

integrated, meaning that traceability exists among varying levels of 

activities and supporting tasks and sub-tasks. Such mapping or alignment 

among levels can enable different groups to work to the same master 

schedule. 

• Establishing the critical path for all activities: Using scheduling 

software the critical path—the longest duration path through the 

sequenced list of activities—should be identified. The establishment of a 

project’s critical path is necessary for examining the effects of any activity 

slipping along this path. Potential problems that may occur on or near the 

critical path should also be identified and reflected in the scheduling of the 

time for high-risk activities (see float below). 

• Identifying float between activities: The schedule should identify 

float—the time that a predecessor activity can slip before the delay affects 

successor activities—so that schedule flexibility can be determined. As a 

general rule, activities along the critical path typically have the least 

amount of float. 

• Conducting a schedule risk analysis: A schedule risk analysis uses a 

good critical path method schedule and data about project schedule risks 

as well as Monte Carlo simulation techniques to predict the level of 

confidence in meeting a project’s completion date, the amount of time 

contingency needed for a level of confidence, and the identification of 

high-priority risks. This analysis should focus not only on critical path 

activities but also on other schedule paths that may become critical. A 

schedule/cost risk assessment recognizes the inter-relationship between 

schedule and cost and captures the risk that schedule durations and cost 

estimates may vary due to, among other things: limited data, optimistic 

estimating, technical challenges, lack of qualified personnel, and other 

external factors. As a result, the baseline schedule should include a buffer 

or a reserve of extra time. Schedule reserve for contingencies should be 

calculated by performing a schedule risk analysis. As a general rule, the 

reserve should be held by the project manager and applied as needed to 

those activities that take longer than scheduled because of the identified 

risks. Reserves of time should not be apportioned in advance to any 

specific activity since the risks that will actually occur and the magnitude 

of their impact is not known in advance. 

• Updating the schedule using logic and durations to determine the 

dates: The schedule should use logic and durations in order to reflect 

realistic start and completion dates for project activities. The schedule 

should be continually monitored to determine when forecasted 
Appendix I: Scope and Methodology 

Page 25 GAO-189 VA Construction 

completion dates differ from the planned dates, which can be used to 

determine whether schedule variances will affect downstream work. 

Maintaining the integrity of the schedule logic is not only necessary to 

reflect true status, but is also required before conducting a schedule risk 

analysis. The schedule should avoid logic overrides and artificial 

constraint dates that are chosen to create a certain result on paper. 

Individuals trained in critical path method scheduling should be 

responsible for updating the schedule. 

Based on our work, we determined the extent that estimates and 

schedules for the three projects we selected met the best practices 

criteria. 

• Not Met—Project officials provided no evidence that satisfies any of the 

criterion, 

• Minimally Met—Project officials provided evidence that satisfies a small 

portion of the criterion, 

• Partially Met—Project officials provided evidence that satisfies about half 

of the criterion, 

• Substantially Met—Project officials provided evidence that satisfies a large 

portion of the criterion, and 

• Met—Project officials provided complete evidence that satisfies the entire 

criterion. 

We conducted this performance audit from October 2008 through 

December 2009 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 meets these standards. 
Appendix II: Comments from the Department 

of Veterans Affairs 

Page 26 GAO-10-189 VA Construction 

Appendix II: Comments from the Department 

of Veterans Affairs 
Appendix II: Comments from the Department 

of Veterans Affairs 

Page 27 GAO-10-189 VA Construction 
Appendix II: Comments from the Department 

of Veterans Affairs 

Page 28 GAO-10-189 VA Construction 
Appendix III: Consolidation and Expansion of 

Medical Centers in Cleveland, Ohio 

Page 29 GAO-10-189 VA Construction 

The major construction project in Cleveland includes consolidating the 

Brecksville Veterans Affairs Medical Center and the Wade Park Veterans 

Affairs Medical Center, which are 26 miles apart. As part of this 

consolidation, a new bed tower is being built at the Wade Park Medical 

Center. This bed tower will contain a nursing home and space for 

psychiatric patients. The project is divided into two phases. Phase I 

includes the construction of an energy center and phase II includes the 

construction of a bed tower addition. 

The project was first initiated by the VA under the Capital Asset 

Realignment for Enhanced Services (CARES) process in 2004 to save 

money through consolidation and to provide better health care for 

veterans.1

 According to VA officials, the two medical centers frequently 

worked together to provide health care for veterans. The Brecksville 

medical center was primarily a nursing home care unit and psychiatric 

care facility and the Wade Park medical center was primarily a surgical 

care facility. According to VA, it was very expensive to operate and 

maintain the two physical locations. Patients needing immediate care at 

the Brecksville medical center were sometimes taken to local area 

hospitals instead of the Wade Park medical center because of the distance 

between the two medical centers. Maintaining the two medical centers 

resulted in duplication of services, decreased operational efficiencies, and 

issues of continuity of care between the two medical centers. Other 

inefficiencies included ambulance and wheelchair van costs and outdated 

modes of providing health care. 

VA also intended for the project to meet rising demand for services in the 

Cleveland area and noted that the total number of unique patients at these 

2 medical centers had increased. After considering four alternatives, the 

medical center staff determined that consolidating the two medical 

centers at Wade Park would lead to better health care for veterans and 

provide significant cost savings and other efficiencies. Specifically, 

consolidation would allow VA to avoid approximately $41 million in non-

 

1

The Veterans Health Care, Capital Asset, and Business Improvement Act of 2003 

authorized the Secretary of VA to carry out major construction projects specified in the 

final CARES report, which was to be approved by the Secretary of VA. See Pub. L. No. 108-

170, § 221, 117 Stat 2042, 2050 (2003). The Secretary’s report dated May 20, 2004, listed $15 

million for design of phase I of the project, which was authorized under § 221of Pub. L. No. 

108-170. Additionally, in 2006 the project’s authorization was modified to an amount not to 

exceed $102,300,000. See Veterans Benefits, Health Care, and Information Technology Act 

of 2006, Pub. L. No. 109-461, § 802, 120 Stat. 3403, 3443 (2006). 

Appendix III: Consolidation and Expansion 

of Medical Centers in Cleveland, Ohio 

Project Overview 

Reasons for the Project 
Appendix III: Consolidation and Expansion of 

Medical Centers in Cleveland, Ohio 

Page 30 GAO-10-189 VA Construction 

recurring maintenance and infrastructure improvements at the Brecksville 

medical center and gain approximately $10.6 million in operational savings 

per year. 

The cost estimate to consolidate the two facilities and construct a new bed 

tower at Wade Park has remained constant at $102.3 million. According to 

VA officials, the cost estimate is still reasonable for the project through 

completion. Of the $102.3 million, $15 million was appropriated in fiscal 

year 2004 and $87.3 million was appropriated in fiscal year 2008.2

 To keep 

costs within budget, the VA closely monitored and reduced the scope of 

the major construction project. Some of the work was also shifted to a 

minor construction project. The medical center modified the design plans 

to eliminate 30 beds and one floor from the bed tower. The 30 beds will 

instead be relocated in the main hospital where space is being renovated 

to accommodate them. The funding for the 30 beds will not come from the 

appropriated construction funds. Rather, the 30 beds will be funded out of 

non-recurring maintenance (NRM) funds, which can be used to renovate 

spaces and purchase equipment needed as a result of that renovation. Our 

analysis of how the cost estimate met best practices is in table 4. 

Table 4: Extent That Bed Tower Cost Estimate Met Best Practices 

Step One: Define the Estimate’s Purpose

The purpose of a cost estimate is determined by its intended use, and its intended use determines its scope and detail. Cost 

estimates have two general purposes: (1) to help managers evaluate affordability and performance against plans, as well as the 

selection of alternative systems and solutions, and (2) to support the budget process by providing estimates of the funding required to 

efficiently execute a program. The scope of the cost estimate will be determined by such issues as the time involved, what elements 

of work need to be estimated, who will develop the cost estimates, and how much cost estimating detail will be included. 

A life cycle cost estimate provides an exhaustive and structured accounting of all resources and associated cost elements required to 

develop, produce, deploy, and sustain a particular program. As such a life cycle cost estimate encompasses all past (or sunk), 

present, and future costs for every aspect of a program, regardless of funding source. Life cycle costing enhances decision making, 

especially in early planning and concept formulation of acquisition. Design trade-off studies conducted in this period can be evaluated 

on a total cost basis as well as on a performance and technical basis. A life cycle cost estimate can support budgetary decisions, key 

decision points, milestone reviews, and investment decisions. Because they encompass all possible costs, life cycle cost estimates 

provide a wealth of information about how much programs are expected to cost over time. Thus, having full life cycle costs is 

important for successfully planning program resources and making wise decisions. 

1. Is the purpose and scope of the cost estimate defined and documented? Have all costs been estimated, including life cycle 

costs? 

 

2

Consolidated Appropriations Act for FY 2004, Pub. L. No. 108-199, Div. G, Title I, 118 Stat. 

3, 367-368 (2004), and Consolidated Appropriations Act for FY 2008, Pub. L. No. 110-161, 

Div. I, Title II, 121 Stat., 1844, 2267 (2007). 

Project Cost 
Appendix III: Consolidation and Expansion of 

Medical Centers in Cleveland, Ohio 

Page 31 GAO-10-189 VA Construction 

Met; the purpose of the cost estimate is documented and defined at a level that would enable VA to submit a quality cost 

estimate. 

The purpose of the cost estimate is to be the basis of comparison for the bids responding to the CARES tower construction request for 

proposal (RFP). The scope covers only the construction of the tower; it is not required to include complete life-cycle costs. The scope 

of the initial estimate is defined through a cost estimate steering committee that included construction cost estimators, architects, and 

engineers that were familiar with the design and earlier construction phases. Life cycle costs are represented in the OMB Exhibit 300. 

The scope of the estimate is defined by VA policy. The Manual for Preparation of Cost Estimates for VA Facilities states that: 

1.1.1 - A project estimate shall show the current cost of construction on the date of the estimate. The estimate should reflect current 

costs on the date the estimate is received and anticipated local escalation to the midpoint of construction, i.e., date of estimate plus 

half of construction duration. 

1.1.2 - The level of detail for this estimate shall be consistent with the degree of completeness of the drawings being submitted. 

Simply stated, this means that if a construction element is shown, it must be priced; if it is shown in detail, it must be priced in detail. 

For detailed elements, “lump sum” or “allowance” figures will not be acceptable. Project estimates will include all elements within the 

contractor’s bid such as insurance, bonds, hazardous abatement and any other such items. 

Step Two: Develop the Estimating Plan

An analytic approach to cost estimates typically entails a written study plan detailing a master schedule of specific tasks, responsible 

parties, and due dates. Enough time should be scheduled to collect data, including visits to contractor sites to further understand the 

strengths and limitations of the data that have been collected. If there is not enough time, then the schedule constraint should be 

clearly identified in the ground rules and assumptions, so that management understands the effect on the estimate’s quality and

confidence. 

2. Did the team develop a written study plan? 

Met; the estimating team is from a centralized cost estimating firm that specializes in hospital construction and the estimate 

follows cost estimate preparation guidance published by the VA. 

CFM publishes guidance on preparing cost estimates that details how construction cost estimates should be created, structured, and 

presented. The manual also explains roles and responsibilities, units of measure, and guidance on master specifications. The CARES 

tower cost estimate was created by an independent consultant to the architect as directed by VA contractual requirements. The 

consulting estimating firm specializes in major construction cost estimates, particularly hospital construction. Officials stated that the 

cost estimators have extensive experience in the regional marketplace and in creating estimates for high-cost medical centers. Senior 

cost estimators for the project have 30 years of experience estimating construction costs and are members of a professional cost 

engineering society. 

As outlined in the Manual for Preparation of Cost Estimates for VA Facilities: 

1.1.1 - A project estimate shall show the current cost of construction on the date of the estimate. The estimate should reflect current 

costs on the date the estimate is received and anticipated local escalation to the midpoint of construction, i.e., date of estimate plus 1⁄2 

of construction duration. 

1.1.2 - The level of detail for this estimate shall be consistent with the degree of completeness of the drawings being submitted. 

Simply stated, this means that if a construction element is shown, it must be priced; if it is shown in detail, it must be priced in detail. 

For detailed elements, “lump sum” or “allowance” figures will not be acceptable. Project estimates will include all elements within the 

contractor’s bid such as insurance, bonds, hazardous abatement and any other such items. 
Appendix III: Consolidation and Expansion of 

Medical Centers in Cleveland, Ohio 

Page 32 GAO-10-189 VA Construction 

Step Three: Define the Program Characteristics 

Key to developing a credible estimate is having an adequate understanding of the acquisition program—the acquisition strategy, 

technical definition, characteristics, system design features, and technologies to be included in its design. The cost estimator can use 

this information to identify the technical and program parameters that will bind the cost estimate. The amount of information gathered 

directly affects the overall quality and flexibility of the estimate. Less information means more assumptions must be made, increasing 

the risk associated with the estimate. Therefore, the importance of this step must be emphasized, because the final accuracy of the 

cost estimate depends on how well the program is defined. 

3. Is there a documented technical baseline description? 

Met; the detailed architectural drawings, which served as the technical baseline for the estimate, were continually updated to 

reflect the latest design changes. 

The master architect plan was used as a technical baseline for the estimate. The master plan was created by consultants to the 

architect/engineering (A/E) firm. The plan consisted of four volumes of design information that was used as the basis for the cost 

estimate. The cost estimate was developed as the design was changing. Officials noted that, ideally, architectural changes would be 

sent to the cost estimator 2 to 3 weeks in advance to give estimators time to update the estimate. However, because VA required the 

drawings and the estimate due at the same time, estimators only had 9 days to update the estimate for changes. Officials stated the 

technical baseline went through a fact-check to make sure all changes were incorporated. 

Other technical baseline documents to be referenced in the development of a VA cost estimate are defined by VA policy. These 

documents, listed and defined in The Manual for Preparation of Cost Estimates for VA Facilities, include Practice Design Manuals, 

Master Specifications, Architect/Engineer Checklists, Design and Quality Alerts, Design Guides, Design and Construction Procedures, 

Physical Security Design Manuals, and Technical Summaries. The Cost Estimate Manual also includes the cost breakdown 

categories to be used in the estimate. 

Step Four: Determine the Estimating Structure

A work breakdown structure (WBS) is the cornerstone of every program because it defines in detail the work necessary to accomplish 

a program’s objectives. A WBS is a valuable communication tool between systems engineering, program management, and other 

functional organizations because it provides a clear picture of what needs to be accomplished and how the work will be done. 

Accordingly, it is an essential element for identifying activities in a program’s integrated master schedule and it provides a consistent 

framework for planning and assigning responsibility for the work. Initially set up when the program is established, the WBS becomes 

successively detailed over time as more information because known about the program. 

A WBS deconstructs a program’s end product into successive levels with smaller specific elements until the work is subdivided to a 

level suitable for management control. By breaking the work down into smaller elements, management can more easily plan and 

schedule the program’s activities and assign responsibility for the work. It also facilitates establishing a schedule, cost, and earned 

value management (EVM) baseline. Establishing a product-oriented WBS is a best practice because it allows a program to track cost 

and schedule by defined deliverables, such as a hardware or software component. This allows a program manager to more precisely

identify which components are causing cost or schedule overruns and to more effectively mitigate the root cause of the overruns. 

4. Is there a defined WBS and/or cost element structure? 

Met; the estimate clearly describes how the various sub-elements are summed to produce the amounts for each cost 

category, thereby ensuring that all pertinent costs are included and no costs are double counted. 

While the WBS is not considered product-oriented by program officials, the breakout of work is based on a required VA element 

structure. The WBS is based on the standardized WBS on VA form HO-18B/C. Both the architect and cost estimators are required to

use this format. The WBS breaks the construction costs into standardized systems such as foundation, substructure, superstructure, 

and roofing, as well as subsystems such as slab on grade, stair construction, and elevators. These system descriptions are also used 

in the schedule. The HO-18 WBS elements are defined in the Manual for Preparation of Cost Estimates for VA Facilities by CFM. 
Appendix III: Consolidation and Expansion of 

Medical Centers in Cleveland, Ohio 

Page 33 GAO-10-189 VA Construction 

Step Five: Identify Ground Rules and Assumptions 

Cost estimates are typically based on limited information and therefore need to be bound by the constraints that make estimating 

possible. These constraints usually take the form of assumptions that bind the estimate’s scope, establishing baseline conditions the 

estimate will be built from. Ground rules represent a common set of agreed on estimating standards that provide guidance and 

minimize conflicts in definitions. Without firm ground rules, the analyst is responsible for making assumptions that allow the estimate to 

proceed. Assumptions represent a set of judgments about past, present, and future conditions postulated as true in the absence of 

positive proof. The analyst must ensure that assumptions are not arbitrary, that they are founded on expert judgments rendered by 

experienced program and technical personnel. Many assumptions profoundly influence cost; the subsequent rejection of even a single 

assumption by management could invalidate many aspects of the estimate. Therefore, it is imperative that cost estimators brief 

management and document all assumptions well, so that management fully understands the conditions the estimate was structured 

on. Failing to do so can lead to overly optimistic assumptions that heavily influence the overall cost estimate, to cost overruns, and to 

inaccurate estimates and budgets. 

5. Are there defined ground rules and assumptions that document the rationale and any historical data to back up any claims? 

Met; cost-influencing ground rules and assumptions, such as the programs schedule, labor rates, and inflation rates are 

documented, and market surveys were conducted to describe variability in material and labor prices. 

Assumptions and ground rules are documented and are included within the cost estimate. The ground rules and assumptions were 

created by the independent cost estimating firm and vetted with VA engineers and architects at the cost estimate steering committee 

meetings. Officials stated that the assumptions regarding escalation rates were particularly hard to agree upon between members of 

the steering committee. At the time, hurricane Katrina had recently struck and material prices were volatile. The final escalation rates 

were based off independent material price research performed by the cost estimating firm, which were nearly double the original rates 

proposed by the architect. In addition, the cost estimate includes market survey information to describe the volatility in labor and 

material prices and the risk of obtaining sufficient labor resources for the project. 

Step Six: Obtain the Data

Data are the foundation of every cost estimate. How good the data are affects the estimate’s overall credibility. Depending on the data 

quality, an estimate can range anywhere from a mere guess to a highly defensible cost position. Credible cost estimates are rooted in 

historical data. Rather than starting from scratch, estimators usually develop estimates for new programs by relying on data from 

programs that already exist and adjusting for any differences. Thus, collecting valid and useful historical data is a key step in 

developing a sound cost estimate. The challenge in doing this is obtaining the most applicable historical data to ensure that the new 

estimate is as accurate as possible. One way of ensuring that the data are applicable is to perform checks of reasonableness to see if 

the results are similar. Different data sets converging toward one value provides a high degree of confidence in the data. 

6. Were the data gathered from historical actual cost, schedule, and program and technical sources? 

Met; cost estimators used actual costs from similar programs, incorporated vendor quotes, and conducted market surveys 

to develop material and labor price estimates. 

Officials stated that historical data were the foundation of the estimate and were based on experience by the cost estimating firm on 

similar high-profile hospital estimates. The cost estimators leveraged their experience and data from these previous projects to 

estimate the costs of the VA tower. The initial concept estimates were based primarily on verbal discussions with vendors. As the 

designs were finalized and the estimate took shape, actual paper quotes for labor and material were submitted by vendors; these

were and assessed for appropriateness and realism by the cost estimators. In addition, a market survey was delivered as part of the 

final cost estimate. The market survey describes the volatility in labor and material prices and the risk of obtaining sufficient labor 

resources for the project. 
Appendix III: Consolidation and Expansion of 

Medical Centers in Cleveland, Ohio 

Page 34 GAO-10-189 VA Construction 

Step Seven: Develop the Point Estimate and Compare It to an Independent Cost Estimate

Step 7 pulls all the information together to develop the point estimate—the best guess at the cost estimate, given the underlying data. 

High-quality cost estimates usually fall within a range of possible costs, the point estimate being between the best and worst case 

extremes. The cost estimator must perform several activities to develop a point estimate: develop the cost model by estimating each 

WBS element, using the best methodology, from the data collected; include all estimating assumptions in the cost model; express

costs in constant-year dollars; time-phase the results by spreading costs in the years they are expected to occur, based on the

program schedule; and add the WBS elements to develop the overall point estimate. 

Having developed the overall point estimate, the cost estimator must then validate it by thoroughly understanding and investigating 

how the cost model was constructed. For example, all WBS cost estimates should be checked to verify that calculations are accurate 

(no double counting) and account for all costs, including indirect costs. Moreover, proper escalation factors should be used to inflate 

costs so that they are expressed consistently and accurately. Finally, the cost estimator should compare the cost estimate against the 

independent cost estimate and examine where and why there are differences; perform cross-checks on cost drivers to see if results 

are similar; and update the model as more data become available or as changes occur and compare the results against previous 

estimates. 

7. Did the cost estimator consider various cost estimating methods like analogy, engineering build up, parametric, extrapolating from 

actual costs, and expert opinion (if none of the other methods can be used)? 

Met; the cost estimate is based on a detailed engineering buildup methodology using estimated labor and material prices, 

and crosschecked against an independent unit-cost level assessment. The estimate was vetted through experts to ensure 

costs were appropriately captured. 

The construction cost estimate is based on engineering buildup of vendor quotes for material and labor dollars. Due to hurricane 

Katrina, the prices of copper and steel were especially volatile. The cost estimating firm conducted its own market research into 

material prices to create escalation rates. Moreover, officials stated that contingency factors for the estimate were tailored to the 

building and the construction situation rather than employing standard rules-of-thumbs. Officials stated that an independent cost 

estimate was not performed by either the VA or the architect. However, a consultant to the cost estimating firm did perform an 

assessment, and the two estimates were reconciled. Officials stated that the assessment was performed using a high-level unit cost 

methodology, which was compared to the original cost estimate’s bottom-up engineering methodology. 

The draft estimates were created in spreadsheets and reviewed multiple times by senior cost estimators. Officials stated that the cost 

estimate is reviewed multiple times for errors internally because the estimate must meet requirements imposed by insurance 

companies (referred to as “professional liability”). Moreover, the estimate was reviewed periodically by the cost estimate steering 

committee. 

Officials noted that the largest pitfall to the VA estimating process is that the budget is already set far in advance of the cost estimate. 

The cost would be estimated independently, and if the price exceeded the budgeted amount, the cost estimators worked with the 

engineers and architects to reduce or eliminate costs through the value engineering process. 

Step Eight: Conduct a Sensitivity Analysis

Sensitivity analysis should be included in all cost estimates because it examines the effects of changing assumptions and ground 

rules. Since uncertainty cannot be avoided, it is necessary to identify the cost elements that represent the most risk and, if possible, 

cost estimators should quantify the risk using both a sensitivity and uncertainty (see step 9) analysis. In order for sensitivity analysis to 

reveal how the cost estimate is affected by a change in a single assumption, the cost estimator must examine the effect of changing 

one assumption or cost driver at a time while holding all other variables constant. By doing so, it is easier to understand which variable 

most affects the cost estimate. 

8. Did the cost estimate included a sensitivity analysis that identified using a range of possible costs the effects of changing key cost 

driver assumptions or factors? 

Partially met; while a sensitivity analysis was not conducted by the VA, the estimate identifies volatility in material and labor 

costs and utilizes conservative escalation rates. 

Program officials stated that a sensitivity analysis was not performed on the estimate. However, they noted that the estimate utilized 

conservative escalation rates because officials were well aware of the consequences of underestimated material costs. In addition, 

the cost estimate includes market survey information to describe the volatility in labor and material prices and the risk of obtaining 

sufficient labor resources for the project. Given the volatility of material prices at the time—officials stated that steel was anywhere 

from $2,200 to $4,500 a ton—a sensitivity analysis on escalation rates would formally document the sensitivity of the overall estimate 

to small or large changes in material prices. 
Appendix III: Consolidation and Expansion of 

Medical Centers in Cleveland, Ohio 

Page 35 GAO-10-189 VA Construction 

Step Nine: Conduct a Risk and Uncertainty Analysis

Because cost estimates predict future program costs, uncertainty is always associated with them. Moreover, a cost estimate is usually 

composed of many lower-level WBS elements, each of which comes with its own source of error. Once these elements are added 

together, the resulting cost estimate can contain a great deal of uncertainty. Risk and uncertainty refer to the fact that because a cost 

estimate is a forecast, there is always a chance that the actual cost will differ from the estimate. A lack of knowledge about the future 

is only one possible reason for the difference. Another equally important reason is the error resulting from historical data 

inconsistencies, assumptions, cost estimating equations, and factors typically used to develop an estimate. In addition, biases are 

often found in estimating program costs and developing program schedules. The biases may be cognitive—often based on estimators’ 

inexperience—or motivational, where management intentionally reduces the estimate or shortens the schedule to make the project 

look good to stakeholders. Recognizing the potential for error and deciding how best to quantify it is the purpose of risk and 

uncertainty analysis. 

Since cost estimates are uncertain, making good predictions about how much funding a program needs to be successful is difficult. In 

a program’s early phases, knowledge about how well technology will perform, whether the estimates are unbiased, and how external 

events may affect the program is imperfect. For management to make good decisions, the program estimate must reflect the degree

of uncertainty, so that a level of confidence can be given about the estimate. Quantitative risk and uncertainty analysis provide a way 

to assess the variability in the point estimate. Using this type of analysis, a cost estimator can model such effects as schedules 

slipping, missions changing, and proposed solutions not meeting user needs, allowing for a known range of potential costs. Having a 

range of costs around a point estimate is more useful to decision makers, because it conveys the level of confidence in achieving the 

most likely cost and also informs them on cost, schedule, and technical risks. 

9. Was a risk and uncertainty analysis conducted that quantified the imperfectly understood risks and identified the effects of changing 

key cost driver assumptions and factors? 

Not met; a risk and uncertainty analysis was not conducted so that a level of confidence about the estimate could be 

determined. 

Program officials stated that an uncertainty analysis was not performed on the estimate. Given the volatility of material prices at the 

time—officials stated that steel was anywhere from $2,200 to $4,500 a ton and copper was falling—an uncertainty analysis on labor 

and material price estimates would formally document the risks and uncertainty of the overall estimate. 
Appendix III: Consolidation and Expansion of 

Medical Centers in Cleveland, Ohio 

Page 36 GAO-10-189 VA Construction 

Step Ten: Document the Estimate

Documentation provides total recall of the estimate’s detail so that it can be replicated by someone other than those who prepared it. It 

also serves as a reference to support future estimates. Documenting the cost estimate makes available a written justification showing 

how it was developed and aiding in updating it as key assumptions change and more information becomes available. Estimates 

should be documented to show all parameters, assumptions, descriptions, methods, and calculations used to develop a cost estimate. 

A best practice is to use both a narrative and cost tables to describe the basis for the estimate, with a focus on the methods and 

calculations used to derive the estimate. With this standard approach, the documentation provides a clear understanding of how the 

cost estimate was constructed. Moreover, cost estimate documentation should explain why particular methods and data sets were 

chosen and why these choices are reasonable. It should also reveal the pros and cons of each method selected. Finally, there should 

be enough detail so that the documentation serves as an audit trail of backup data, methods, and results, allowing for clear tracking of 

a program’s costs as it moves through its various life-cycle phases. 

10. Did the documentation describe the cost estimating process, data sources, and methods step by step so that a cost analyst 

unfamiliar with the program could understand what was done and replicate it? 

Partially met; while the documentation for the most part provided detailed material and labor build up, we were not able to 

trace the data back based on the documentation alone. 

While officials stated that the estimate was based off data from previous estimates, the cost estimate documentation delivered to VA 

does not trace estimated values to raw or normalized data. For instance, the delivered cost estimate documentation does not provide 

a basis or supporting data for included bidding contingency, markup, or escalation rates that would allow an analyst unfamiliar with the 

project to recreate them. 

Step Eleven: Present Estimate to Management for Approval

A cost estimate is not considered valid until management has approved it. Since many cost estimates are developed to support a 

budget request or make a decision between competing alternatives, it is vital that management is briefed on how the estimate was 

developed, including risks associated with the underlying data and methods. Therefore, the cost estimator should prepare a briefing 

for management with enough detail to easily defend the estimate by showing how it is accurate, complete, and high in quality. The 

briefing should present the documented life-cycle cost estimate with an explanation of the program’s technical and program baseline. 

11. Was there a briefing to management that included a clear explanation of the cost estimate so as to convey its level of 

competence? 

Met; the estimate was approved by internal management and vetted through a cost estimating steering committee 

consisting of project engineers and architects. 

The draft estimates were created in spreadsheets and reviewed multiple times by senior cost estimators. Officials stated that the cost 

estimate is reviewed multiple times for errors internally because the estimate must meet requirements imposed by insurance 

companies (referred to as “professional liability”). Moreover, the estimate was periodically vetted through VA engineers and architects 

familiar with the project at cost estimate steering committee meetings. 
Appendix III: Consolidation and Expansion of 

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Page 37 GAO-10-189 VA Construction 

Step Twelve: Update the Estimate to Reflect Actual Costs and Changes

The cost estimate should be regularly updated to reflect all changes. Not only is this a sound business practice; it is also a 

requirement outlined in OMB’s Capital Programming Guide.3

 The purpose of updating the cost estimate is to check its accuracy, 

defend the estimate over time, shorten turnaround time, and archive cost and technical data for use in future estimates. After the 

internal agency and congressional budgets are prepared and submitted, it is imperative that cost estimators continue to monitor the 

program to determine whether the preliminary information and assumptions remain relevant and accurate. Keeping the estimate fresh 

gives decision makers accurate information for assessing alternative decisions. Cost estimates must also be updated whenever 

requirements change, and the results should be reconciled and recorded against the old estimate baseline. The documented 

comparison between the current estimate (updated with actual costs) and old estimate allows the cost estimator to determine the level 

of variance between the two estimates. In other words, it allows estimators to see how well they are estimating and how the program 

is changing over time. 

12. Is there a process for the estimating team to update the estimate with actual costs as it becomes available? 

Not met; the VA does not require the cost estimating firm to update the construction cost estimate with actual costs once 

the project is underway. 

Officials from the cost estimating firm stated that while “adds and deducts” were inserted into the estimate as the design changed, the 

estimate is not updated once construction begins. Officials stated that they are not privy to actual costs incurred by VA general 

contractors, but that they wish they were in order to check the accuracy of their estimates. Regardless of what type of contract or what 

organization is managing costs, the purpose of updating the cost estimate is to check its accuracy, defend the estimate over time, 

shorten turnaround time of future estimates, and archive cost and technical data for use in future estimates. 

Source: GAO analysis of VA information. 

The project was originally a one-phase project and scheduled to be 

completed in September 2008 but is now a two-phase project and is 

scheduled to be completed in February 2011. Before construction began, 

the project was broken into two phases because there was insufficient 

power capacity to keep the existing hospital functioning while the 

construction was being completed. As a result, an energy center was 

added to the design plan and its construction was separated from that of 

the bed tower. In addition, a property acquisition that took longer than 

expected delayed the project schedule by nine months. Part of the land 

that the bed tower is being built on was donated to the City of Cleveland 

for use as parkland. The acquisition process was prolonged because the 

City had to change the use of the donated land before the VA could begin 

construction. Phasing the project and the delayed property acquisition 

fostered a change in scope of the project and the project’s original 

completion date was moved from September 1, 2008, to November 9, 2010. 

The projected completion date was again extended to February 1, 2011, 

due to unforeseen site conditions. Specifically, during the construction of 

the bed tower, crews discovered and had to move a sewer line before they 

could continue. According to VA officials, February 1, 2011, is still the 

 

3

OMB, Capital Programming Guide: Supplement to Circular A-11, Part 7, Preparation, 

Submission, and Execution of the Budget. 

Project Schedule and 

Changes in Scope 
Appendix III: Consolidation and Expansion of 

Medical Centers in Cleveland, Ohio 

Page 38 GAO-10-189 VA Construction 

projected date for project completion. However, it was not possible for us 

to determine if the completion date is reasonable because the project’s 

construction schedule has not undergone a schedule risk analysis. We 

have identified a schedule risk analysis as a best practice in scheduling. As 

of August 2009, VA has completed the energy center and is constructing 

the bed tower addition. 

The construction schedule for this project generally followed best 

practices but, as stated, did not include a schedule risk analysis. 

Specifically, while the schedule met eight of nine scheduling best 

practices, the schedule did not undergo a risk analysis to determine the 

major risks to the schedule and the likelihood of the project being 

completed on time. Our analysis of how the schedule met best practices is 

in table 5. 

Table 5: Extent That Bed Tower Construction Schedule Met Best Practices 

Best practice Explanation Met? GAO analysis 

Capturing activities The schedule should reflect all activities as 

defined in the project’s work breakdown 

structure, which defines in detail the work 

necessary to accomplish a project’s objectives, 

including activities to be performed by both the 

owner and contractors. 

Met The schedule is required by contract 

to include approximately 2,500 

activities in order to sufficiently detail 

the level of work required (the actual 

schedule has 2,725, approximately 

75 detail activities per milestone). 

Each activity is mapped to an activity 

ID number, building area, and work 

trade, which allows the scheduler to 

quickly filter the schedule by type of 

work or subcontractor. The schedule 

is reviewed by the VA CFM for 

completeness to ensure all 

necessary activities and milestones 

are included. 
Appendix III: Consolidation and Expansion of 

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Page 39 GAO-10-189 VA Construction 

Best practice Explanation Met? GAO analysis 

Sequencing activities The schedule should be planned so that critical 

project dates can be met. To meet this 

objective, activities need to be logically 

sequenced—that is, listed in the order in which 

they are to be carried out. In particular, activities 

that must be completed before other activities 

can begin (predecessor activities), as well as 

activities that cannot begin until other activities 

are completed (successor activities), should be 

identified. This helps ensure that 

interdependencies among activities that 

collectively lead to the accomplishment of 

events or milestones can be established and 

used as a basis for guiding work and measuring 

progress. 

Met All detail activities and milestones 

are properly sequenced. Out of 

2,378 remaining detail activities, we 

found only 2 activities that were not 

properly driving the start date of a 

predecessor activity. There are no 

lags, hard constraints, or soft 

constraints in the schedule, as 

required by contract specifications. 

Officials stated that, if the project 

runs late, the VA requires the 

baseline schedule to show the slip in 

the finish milestone (as opposed to 

constraining the finish milestone and 

simply reporting negative float). The 

VA also requires a diagram of the 

schedule network, similar to a PERT 

diagram, that clearly displays the 

relationships between tasks. 

Assigning resources to activities The schedule should reflect what resources 

(e.g., labor, materials, and overhead) are 

needed to do the work, whether all required 

resources will be available when needed, and 

whether any funding or time constraints exist. 

Met The VA requires schedules to be 

cost loaded with prorated overhead 

and profit, and the total price loaded 

into the schedule must equal the 

total contract price. Each detail 

activity has an associated manpower 

requirement. 

Establishing the duration of 

activities 

The schedule should realistically reflect how 

long each activity will take to execute. In 

determining the duration of each activity, the 

same rationale, historical data, and 

assumptions used for cost estimating should be 

used. Durations should be as short as possible 

and have specific start and end dates. The 

schedule should be continually monitored to 

determine when forecasted completion dates 

differ from planned dates; this information can 

be used to determine whether schedule 

variances will affect subsequent work. 

Met As required by VA schedule contract 

specifications, activity durations are 

20 days or less, except for 

procurement activities. Our analysis 

shows the median task duration is 

10 days. Less than 1% of the 

remaining activities are 1 day in 

duration. Activity durations are 

estimated using input from 

subcontractors who will be 

performing the work. All activities are 

based on a standard 5-day 

workweek with holidays. 
Appendix III: Consolidation and Expansion of 

Medical Centers in Cleveland, Ohio 

Page 40 GAO-10-189 VA Construction 

Best practice Explanation Met? GAO analysis 

Integrating activities horizontally 

and vertically 

The schedule should be horizontally integrated, 

meaning that it should link products and 

outcomes associated with other sequenced 

activities. These links are commonly referred to 

as “handoffs” and serve to verify that activities 

are arranged in the right order to achieve 

aggregated products or outcomes. The 

schedule should also be vertically integrated, 

meaning that the dates for starting and 

completing activities in the integrated master 

schedule should be aligned with the dates for 

supporting tasks and subtasks. Such mapping 

or alignment among levels enables different 

groups to work to the same master schedule. 

Met Our analysis shows the schedule to 

be horizontally integrated due to the 

high number of straightforward 

finish-start links, realistic float, and 

valid critical path. The schedule is 

vertically integrated, with all activities 

subsumed under organized higher 

levels. Each activity is mapped to an 

area and trade, clearly indicating 

which subcontractor is responsible 

for what work in each area at any 

time. 

Establishing the critical path for 

activities 

Scheduling software should be used to identify 

the critical path, which represents the chain of 

dependent activities with the longest total 

duration. Establishing a project’s critical path is 

necessary to examine the effects of any activity 

slipping along this path. Potential problems 

along or near the critical path should also be 

identified and reflected in scheduling the 

duration of high-risk activities. 

Met Officials stated the critical path is 

calculated by the scheduling 

software and is a crucial tool for 

managing the construction project. 

The critical path and activities near 

the critical path (the “hot list”) are 

reviewed in management meetings 

on a monthly basis. Our analysis 

shows the critical path to be 

structurally sound, running the 

length of the schedule and 

encompassing several major 

milestones. 

Identifying the float between 

activities 

The schedule should identify the float—the 

amount of time by which a predecessor activity 

can slip before the delay affects successor 

activities—so that a schedule’s flexibility can be 

determined. As a general rule, activities along 

the critical path have the least float. Total float is 

the total amount of time by which an activity can 

be delayed without delaying the project’s 

completion (if everything else goes according to 

plan). 

Met Total float represents the amount of 

time an activity can slip before it 

affects the project finish date. It is 

therefore a crucial tool for resource 

allocation and risk mitigation. There 

appear to be excessive values of 

total float in the schedule, but 

officials stated that they were not 

concerned with these float values. 

Officials told us that in a construction 

project, many tasks can be 

performed in any order, and the only 

float values of real concern for 

management was float on or near 

the critical path. 
Appendix III: Consolidation and Expansion of 

Medical Centers in Cleveland, Ohio 

Page 41 GAO-10-189 VA Construction 

Best practice Explanation Met? GAO analysis 

Conducting a schedule risk 

analysis 

A schedule risk analysis should be performed 

using statistical techniques to predict the level 

of confidence in meeting a project’s completion 

date. This analysis focuses not only on critical 

path activities but also on activities near the 

critical path, since they can affect the project’s 

status. 

Not met The program has not performed a 

schedule risk analysis (SRA). 

Officials stated that they see value in 

an SRA particularly if it is performed 

very early in the program, for 

example, during the OMB 300 

budget request procedure. However, 

best practices suggest that even at 

the construction bid phase, an SRA 

can be used to determine a level of 

confidence in meeting the 

completion date or whether proper 

reserves have been incorporated 

into the schedule. An SRA will 

calculate schedule reserve, which 

can be set aside for those activities 

identified as high-risk. Without this 

reserve, the program faces the risk 

of delays to the scheduled 

completion date if any delays were 

to occur on critical path activities. 

Updating the schedule using logic 

and durations to determine dates 

Met The schedule is reviewed and 

updated formally in monthly 

management meetings. During 

these meetings, officials update and 

examine actual start and finish dates 

and remaining durations of activities. 

The schedule is manually updated 

through “progress reporting.” During 

progress reporting, the general 

contractor physically walks through 

the job site and updates the 

remaining durations on each 

ongoing activity. Our analysis found 

no date anomalies in the schedule. 

Date anomalies are errors such as 

actual finish dates in the future, 

outdated tasks that have no actual 

start date, and completed tasks in 

the past with no actual finish date. 

Source: GAO analysis of VA information. 
Appendix IV: Construction of Spinal Cord 

Injury/Disease Center in Syracuse, New York 

Page 42 GAO-10-189 VA Construction 

This project includes the construction of a 30-bed center for treating spinal 

cord injuries to be attached to the current VA medical center in Syracuse, 

New York. The project also includes adding two levels to the current 

parking garage. The project is divided into two phases. Phase I includes 

the addition on the parking garage and Phase II includes the construction 

of the Spinal Cord Injury/Disease (SCI/D) center. 

VA initiated this project under the Capital Asset Realignment for 

Enhanced Services (CARES) process in February 2004 because the 

Veterans’ Integrated Service Network (VISN) did not have the ability to 

treat acute spinal cord injuries. Syracuse had the only in-patient 

rehabilitation unit and SCI/D expertise within the VISN; so, VA decided to 

put the new SCI/D center in Syracuse. 

The project cost has increased from the original estimate submitted to 

Congress of $53.9 million to $84,969,000 (an increase of 58 percent). 

According to VA officials in Syracuse, this estimate was developed in 

about 6 weeks and was based on the total square footage required 

multiplied by the cost per square foot of new construction. Congress 

authorized $53.9 million for the project in 20041

 and appropriated about 

$53.4 million in funds in the Consolidated Appropriations Act for FY 2005.2

According to VA officials in Syracuse, the main reason for the cost 

increase is that the initial estimate did not fully consider several factors. 

The original design of a new SCI/D center did not include money for 

additional parking. However, when the project had been approved by 

Congress and was in design, VA officials in Syracuse commissioned a 

study to examine future parking needs at the Syracuse medical center. The 

study concluded that, based on the new SCI/D center and projected 

demand from patients and staff, there should be an additional 429 to 528 

 

1

The Veterans Health Care, Capital Asset, and Business Improvement Act of 2003 

authorized the Secretary of VA to carry out major construction projects specified in the 

final CARES report, which was to be approved by the Secretary of VA. See Pub. L. No. 108-

170, § 221, 117 Stat 2042, 2050 (2003). The Secretary’s report dated May 20, 2004, listed 

$53.9 million for construction of a spinal cord injury center, which was authorized under § 

221 of Pub. L. No. 108-170. The project’s authorization was modified in 2006 to an amount 

not to exceed $77,700,000. See Pub. L. No. 109-461 § 802. 

2

Consolidated Appropriations Act for FY 2005, Pub. L. No. 108-447, Div. I, Title I, 118 Stat. 

2809, 3289-3290 (2004). 

Appendix IV: Construction of Spinal Cord 

Injury/Disease Center in Syracuse, New York 

Project Overview 

Reasons for the Project 

Project Cost 
Appendix IV: Construction of Spinal Cord 

Injury/Disease Center in Syracuse, New York 

Page 43 GAO-10-189 VA Construction 

parking spaces at the medical center. As a result of this study, VA officials 

in Syracuse decided to add two floors onto the existing parking garage at 

an estimated cost of $10 million. 

In addition to parking, stakeholders identified needed scope changes in 

the project. Specifically, the Paralyzed Veterans of America (PVA) insisted 

that there be a dedicated entrance from the parking garage to the SCI/D 

center, which is being built on the 4th floor of the medical center. This 

dedicated entrance would allow veterans with spinal cord injuries to enter 

the center directly from the parking garage, without requiring the veterans 

to go down to the street from the parking garage, outside to the main 

entrance of the medical center, then up to the 4th floor of the medical 

center for treatment. According to VA staff in Syracuse, VA agreed to make 

changes that would improve access to the facility, and this increased the 

cost of the project and delayed the project’s schedule. As a result of these 

changes to the project’s scope, VA received an additional $23.8 million 

from Congress in fiscal year 2008.3

 Our analysis of how the cost estimate 

for the SCI/D center met best practices is in table 6. 

Table 6: Extent That SCI/D Center Cost Estimate Met Best Practices 

Step One: Define the Estimate’s Purpose 

The purpose of a cost estimate is determined by its intended use, and its intended use determines its scope and detail. Cost 

estimates have two general purposes: (1) to help managers evaluate affordability and performance against plans, as well as the 

selection of alternative systems and solutions, and (2) to support the budget process by providing estimates of the funding required to 

efficiently execute a program. The scope of the cost estimate will be determined by such issues as the time involved, what elements 

of work need to be estimated, who will develop the cost estimates, and how much cost estimating detail will be included. 

A life-cycle cost estimate provides an exhaustive and structured accounting of all resources and associated cost elements required to 

develop, produce, deploy, and sustain a particular program. As such a life cycle cost estimate encompasses all past (or sunk), 

present, and future costs for every aspect of a program, regardless of funding source. Life-cycle costing enhances decision making, 

especially in early planning and concept formulation of acquisition. Design trade-off studies conducted in this period can be evaluated 

on a total cost basis as well as on a performance and technical basis. A life-cycle cost estimate can support budgetary decisions, key 

decision points, milestone reviews, and investment decisions. Because they encompass all possible costs, life cycle cost estimates 

provide a wealth of information about how much programs are expected to cost over time. Thus, having full life cycle costs is 

important for successfully planning program resources and making wise decisions. 

1. Is the purpose and scope of the cost estimate defined and documented? Have all costs been estimated, including life cycle costs? 

 

3

Pub. L. No. 110-161, 121 Stat. 1844, 2267 (2007). 
Appendix IV: Construction of Spinal Cord 

Injury/Disease Center in Syracuse, New York 

Page 44 GAO-10-189 VA Construction 

Substantially Met; the purpose of the cost estimate is documented and clearly defined at a level that would enable VA 

Syracuse to submit a quality cost estimate: however, the cost estimate does not cover the full life cycle and therefore does 

not account for all costs. 

The purpose of the VA cost estimate is to support the basis for the budget request for the Syracuse Spinal Cord Injury/Disease 

(SCI/D) center. As they work through the process they further refined the estimate. VA Syracuse did not do a life-cycle cost estimate 

(LCCE), they only addressed design and construction in their estimate. In the OMB Exhibit 300, VA only showed costs for the 

acquisition base year and 3 additional years. No costs were reported for maintenance. 

The scope of the estimate is defined by VA policy. In the Manual for Preparation of Cost Estimates for VA Facilities (00CFM1B) June 

2007, page 1, sections 1.1.1 – 1.1.2 says: 

1.1.1 - A project estimate shall show the current cost of construction on the date of the estimate. The estimate should reflect current 

costs on the date the estimate is received and anticipated local escalation to the midpoint of construction, i.e., date of estimate plus 1⁄2 

of construction duration. 

1.1.2 - The level of detail for this estimate shall be consistent with the degree of completeness of the drawings being submitted. 

Simply stated, this means that if a construction element is shown, it must be priced; if it is shown in detail, it must be priced in detail. 

For detailed elements, “lump sum” or “allowance” figures will not be acceptable. Project estimates will include all elements within the 

contractor’s bid such as insurance, bonds, hazardous abatement, and any other such items. 

Step Two: Develop the Estimating Plan

An analytic approach to cost estimates typically entails a written study plan detailing a master schedule of specific tasks, responsible 

parties, and due dates. Enough time should be scheduled to collect data, including visits to contractor sites to further understand the 

strengths and limitations of the data that have been collected. If there is not enough time, then the schedule constraint should be 

clearly identified in the ground rules and assumptions so that management understands the effect on the estimate’s quality and 

confidence. 

2. Did the team develop a written study plan? 

Met; the cost estimator followed the process for developing the estimate as outlined in the Manual for Preparation of Cost 

Estimates for VA Facilities (00CFM1B) June 2007. 

The Phoenix Engineering staff who worked on the estimate is very experienced. The cost estimator has worked in the construction

industry for 30 years and has been doing cost estimates for the past 7 years. The senior electrical estimator has 40 years of 

experience in construction. Most of the cost estimators’ team came from the construction industry. 

The team follows a systematic approached outlined in the Manual for Preparation of Cost Estimates for VA Facilities (00CFM1B) June 

2007, page 1, sections 1.1.1 – 1.1.2, which says: 

1.1.1 - A project estimate shall show the current cost of construction on the date of the estimate. The estimate should reflect current 

costs on the date the estimate is received and anticipated local escalation to the midpoint of construction, i.e., date of estimate plus 

half of construction duration. 

1.1.2 - The level of detail for this estimate shall be consistent with the degree of completeness of the drawings being submitted. 

Simply stated, this means that if a construction element is shown, it must be priced; if it is shown in detail, it must be priced in detail. 

For detailed elements, “lump sum” or “allowance” figures will not be acceptable. Project estimates will include all elements within the 

contractor’s bid such as insurance, bonds, hazardous abatement, and any other such items. Submission requirements are indicated in 

the VA Cost Estimating Guide. 
Appendix IV: Construction of Spinal Cord 

Injury/Disease Center in Syracuse, New York 

Page 45 GAO-10-189 VA Construction 

Step Three: Define the Program Characteristics

Key to developing a credible estimate is having an adequate understanding of the acquisition program—the acquisition strategy, 

technical definition, characteristics, system design features, and technologies to be included in its design. The cost estimator can use 

this information to identify the technical and program parameters that will bind the cost estimate. The amount of information gathered 

directly affects the overall quality and flexibility of the estimate. Less information means more assumptions must be made, increasing 

the risk associated with the estimate. Therefore, the importance of this step must be emphasized, because the final accuracy of the 

cost estimate depends on how well the program is defined. 

3. Is there a documented technical baseline description? 

Met; a technical baseline has been documented that includes requirements, purpose, and system design features. 

Phoenix engineering, the cost estimating firm, worked with QPK, the architectural and engineering firm, to obtain design specifications 

and clarifications when needed for the estimates. QPK provided draft copies of each of the submissions to the VA 2 weeks before the 

schematic design and design development milestones were reached. Both the medical center staff and central office staff commented 

on the design before it was released. For example, there were questions about the specifications for the depth of the caissons in the 

amount of concrete needed. The caissons are the underground supports for the columns in the garage. They are large diameter holes 

in the ground filled with concrete and rebar that in some cases, go as deep as 30 feet. QPK reviewed the estimate before it was

released to the VA. This is an iterative process that is defined by the VA Project Guide. 

The Manual for Preparation of Cost Estimates for VA Facilities (00CFM1B) June 2007, sections 1.4 – 1.4.2.3 outlines the technical 

resources and their descriptions. 

In addition, the VA has set of master specifications based on the in Construction Specification Institute format. Midstream during the 

estimating process the VA switched to the newer CSI format which has 50 divisions versus the previous 16 divisions. The most recent 

cost estimate is based on the VA Manual, which discusses foundation, frame, floor structure, etc., which is standard in the 

construction industry 

Step Four: Determine the Estimating Structure

A work breakdown structure (WBS) is the cornerstone of every program because it defines in detail the work necessary to accomplish 

a program’s objectives. A WBS is a valuable communication tool between systems engineering, program management, and other 

functional organizations because it provides a clear picture of what needs to be accomplished and how the work will be done. 

Accordingly, it is an essential element for identifying activities in a program’s integrated master schedule and it provides a consistent 

framework for planning and assigning responsibility for the work. Initially set up when the program is established, the WBS becomes 

successively detailed over time as more information because known about the program. 

A WBS deconstructs a program’s end product into successive levels with smaller specific elements until the work is subdivided to a 

level suitable for management control. By breaking the work down into smaller elements, management can more easily plan and 

schedule the program’s activities and assign responsibility for the work. It also facilitates establishing a schedule, cost, and earned 

value management (EVM) baseline. Establishing a product-oriented WBS is a best practice because it allows a program to track cost 

and schedule by defined deliverables, such as a hardware or software component. This allows a program manager to more precisely

identify which components are causing cost or schedule overruns and to more effectively mitigate the root cause of the overruns. 

4. Is there a defined WBS and/or cost element structure? 
Appendix IV: Construction of Spinal Cord 

Injury/Disease Center in Syracuse, New York 

Page 46 GAO-10-189 VA Construction 

Met; the estimate describes how the various sub-elements are summed to produce the amounts for each cost category, 

thereby ensuring that all pertinent costs are included and no costs are double counted. 

The backbone of the VA work breakdown structure is based on the Construction Specifications Institute (CSI). The VA has a master 

specification based on 16 divisions of costs from CSI. Midstream during the estimating process the VA switched to the newer CSI

format, which has 50 divisions versus the previous 16 divisions. The latest estimate that Phoenix engineering prepared was made

against the VA manual specifications. This is different from what the construction industry has. It is VA’s attempt to track costs for the 

future. The VA guide discusses foundations, frames, floor structure etc. 

The cost estimate WBS is product oriented to the extent possible and it is at a level of detail to ensure that costs are neither omitted 

nor double counted. The WBS is in a standard format and is consistently used. The WBS is also used by the contractor for cost 

estimates and scheduling. A view of the work breakdown structure down to at least level 3 is shown below: 

Base Building—Spinal Cord Injury Center 

A. Foundation 

B. Sub-structure—includes the cost of slab on grade and basement walls. 

C. Super structure—includes the cost of floor and roof construction, interstitial and stair construction as well as structural steel. 

D. Exterior structure—includes the cost of exterior walls, doors and windows 

E. Roofing 

F. Interior construction—includes the cost of partitions and interior finishes. 

G. Conveying systems—includes the cost of elevators, moving stairs and walkways, dumbwaiters, pneumatic tubing and conveying 

systems. 

H. Mechanical systems—includes the cost of plumbing, HVAC, fire protection, medical gas system, sewage treatment and solar 

mechanical system. 

I. Electrical systems—includes the cost of base materials, lighting, electrical systems, communication systems as well as heating 

systems. 

J. General conditions 

K. Equipment—includes the cost of equipment, special construction and furnishings. 

L. Sitework—includes the cost of site preparation, site improvements, site utilities, and other specified off-site work. 
Appendix IV: Construction of Spinal Cord 

Injury/Disease Center in Syracuse, New York 

Page 47 GAO-10-189 VA Construction 

Step Five: Identify Ground Rules and Assumptions 

Cost estimates are typically based on limited information and therefore need to be bound by the constraints that make estimating 

possible. These constraints usually take the form of assumptions that bind the estimate’s scope, establishing baseline conditions the 

estimate will be built from. Ground rules represent a common set of agreed on estimating standards that provide guidance and 

minimize conflicts in definitions. Without firm ground rules, the analyst is responsible for making assumptions that allow the estimate to 

proceed. Assumptions represent a set of judgments about past, present, and future conditions postulated as true in the absence of 

positive proof. The analyst must ensure that assumptions are not arbitrary, that they are founded on expert judgments rendered by 

experienced program and technical personnel. Many assumptions profoundly influence cost; the subsequent rejection of even a single 

assumption by management could invalidate many aspects of the estimate. Therefore, it is imperative that cost estimators brief 

management and document all assumptions well, so that management fully understands the conditions the estimate was structured 

on. Failing to do so can lead to overly optimistic assumptions that heavily influence the overall cost estimate, to cost overruns, and to 

inaccurate estimates and budgets. 

5. Are there defined ground rules and assumptions that document the rationale and any historical data to back up any claims? 

Met; the estimator identified ground rules and assumptions as well its escalation rates. 

In preparing the estimates Phoenix engineering made some assumptions regarding costs. They supported their assumptions with 

information from the designers and discussions with the VA. For example, for this estimate they assumed that inflation would be tied 

to the Boechk index. The escalation worksheets that the cost estimator provided show what assumptions were made. 

Phoenix engineering also reviewed the schedule assumptions for the cost estimate and had concerns about whether the 1,000 day 

schedule was realistic. For example, there will be three major phases to the project which the firm believed would take about 4 years 

to complete: Phase 1 involves removal/site prep/foundation/underground utilities (1 year due to life safety & infection control); Phase 2 

will be for construction (2 years due to weather related issues); and Phase 3 will be for the renovation of the 4th floor (1 year to 

complete). 

The cost estimate was prepared using current prices as if bids were received on the date of the estimate. The cost estimate was then 

escalated to the planned construction contract award date using rates established by OMB. The cost estimator demonstrated in their 

escalation paper the gap between OMB mandated escalation rates and actual market conditions reflected by the Boechk Index.4

Step Six: Obtain the Data

Data are the foundation of every cost estimate. How good the data are affects the estimate’s overall credibility. Depending on the data 

quality, an estimate can range anywhere from a mere guess to a highly defensible cost position. Credible cost estimates are rooted in 

historical data. Rather than starting from scratch, estimators usually develop estimates for new programs by relying on data from 

programs that already exist and adjusting for any differences. Thus, collecting valid and useful historical data is a key step in 

developing a sound cost estimate. The challenge in doing this is obtaining the most applicable historical data to ensure that the new 

estimate is as accurate as possible. One way of ensuring that the data are applicable is to perform checks of reasonableness to see if 

the results are similar. Different data sets converging toward one value provides a high degree of confidence in the data. 

6. Was the data gathered from historical actual cost, schedule, and program and technical sources? 

 

4

The BOECKH Index is a measurement of construction cost inflation published by 

American Appraisal Associates Inc. The rate of inflation is based on actual reported 

construction costs. Other published construction cost indexes indicate national average 

construction cost inflation in the range of 17.6 percent to 29.6 percent from January 2004 to 

October 2006. The BOECKH Index is at the lower end compared to other indexes. 
Appendix IV: Construction of Spinal Cord 

Injury/Disease Center in Syracuse, New York 

Page 48 GAO-10-189 VA Construction 

Met; program office took well-documented steps to obtain data. 

For all four iterations of the cost estimate, with the first being done in 2005 and the last in spring 2009, Phoenix engineering used the 

PROEST construction software package. PROEST updates the software with the updates from the RS Means which is an industrystandard estimating database. They validate and supplement the RS Means data with internal cost information that they have 

obtained from quotes from vendors on other jobs that they have been involved in or data from research on other projects. The only 

drawback to the software is that they had to convert the cost estimate to Excel in order to manipulate it. Phoenix engineering also 

updated PROEST data with changes in material costs. PROEST data was also used for estimating recurring costs. For example, data

from PROEST was used to estimate the cost of slabs used for elevator shafts by multiplying the costs by the number of floors. The 

cost of fuel also had an impact on project costs so they added a surcharge for fuel that would reflect the expected inflation rate for 

fuel. The cost of fuel also affected the costs for concrete and steel. Because quotes from vendors were not local, the data was

normalized by using a location factor that adjusted prices for Syracuse. 

Phoenix engineering used several resources to look at square footage costs and historical data that they have in-house for recent 

construction. They also used construction industry data from sources such as RS Means or Dodge Design Cost Data. Phoenix 

engineering worked with QPK to get design specifications and clarifications when needed for the estimates. QPK provided draft 

copies of each of the submissions to the VA 2 weeks before the schematic design and design development milestones were reached.

Both the medical center staff and central office staff commented on the design before it was released. For example, there were 

questions about the specifications for the depth of the caissons in the amount of concrete needed. The caissons are the underground 

supports for the columns in the garage. They are large diameter holes in the ground filled with concrete and rebar that in some cases 

go as deep as 30 feet. 

Step Seven: Develop the Point Estimate and Compare It to an Independent Cost Estimate

Step 7 pulls all the information together to develop the point estimate—the best guess at the cost estimate, given the underlying data. 

High-quality cost estimates usually fall within a range of possible costs, the point estimate being between the best and worst case 

extremes. The cost estimator must perform several activities to develop a point estimate: develop the cost model by estimating each 

WBS element, using the best methodology, from the data collected; include all estimating assumptions in the cost model; express

costs in constant-year dollars; time-phase the results by spreading costs in the years they are expected to occur, based on the

program schedule; and add the WBS elements to develop the overall point estimate. 

Having developed the overall point estimate, the cost estimator must then validate it by thoroughly understanding and investigating 

how the cost model was constructed. For example, all WBS cost estimates should be checked to verify that calculations are accurate 

(no double counting) and account for all costs, including indirect costs. Moreover, proper escalation factors should be used to inflate 

costs so that they are expressed consistently and accurately. Finally, the cost estimator should compare the cost estimate against the 

independent cost estimate and examine where and why there are differences; perform cross-checks on cost drivers to see if results 

are similar; and update the model as more data become available or as changes occur and compare the results against previous 

estimates. 

7. Did the cost estimator consider various cost estimating methods like analogy, engineering build up, parametric, extrapolating from 

actual costs, and expert opinion (if none of the other methods can be used)? 
Appendix IV: Construction of Spinal Cord 

Injury/Disease Center in Syracuse, New York 

Page 49 GAO-10-189 VA Construction 

Met; the cost estimate is based on an engineering buildup. 

The initial estimate for the SCI/D was $56 million. This initial estimate was a gross level (rough order of magnitude) based on the 

aggregate square footage and historical costs per square foot. This estimate was developed in a rough manner using the square 

footage multiplied by the per square foot cost of market-based construction. In addition, the estimate included contingencies and 

overhead. Contingencies and overhead came to about $2.1 million and the construction cost was estimated at $53.9 million. The life 

cycle costs included in the OMB 300 were developed by medical center staff and were done in a hurry. 

In 2006 it became clear that the original estimate would be too little too complete the spinal cord injury center. The Construction and 

Facilities Management Office came up with the revised estimate. The new estimate was for approximately $78 million or $24 million 

more than the original estimate, and medical center staff were not informed of how this cost estimate was developed. The medical 

center received $23.8 million in 2007 supplemental appropriations bill. 

In the summer of 2008, Phoenix Engineering estimated the costs would be much higher because the cost estimate was updated to 

reflect a more detailed design and reflected delays in the project. As a result, when the project went out for bid, the medical center 

found it would have to break the project up into smaller increments because there was not enough budget to do it all at once. These 

increments would be listed in the bid package as bid alternates (i.e., additional projects) that potential contractors would also provide 

bids for along with the base bid. 

In developing their estimate, Phoenix Engineering used an engineering build up method based on square feet times the labor rate

plus analogous material costs. Phoenix engineering used square feet data from QPK and converted it to a cost by multiplying the

square feet by the labor rate using data from RS Means. They also checked the labor rates against union labor agreements and the 

Davis Bacon Act, which mandates minimum labor rates to check their estimate for consistency. 

The $77.7 million appropriated for the construction includes the cost of the garage. The garage contract is for almost $10.6 million, 

which leaves only $66.1 million for the SCI/D. 

There were several internal reviews of the cost estimate that were done to scrub the numbers. First, QPK reviewed the estimate, then 

VA reviewed it, and finally Alpha performed a peer review of the cost estimate. There was no independent cost estimate, but the

Alpha peer-review served that purpose. Phoenix made some changes that had a major impact on the estimate. For example, Phoenix 

changed the estimate to reflect a lower inflation rate and less design contingency. Phoenix felt that the decrease was acceptable 

because the recession has caused the cost of materials to decrease and contractors were lowering their labor rates and fees in this 

competitive environment. Phoenix engineering initially delivered a conservative estimate so there was room to lower the cost estimate. 

In addition, there were no engineering change orders because the VA would not accept any changes. Only one state, New York, will 

budget a contingency for change orders for construction. 

As a crosscheck, Phoenix engineering had someone gather labor rates that were applicable to Syracuse. Their estimate was based 

on a composite rate for the crew that would do the work. 

Step Eight: Conduct a Sensitivity Analysis

Sensitivity analysis should be included in all cost estimates because it examines the effects of changing assumptions and ground 

rules. Since uncertainty cannot be avoided, it is necessary to identify the cost elements that represent the most risk and, if possible, 

cost estimators should quantify the risk using both a sensitivity and uncertainty (see step 9) analysis. In order for sensitivity analysis to 

reveal how the cost estimate is affected by a change in a single assumption, the cost estimator must examine the effect of changing 

one assumption or cost driver at a time while holding all other variables constant. By doing so, it is easier to understand which variable 

most affects the cost estimate. 

8. Did the cost estimate included a sensitivity analysis that identified using a range of possible costs the effects of changing key cost 

driver assumptions or factors? 

Not met; while a sensitivity analysis was not conducted in their risk analysis, VA Syracuse did identify major cost drivers. 

There was no sensitivity analysis done. Square footage was dictated by VA. The only changes were scope changes. Similarly, there 

was no sensitivity analysis of the inflation index. The fuel surcharge that was included in the estimate, which had been volatile, was 

taken out because fuel prices had leveled off. They did not vary the composite labor rate. 

While the VA Syracuse project followed most of the best practice steps, they do not perform a full sensitivity analysis. However, the 

estimating team did develop a risk analyses that identified major cost drivers that could adversely affect the project. 
Appendix IV: Construction of Spinal Cord 

Injury/Disease Center in Syracuse, New York 

Page 50 GAO-10-189 VA Construction 

Step Nine: Conduct a Risk and Uncertainty Analysis

Because cost estimates predict future program costs, uncertainty is always associated with them. Moreover, a cost estimate is usually 

composed of many lower-level WBS elements, each of which comes with its own source of error. Once these elements are added 

together, the resulting cost estimate can contain a great deal of uncertainty. Risk and uncertainty refer to the fact that because a cost 

estimate is a forecast, there is always a chance that the actual cost will differ from the estimate. A lack of knowledge about the future 

is only one possible reason for the difference. Another equally important reason is the error resulting from historical data 

inconsistencies, assumptions, cost estimating equations, and factors typically used to develop an estimate. In addition, biases are 

often found in estimating program costs and developing program schedules. The biases may be cognitive—often based on estimators’ 

inexperience—or motivational, where management intentionally reduces the estimate or shortens the schedule to make the project 

look good to stakeholders. Recognizing the potential for error and deciding how best to quantify it is the purpose of risk and 

uncertainty analysis. 

Since cost estimates are uncertain, making good predictions about how much funding a program needs to be successful is difficult. In 

a program’s early phases, knowledge about how well technology will perform, whether the estimates are unbiased, and how external 

events may affect the program is imperfect. For management to make good decisions, the program estimate must reflect the degree

of uncertainty, so that a level of confidence can be given about the estimate. Quantitative risk and uncertainty analysis provide a way 

to assess the variability in the point estimate. Using this type of analysis, a cost estimator can model such effects as schedules 

slipping, missions changing, and proposed solutions not meeting user needs, allowing for a known range of potential costs. Having a 

range of costs around a point estimate is more useful to decision makers, because it conveys the level of confidence in achieving the 

most likely cost and also informs them on cost, schedule, and technical risks. 

9. Was a risk and uncertainty analysis conducted that quantified the imperfectly understood risks and identified the effects of changing 

key cost driver assumptions and factors? 

Partially met; while VA Syracuse followed most of the best practice steps, they do not perform an uncertainty analysis: 

however, they did perform risk analyses for the various alternatives. 

Phoenix Engineering collected risks in excel spreadsheets and identified the likelihood of the risks occurring as well as the impact of 

the risks. In addition, the VA Cares Risk Analysis included a Risk Control Plan which identified the risks, probability of occurring, and 

the internal mitigation resources as well as the responsible parties. In the list of risks identified by VA Cares Syracuse, the majority of 

the issues focused on the construction of the new operating room (OR) while the current ORs still need to be in operation while the 

project is under construction. 

See list of risks identified below. 

Risk Categories: 

i. Schedule – Operating Room construction may fall behind schedule 

ii. Initial Costs – Costs associated with Operating Room construction may be higher than expected 

iii. Life Cycle Costs – Expenses to run the Operating Room may be greater than predicted 

iv. Technical Obsolescence – New Operating Room equipment could become available soon after project completion 

v. Feasibility – Issues In operating room design, execution, or functioning could result in financial feasibility problems. 

vi. Reliability of Systems – Equipment fails to perform as designed 

vii. Dependencies & Interoperabilities – Facility is incapable of supporting operating room equipment 

viii. Surety (Asset Protection) – Risk of vandalism (intentional damage) 

ix. Risk of Creating a Monopoly – Dependence on operating room vendors for upgrades/repairs 

x. Capability of Agency to Manage the Project – Expertise unavailable or has many competing projects in addition to operating

room project 
Appendix IV: Construction of Spinal Cord 

Injury/Disease Center in Syracuse, New York 

Page 51 GAO-10-189 VA Construction 

Step Ten: Document the Estimate

Documentation provides total recall of the estimate’s detail so that it can be replicated by someone other than those who prepared it. It 

also serves as a reference to support future estimates. Documenting the cost estimate makes available a written justification showing 

how it was developed and aiding in updating it as key assumptions change and more information becomes available. Estimates 

should be documented to show all parameters, assumptions, descriptions, methods, and calculations used to develop a cost estimate. 

A best practice is to use both a narrative and cost tables to describe the basis for the estimate, with a focus on the methods and 

calculations used to derive the estimate. With this standard approach, the documentation provides a clear understanding of how the 

cost estimate was constructed. Moreover, cost estimate documentation should explain why particular methods and data sets were 

chosen and why these choices are reasonable. It should also reveal the pros and cons of each method selected. Finally, there should 

be enough detail so that the documentation serves as an audit trail of backup data, methods, and results, allowing for clear tracking of 

a program’s costs as it moves through its various life cycle phases. 

10. Did the documentation describe the cost estimating process, data sources, and methods step by step so that a cost analyst 

unfamiliar with the program could understand what was done and replicate it? 

Partially met; while the VA Syracuse office provided some documentation, the cost estimator only provided the cost 

estimate and without any supporting backup documentation. 

Design drawings were logged in with the dates they were prepared. Phoenix Engineering also discussed the format of the software

that was used to document where the labor rates came from and they provided 3 to 5 pages of explanation along with the document

log sheet. 

In the estimate documentation we found that Phoenix Engineering compared the last estimate to the current estimate and the reasons 

for any differences. Between design and construction drawings, there were some changes in the way the estimate was organized, but 

the cost difference was minimal. There were, however, changes in the alternate designs. 

The VA Syracuse team provided electronic files for the estimate summary and detailed estimate, which included the WBS based on a 

required VA element structure. In both the summary and detail estimate documentation, the WBS broke down the construction costs

into standardized systems such as foundations, substructure, superstructure, exterior closure and roofing as well as interior 

construction, conveying systems, mechanical & electrical systems, equipment, and site work. 

Step Eleven: Present Estimate to Management for Approval

A cost estimate is not considered valid until management has approved it. Since many cost estimates are developed to support a 

budget request or make a decision between competing alternatives, it is vital that management is briefed on how the estimate was 

developed, including risks associated with the underlying data and methods. Therefore, the cost estimator should prepare a briefing 

for management with enough detail to easily defend the estimate by showing how it is accurate, complete, and high in quality. The 

briefing should present the documented life cycle cost estimate with an explanation of the program’s technical and program baseline. 

11. Was there a briefing to management that included a clear explanation of the cost estimate so as to convey its level of 

competence? 

Met; VA Syracuse reviewed the cost estimate many times before it became final. 

The estimate was presented via written documentation and Excel spreadsheet. Phoenix engineering made changes based on 

comments received from QPK and VA (including comments from Alpha Engineering, who conducted a peer review of the estimate). 

The reviewers provided written comments to Phoenix via the ‘doctor checks’ system. This system provided a centralized place to 

record comments. Comments were sent electronically to Washington, D.C., so that others could review them. 
Appendix IV: Construction of Spinal Cord 

Injury/Disease Center in Syracuse, New York 

Page 52 GAO-10-189 VA Construction 

Step Twelve: Update the Estimate to Reflect Actual Costs and Changes

The cost estimate should be regularly updated to reflect all changes. Not only is this a sound business practice; it is also a 

requirement outlined in OMB’s Capital Programming Guide.5

 The purpose of updating the cost estimate is to check its accuracy, 

defend the estimate over time, shorten turnaround time, and archive cost and technical data for use in future estimates. After the 

internal agency and congressional budgets are prepared and submitted, it is imperative that cost estimators continue to monitor the 

program to determine whether the preliminary information and assumptions remain relevant and accurate. Keeping the estimate fresh 

gives decision makers accurate information for assessing alternative decisions. Cost estimates must also be updated whenever 

requirements change, and the results should be reconciled and recorded against the old estimate baseline. The documented 

comparison between the current estimate (updated with actual costs) and old estimate allows the cost estimator to determine the level 

of variance between the two estimates. In other words, it allows estimators to see how well they are estimating and how the program 

is changing over time. 

12. Is there a process for the estimating team to update the estimate with actual costs as it becomes available? 

Partially met; the program’s cost estimate is not updated with actual costs once the project is underway; however, that is 

not the contractor’s fault because once the contract is awarded the contractor is no longer apart of the process. 

Thus far, the estimate has been a living document. For example, the cost estimator has been working on the document since 2005,

making revisions and updates as warranted. However, once the contract is awarded, Phoenix Engineering’s services will no longer be 

employed; therefore, they cannot update the estimate with actual costs. 

Source: GAO analysis of VA information. 

VA initially estimated that the project would be completed by December 6, 

2009. VA awarded the contract to construct the SCI/D center on August 12, 

2009, and estimates that the SCI/D center will be completed in May 2012, 

or 29 months after the first estimated completion date. 

The schedule delays and cost increases occurred before construction 

began, and once construction commenced we found that the construction 

schedule for this project generally followed best practices. Specifically, 

the schedule met eight of nine scheduling best practices but did not 

include a schedule risk analysis. The schedule did not undergo a risk 

analysis to determine the major risks to the schedule and the likelihood of 

the project being completed on time. Our analysis of how the schedule met 

best practices is in table 7. 

 

5

OMB, Capital Programming Guide: Supplement to Circular A-11, Part 7, Preparation, 

Submission, and Execution of the Budget. 

Project Schedule 
Appendix IV: Construction of Spinal Cord 

Injury/Disease Center in Syracuse, New York 

Page 53 GAO-10-189 VA Construction 

Table 7: Extent That Parking Garage Schedule Met Best Practices 

Best practice Explanation Met? GAO analysis 

Capturing activities The schedule should reflect all 

activities as defined in the project’s 

work breakdown structure, which 

defines in detail the work 

necessary to accomplish a project’s 

objectives, including activities to be 

performed by both the owner and 

contractors. 

Met The parking garage schedule follows a specific work 

breakdown schedule that includes bonds, insurance, 

mobilization, demolition, earthwork, sidewalks, chainlink 

fence, pavement markings, concrete, cast-in-place, precast 

pre-stressed, architectural precast, masonry, structural 

steel, waterproofing, roofing, doors/frames/hardware, 

painting, interior signage, dry stand pipe, elevators, 

plumbing/mechanical, and electrical. This level of 

breakdown ensures that all of the work has been identified. 

Moreover, the schedule is fully resource-loaded and all the 

resources in the schedule add up to the cost estimate 

providing the scheduler with confidence that it includes all 

of the work. 

In developing the schedule, the scheduler used activity 

codes to develop the work and also used a description of 

each trade, so that it is possible to sort on an activity, by 

person responsible, and check the progress against what 

the contractor has been paid. The activity codes confirm 

with account numbers. In addition, the VA follows a 

disciplined process for incorporating changes to ensure 

that new activities are described and the cost for the 

change are identified so that changes can be incorporated 

quickly into the schedule. 

Sequencing activities The schedule should be planned so 

that critical project dates can be 

met. To meet this objective, 

activities need to be logically 

sequenced—that is, listed in the 

order in which they are to be 

carried out. In particular, activities 

that must be completed before 

other activities can begin 

(predecessor activities), as well as 

activities that cannot begin until 

other activities are completed 

(successor activities), should be 

identified. This helps ensure that 

interdependencies among activities 

that collectively lead to the 

accomplishment of events or 

milestones can be established and 

used as a basis for guiding work 

and measuring progress. 

Met The schedule includes the sequencing of activities. The 

program’s schedule includes both the predecessor and 

successor activities to ensure that the interdependencies 

among activities are used as a basis for guiding work and 

measuring progress. For example, VA provided us with a 

detailed network diagram of the schedule that depicts all of 

the work that the contractor needs to complete to finish the 

garage. 

The driving logic for Syracuse is the weather which dictates 

what work can start and when. In evaluating the schedule, 

while we found a few activities that were missing logic 

links, the scheduler was able to demonstrate why this was 

the case and the answers were reasonable. All of the 

activities in the schedule have a finish to start relationship 

that is a VA specification that is in line with best practices. 
Appendix IV: Construction of Spinal Cord 

Injury/Disease Center in Syracuse, New York 

Page 54 GAO-10-189 VA Construction 

Best practice Explanation Met? GAO analysis 

Assigning resources to 

activities 

The schedule should reflect what 

resources (e.g., labor, materials, 

and overhead) are needed to do 

the work, whether all required 

resources will be available when 

needed, and whether any funding 

or time constraints exist. 

Met The schedule allocates resources, such as labor costs and 

materials, to all activities. For example, the schedule 

includes specific activity codes that correspond to a 

description of each trade making it possible to sort by 

activity or person responsible. By having this capability, the 

contractor can easily check progress and determine if 

resources are in short supply or overallocated. Moreover, 

since the schedule is fully resource loaded it can also be 

used to track costs. 

Establishing the duration 

of activities 

The schedule should realistically 

reflect how long each activity will 

take to execute. In determining the 

duration of each activity, the same 

rationale, historical data, and 

assumptions used for cost 

estimating should be used. 

Durations should be as short as 

possible and have specific start 

and end dates. The schedule 

should be continually monitored to 

determine when forecasted 

completion dates differ from 

planned dates; this information can 

be used to determine whether 

schedule variances will affect 

subsequent work. 

Met 

The schedule establishes the durations of activities based 

on contractor expert opinion and historical data. The 

schedule activity durations were determined by identifying 

the various crews and methods necessary for getting 

specific work done. Using this information, the scheduler 

relied on historical data from RS Means to identify the 

number of days necessary for each task. Developing the 

duration estimates was a complex effort for the garage 

because weather was always an issue—-the garage is 

open to the elements and limited crew space creates 

inefficiencies that needed to be considered. Finally, most of 

the activities were of short duration (i.e., less than 21 days) 

in keeping with best practices. There was one long 

duration activity (i.e., 125 days), but it was not driving the 

critical path. This activity was in the schedule to remind the 

contractor to turn over the drawings to the VA when the 

garage was complete. 

Integrating activities 

horizontally and vertically 

The schedule should be 

horizontally integrated, meaning 

that it should link products and 

outcomes associated with other 

sequenced activities. These links 

are commonly referred to as 

“handoffs” and serve to verify that 

activities are arranged in the right 

order to achieve aggregated 

products or outcomes. The 

schedule should also be vertically 

integrated, meaning that the dates 

for starting and completing 

activities in the integrated master 

schedule should be aligned with 

the dates for supporting tasks and 

subtasks. Such mapping or 

alignment among levels enables 

different groups to work to the 

same master schedule. 

Met The schedule is horizontally integrated, meaning that the 

activities across the multiple teams are arranged in the 

right order to achieve aggregated products or outcomes. 

We tested horizontal integration by extending a non-critical 

activity 200 additional days to see if it showed up on the 

project’s critical path. The activity became critical and as a 

result the completion date for the project was pushed out to 

July 2010 providing us with confidence that the schedule 

was horizontally dynamic. The schedule was also vertically 

integrated in that traceability existed among varying levels 

of the activities allowing multiple trades to work to the same 

master schedule. 
Appendix IV: Construction of Spinal Cord 

Injury/Disease Center in Syracuse, New York 

Page 55 GAO-10-189 VA Construction 

Best practice Explanation Met? GAO analysis 

Establishing the critical 

path for activities 

Scheduling software should be 

used to identify the critical path, 

which represents the chain of 

dependent activities with the 

longest total duration. Establishing 

a project’s critical path is necessary 

to examine the effects of any 

activity slipping along this path. 

Potential problems along or near 

the critical path should also be 

identified and reflected in 

scheduling the duration of high-risk 

activities. 

Met The project’s critical path has been defined using 

scheduling software and includes, among other things, 

installing steel and pre-cast concrete planks, pouring 

cement, and installing a snow melt system. Program 

officials demonstrated the critical path using their 

scheduling tool. Specifically, they showed us which 

remaining activities fell on the critical path. For example, 

elevator extension work, refurbishment of cab controls, 

testing elevators, form tower columns, reinforcing steel 

columns, rebar and place concrete columns to roof, and 

install masonry shell and enclosure were all critical path 

activities. 

Identifying the float 

between activities 

The schedule should identify the 

float—the amount of time by which 

a predecessor activity can slip 

before the delay affects successor 

activities—so that a schedule’s 

flexibility can be determined. As a 

general rule, activities along the 

critical path have the least float. 

Total float is the total amount of 

time by which an activity can be 

delayed without delaying the 

project’s completion (if everything 

else goes according to plan). 

Met The contractor’s overall schedule process enabled good 

visibility into the float between activities and demonstrated 

that float is actively managed. While we found some 

instances of high float, the contractor had valid reasons for 

it. For example, we found one activity that had 154 days of 

float but the contractor explained to us that this activity was 

for a change order that was overcome by a supplemental 

agreement. According to the contractor, supplemental 

agreements cancel out change orders; however, they like 

to keep change orders in the schedule for tracking 

purposes. Similarly, there was also high float for activities 

associated with the guardrails and sidewalks, but these 

activities do not drive any critical work and just need to be 

done by the end of the project so the high float was 

justified. For the remaining tasks, we found that most had 

less than 40 days float and we found no instances of 

negative float. 
Appendix IV: Construction of Spinal Cord 

Injury/Disease Center in Syracuse, New York 

Page 56 GAO-10-189 VA Construction 

Best practice Explanation Met? GAO analysis 

Conducting a schedule 

risk analysis 

A schedule risk analysis should be 

performed using statistical 

techniques to predict the level of 

confidence in meeting a project’s 

completion date. This analysis 

focuses not only on critical path 

activities but also on activities near 

the critical path, since they can 

affect the project’s status. 

Not met The project did not perform a schedule risk analysis that 

would determine the level of confidence in meeting the 

program’s completion date, even though the project’s 

Exhibit 300 identified the probability of falling behind 

schedule as a medium risk. As a result, the project did not 

identify any schedule reserve which should be calculated 

by performing a schedule risk analysis, and set aside for 

those activities identified as high-risk. Without this reserve, 

if any delays were to occur on any activities on the critical 

path, the program faces the risk of further delays to the 

scheduled completion date. 

There have been schedule slips in the parking garage 

construction project. Most notably, the Request for 

Proposal assumed that the contract would be awarded on 

May 23, 2008, with a Notice to Proceed occurring about 2 

weeks later. Relying on these assumptions, the contractor 

estimated that construction would be complete by July 19, 

2009. However, these assumptions did not hold true. For 

example, while the contract was awarded in the middle of 

June 2008, the Notice to Proceed did not occur until the 

end of July 2008—a delay of almost 46 days. This slip had 

major ramifications on the schedule as the contractor had 

planned to pour concrete in the fall so that structural steel 

could be laid by the time winter set in. Instead, the 

contractor had to pour concrete during the winter, which 

was problematic as the extreme cold not only affected 

worker productivity but also the time it took for the concrete 

to cure. Thus, the almost 2-month slip caused an 

approximate 4-month delay due to productivity being 

hampered by the cold weather. Due to these problems and 

other change orders, the completion date has been 

extended to November 2009. The delay in completing the 

project also has been increasing costs to the medical 

center because they have to pay for remote parking and a 

shuttle bus for employees who are unable to park in the 

parking garage. 
Appendix IV: Construction of Spinal Cord 

Injury/Disease Center in Syracuse, New York 

Page 57 GAO-10-189 VA Construction 

Best practice Explanation Met? GAO analysis 

Updating the schedule 

using logic and durations 

to determine dates 

 Met The schedule is updated on a monthly basis using logic 

and durations to determine the dates. As a result, the 

schedule is a good tool to identify the critical path so that 

VA can use it for making management decisions. VA is 

briefed monthly on the schedule via contractor progress 

reports that discuss major variances, percent complete, 

duration changes, change orders and how they affect logic 

and durations, supplemental agreements, and time 

extensions that must be incorporated into the schedule 

network. The monthly report also identifies what activities 

are driving the critical path so that management can focus 

its attention on them. Using this approach, the VA ensures 

that the schedule is accurate and current to the 

contractor’s plan of construction. 

There are two construction reasons for the extended 

contract completion delay to November 2009. First, during 

construction the contractor found a buried cable conduit 

and it took some time to figure out what it was, who it 

belonged to, and where to move it. This effort took about 

42 days to complete. Second, while the construction crew 

was renovating the walls around the elevators on all floors 

of the garage, they found blue flexible pipe that was once 

used in construction but is no longer up to code. As a 

result, they had to replace and reroute the tubing in the 

garage, causing a slip of 17 days. 

Source: GAO analysis of VA information. 
Appendix V: Construction of New Medical 

Center Complex in Las Vegas, Nevada 

Page 58 GAO-10-189 VA Construction 

This project involves construction of a comprehensive Medical Center 

Complex in Las Vegas, Nevada. The complex will consist of up to 90 

inpatient beds, a 120-bed Nursing Home Care Unit, Ambulatory Care 

Center, primary and specialty care, surgery, mental health, rehabilitation, 

geriatrics and extended care, as well as administrative and support 

functions. VA also plans to include Veterans Benefits Administration 

offices attached to the medical center. The project is divided into four 

phases. Phase I includes the construction of a new utility building and 

related infrastructure such as streets, sewers, and connections to electric 

and water utilities that are miles away from the construction site. Phase II 

includes the construction of the foundation of the new medical center. 

Phase III includes the construction of the Nursing Home Care Unit and 

Phase IV includes the construction of the medical center and the Veterans 

Benefits Office. 

VA initiated the medical center project under the Capital Asset 

Realignment for Enhanced Services (CARES) process between 2003 and 

2004 because, according to VA officials, the increase in the number of Iraq 

war veterans needing medical care combined with the growth in the Las 

Vegas area supported building a large medical center.1

 Out-patient medical 

care for veterans in the area was provided at 15 leased primary care clinics 

located throughout the Las Vegas area. In-patient services were provided 

under a joint venture with the Air Force’s Mike O’Callaghan Federal 

Hospital located at Nellis Air Force Base. However, some VA patients had 

to be sent to other VA hospitals for care that could not be provided at the 

Mike O’Callaghan hospital such as spinal cord injuries. VA officials said 

they initially sought to expand its medical services and construct a nursing 

home at Nellis Air Force Base in 2004, but the Air Force would not agree 

to such an expansion and advised VA that the number of veterans’ inpatient beds would likely have to be reduced in the future. As a result, VA 

 

1

The Veterans Health Care, Capital Asset, and Business Improvement Act of 2003 

authorized the Secretary of VA to carry out major construction projects specified in the 

final CARES report, which was to be approved by the Secretary of VA. See Pub. L. No. 108-

170, § 221, 117 Stat. 2042, 2050 (2003). The Secretary’s report dated May 20, 2004, listed $60 

million for construction of a new medical facility, design and land purchase, which was 

authorized under § 221 of Pub. L. No. 108-170. Additionally, in 2006 the project’s 

authorization was modified to an amount not to exceed $406,000,000. See Pub. L. No. 109-

461 § 802. The project’s authorization was modified again in 2008 to an amount not to 

exceed $600,400,000. See The Veterans’ Mental Health and Other Care Improvements Act of 

2008, Pub. L. No. 110-387, § 702, 122 Stat. 4110, 4137 (2008). 

Appendix V: Construction of New Medical 

Center Complex in Las Vegas, Nevada 

Project Overview 

Reasons for the Project 
Appendix V: Construction of New Medical 

Center Complex in Las Vegas, Nevada 

Page 59 GAO-10-189 VA Construction 

decided to construct a new comprehensive medical complex, including a 

nursing home care unit. 

The cost of the medical center has increased from an initial estimate of 

$286 million in 2004 to a current estimate of $600.4 million (an increase of 

110 percent). In accordance with these increased cost estimates, Congress 

has appropriated $600.4 million for the medical center, providing $60 

million for fiscal year 2004,2

 an additional $199 million for fiscal year 2006,3

and $341.4 million for fiscal year 2008.4

 The original estimate to Congress 

was based on plans for a large VA clinic. However, VA later determined 

that a much larger medical center was needed in Las Vegas after it became 

clear that an inpatient medical facility it shares with DOD would not be 

adequate to serve the medical needs of local veterans. Since the estimate 

for the Las Vegas medical center was based on a preliminary design for an 

expanded clinic, additional functions had to be added to the clinic design 

to provide the services necessary for the medical center. This expansion of 

the scope of the project resulted in both a cost increase and schedule 

delay for the project. According to VA officials, a lack of planning and the 

omission of key facilities contributed to the cost increases. Specifically, 

VA officials stated that the original cost estimate did not correctly 

anticipate the amount of preparation that the site needed. For example, 

the original estimate did not include funding for the roads and street lights 

required for the facility. In addition, the medical center could not 

anticipate that the Department of Homeland Security would institute new 

requirements for federal facilities as part of its continuing response to the 

events of September 11, 2001, which resulted in further cost increases. VA 

officials also explained that the nationwide increase in construction, the 

rebuilding in the New Orleans area since hurricane Katrina, and the local 

building boom in Las Vegas have driven up the cost of material and labor. 

The Las Vegas area had several multi-billion dollar projects underway. 

Locally, construction costs increased over 20 percent in 2006 and 2007 

while the standard that VA uses for contingencies is 5 percent. To 

illustrate, VA staff told us that Las Vegas builders had tied up almost 80 

percent of the nation’s large cranes used to build tall buildings. 

 

2

Pub. L. No. 108-199, 118 Stat. 3, 367-368 (2004). 

3

Military Quality of Life and Veterans Affairs Appropriations Act for FY 2006, Pub. L. No. 

109-114, Title II, 119 Stat. 2372, 2386-2387 (2005). 

4

Pub. L. No. 110-161, 121 Stat. 1844, 2267 (2007). 

Project Cost 
Appendix V: Construction of New Medical 

Center Complex in Las Vegas, Nevada 

Page 60 GAO-10-189 VA Construction 

According to VA officials, in response to the increasing costs, the VA and 

the architectural/engineering firm preparing the medical center design 

reduced the scope of work for the final phase of the project. Gross square 

footage was reduced from about 900,000 square feet to 785,000 square feet 

and they eliminated extra space between floors for mechanical and 

electrical cables that would have made maintenance easier. They also 

reduced warehouse space and space for administrative offices because 

estimators were concerned that the project could not be completed with 

the funds available. The medical center warehouse, which is used to store 

maintenance and medical supplies, was reduced to one-third of its 

originally proposed size. As, a result, the hospital will need to acquire 

warehouse storage and procure warehouse management services from 

contractors outside of the VA facility. 

The economic recession that began in 2008 led several companies to 

suspend their construction projects in Las Vegas, and there was greater 

competition among construction firms to construct the hospital. This 

change in the construction market led to a significantly lower cost of 

construction than VA staff had anticipated, and VA now estimates that the 

total project will cost about $100 million less than estimated. As a result, 

VA officials explained they are taking steps to add these features back into 

the medical center prior to completion. For example, a utility tunnel 

running from the utility building to the medical center was added back to 

the project once the construction contract was awarded and VA saw they 

had funds available. Adding this tunnel will reduce operating and 

maintenance costs for the medical center. VA officials are also reviewing 

their options for adding back features that had been eliminated such as 

administrative offices. This would save operating costs by eliminating the 

need to lease office space. Our analysis of VA’s current cost estimate for 

the construction of the medical center is in table 8. 
Appendix V: Construction of New Medical 

Center Complex in Las Vegas, Nevada 

Page 61 GAO-10-189 VA Construction 

Table 8: Extent That Cost Estimate for Las Vegas Medical Center Met Best Practices 

Step One: Define the Estimate’s Purpose 

The purpose of a cost estimate is determined by its intended use, and its intended use determines its scope and detail. Cost 

estimates have two general purposes: (1) to help managers evaluate affordability and performance against plans, as well as the 

selection of alternative systems and solutions, and (2) to support the budget process by providing estimates of the funding required to 

efficiently execute a program. The scope of the cost estimate will be determined by such issues as the time involved, what elements 

of work need to be estimated, who will develop the cost estimates, and how much cost estimating detail will be included. 

A life-cycle cost estimate provides an exhaustive and structured accounting of all resources and associated cost elements required to 

develop, produce, deploy, and sustain a particular program. As such a life-cycle cost estimate encompasses all past (or sunk), 

present, and future costs for every aspect of a program, regardless of funding source. Life-cycle costing enhances decision making, 

especially in early planning and concept formulation of acquisition. Design trade-off studies conducted in this period can be evaluated 

on a total cost basis as well as on a performance and technical basis. A life-cycle cost estimate can support budgetary decisions, key 

decision points, milestone reviews, and investment decisions. Because they encompass all possible costs, life-cycle cost estimates 

provide a wealth of information about how much programs are expected to cost over time. Thus, having full life-cycle costs is 

important for successfully planning program resources and making wise decisions. 

1. Is the purpose and scope of the cost estimate defined and documented? Have all costs been estimated, including life-cycle costs? 

Met; the purpose of the cost estimate is documented and clearly defined at a level that would enable VA Las Vegas to submit 

a quality cost estimate. 

The cost estimate is an estimate of probable cost, developed by an independent consultant to the architect for the purposes of 

comparing incoming bid proposals. The estimate covers the construction of Phase IV at an estimated construction cost of $365 

million. The estimate was not required to include complete lifecycle costs estimate; it includes the construction of Phase IV up to the 

hand-over of the keys to the building. Life cycle costs are included in the OMB Exhibit 300. 

The scope of the estimate is defined by VA policy. The Manual for Preparation of Cost Estimates for VA Facilities states that: 

1.1.1 - A project estimate shall show the current cost of construction on the date of the estimate. The estimate should reflect current 

costs on the date the estimate is received and anticipated local escalation to the midpoint of construction, i.e., date of estimate plus 

half of construction duration. 

1.1.2 - The level of detail for this estimate shall be consistent with the degree of completeness of the drawings being submitted. 

Simply stated, this means that if a construction element is shown, it must be priced; if it is shown in detail, it must be priced in detail. 

For detailed elements, “lump sum” or “allowance” figures will not be acceptable. Project estimates will include all elements within the 

contractor’s bid such as insurance, bonds, hazardous abatement, and any other such items. Submission requirements are indicated in 

VA Cost Estimating Guide. 

Step Two: Develop the Estimating Plan

An analytic approach to cost estimates typically entails a written study plan detailing a master schedule of specific tasks, responsible 

parties, and due dates. Enough time should be scheduled to collect data, including visits to contractor sites to further understand the 

strengths and limitations of the data that have been collected. If there is not enough time, then the schedule constraint should be 

clearly identified in the ground rules and assumptions, so that management understands the effect on the estimate’s quality and

confidence. 

2. Did the team develop a written study plan? 
Appendix V: Construction of New Medical 

Center Complex in Las Vegas, Nevada 

Page 62 GAO-10-189 VA Construction 

Met; the estimating team is from a centralized cost estimating firm that specializes in construction and the estimate follows 

cost estimate preparation guidance published by the VA. 

Officials stated that the estimate includes the full cost of construction regardless of funding source. The VA Office of Construction and 

Facilities Management (CFM) publishes guidance on preparing cost estimates that details how construction cost estimates should be 

created, structured, and presented. The manual also explains roles and responsibilities, units of measure, and guidance on master 

specifications. 

The cost estimate documentation includes introductory notes that explain the overall cost estimating approach. Officials stated that the 

process for developing estimates begins with the contract documents, then the pricing of materials and overhead, collection of 

historical data, gathering of current market pricing, and conducting market studies. 

As consultants to the architect, the independent cost estimating firm has a staff of 25 cost estimators dedicated to developing

construction cost estimates. The 25 estimators have extensive backgrounds ranging from new hires to individuals with 40+ years of 

experience in the cost estimating discipline. 

The basic approach of the estimate is defined by VA policy. The Manual for Preparation of Cost Estimates for VA Facilities states that:

1.1.1 - A project estimate shall show the current cost of construction on the date of the estimate. The estimate should reflect current 

costs on the date the estimate is received and anticipated local escalation to the midpoint of construction, i.e., date of estimate plus 1⁄2 

of construction duration. 

1.1.2 - The level of detail for this estimate shall be consistent with the degree of completeness of the drawings being submitted. 

Simply stated, this means that if a construction element is shown, it must be priced; if it is shown in detail, it must be priced in detail. 

For detailed elements, “lump sum” or “allowance” figures will not be acceptable. Project estimates will include all elements within the 

contractor’s bid such as insurance, bonds, hazardous abatement and any other such items. Submission requirements are indicated in 

VA Cost Estimating Guide. 

Step Three: Define the Program Characteristics

Key to developing a credible estimate is having an adequate understanding of the acquisition program—the acquisition strategy, 

technical definition, characteristics, system design features, and technologies to be included in its design. The cost estimator can use 

this information to identify the technical and program parameters that will bind the cost estimate. The amount of information gathered 

directly affects the overall quality and flexibility of the estimate. Less information means more assumptions must be made, increasing 

the risk associated with the estimate. Therefore, the importance of this step must be emphasized, because the final accuracy of the 

cost estimate depends on how well the program is defined. 

3. Is there a documented technical baseline description? 

Met; a technical baseline has been documented that includes requirements, purpose, and system design features. 

The Technical Baseline is based on the construction drawings and specifications used by the architect to design the hospital. These 

construction documents were approved by the architect, and officials stated that the VA provided written approval to the architect 

regarding the technical baseline. 

Other technical baseline documents to be referenced in the development of a VA cost estimate are defined by VA policy. These 

documents, listed and defined in The Manual for Preparation of Cost Estimates for VA Facilities, include Practice Design Manuals, 

Master Specifications, Architect/Engineer Checklists, Design and Quality Alerts, Design Guides, Design and Construction Procedures, 

Physical Security Design Manuals, and Technical Summaries. The Cost Estimate Manual also includes the cost breakdown 

categories to be used in the estimate. 
Appendix V: Construction of New Medical 

Center Complex in Las Vegas, Nevada 

Page 63 GAO-10-189 VA Construction 

Step Four: Determine the Estimating Structure

A work breakdown structure (WBS) is the cornerstone of every program because it defines in detail the work necessary to accomplish 

a program’s objectives. A WBS is a valuable communication tool between systems engineering, program management, and other 

functional organizations because it provides a clear picture of what needs to be accomplished and how the work will be done. 

Accordingly, it is an essential element for identifying activities in a program’s integrated master schedule and it provides a consistent 

framework for planning and assigning responsibility for the work. Initially set up when the program is established, the WBS becomes 

successively detailed over time as more information because known about the program. 

A WBS deconstructs a program’s end product into successive levels with smaller specific elements until the work is subdivided to a 

level suitable for management control. By breaking the work down into smaller elements, management can more easily plan and 

schedule the program’s activities and assign responsibility for the work. It also facilitates establishing a schedule, cost, and earned 

value management (EVM) baseline. Establishing a product-oriented WBS is a best practice because it allows a program to track cost 

and schedule by defined deliverables, such as a hardware or software component. This allows a program manager to more precisely

identify which components are causing cost or schedule overruns and to more effectively mitigate the root cause of the overruns. 

4. Is there a defined WBS and/or cost element structure? 

Met; the estimate clearly describes how the various sub-elements are summed to produce the amounts for each cost 

category, thereby ensuring that all pertinent costs are included and no costs are double counted. 

The cost estimate categorizes construction costs into a required VA element structure that breaks the building down into systems and 

subsystems. The WBS is based on the standardized WBS on VA form HO-18B/C. The WBS breaks the construction costs into 

standardized systems such as foundation, substructure, superstructure, and roofing, as well as subsystems such as slab on grade, 

stair construction, and elevators. These system descriptions are also used in the schedule. The HO-18 WBS elements are defined in 

the Manual for Preparation of Cost Estimates for VA Facilities. 

Step Five: Identify Ground Rules and Assumptions

Cost estimates are typically based on limited information and therefore need to be bound by the constraints that make estimating 

possible. These constraints usually take the form of assumptions that bind the estimate’s scope, establishing baseline conditions the 

estimate will be built from. Ground rules represent a common set of agreed on estimating standards that provide guidance and 

minimize conflicts in definitions. Without firm ground rules, the analyst is responsible for making assumptions that allow the estimate to 

proceed. Assumptions represent a set of judgments about past, present, and future conditions postulated as true in the absence of 

positive proof. The analyst must ensure that assumptions are not arbitrary, that they are founded on expert judgments rendered by 

experienced program and technical personnel. Many assumptions profoundly influence cost; the subsequent rejection of even a single 

assumption by management could invalidate many aspects of the estimate. Therefore, it is imperative that cost estimators brief 

management and document all assumptions well, so that management fully understands the conditions the estimate was structured 

on. Failing to do so can lead to overly optimistic assumptions that heavily influence the overall cost estimate, to cost overruns, and to 

inaccurate estimates and budgets. 

5. Are there defined ground rules and assumptions that document the rationale and any historical data to back up any claims? 

Met; cost-influencing ground rules and assumptions, such as the programs schedule, labor rates, and inflation rates are 

documented. 

The cost estimate documentation provides an overview of basic assumptions underlying the estimate. For example, the 

documentation notes which construction drawings were the basis of the estimate as well as the number of assumed bids. The cost 

estimate also notes the areas in which contingency was removed and the reasons for its removal. Officials stated that the cost 

estimate is based on prevailing labor wage rates as well as local pricing of material. In addition, the cost estimate outlines the specific 

items that are not included in the estimate. 

The Manual for Preparation of Cost Estimates for VA Facilities specifically notes what costs should be included for each system and 

subsystem category. 
Appendix V: Construction of New Medical 

Center Complex in Las Vegas, Nevada 

Page 64 GAO-10-189 VA Construction 

Step Six: Obtain the Data

Data are the foundation of every cost estimate. How good the data are affects the estimate’s overall credibility. Depending on the data 

quality, an estimate can range anywhere from a mere guess to a highly defensible cost position. Credible cost estimates are rooted in 

historical data. Rather than starting from scratch, estimators usually develop estimates for new programs by relying on data from 

programs that already exist and adjusting for any differences. Thus, collecting valid and useful historical data is a key step in 

developing a sound cost estimate. The challenge in doing this is obtaining the most applicable historical data to ensure that the new 

estimate is as accurate as possible. One way of ensuring that the data are applicable is to perform checks of reasonableness to see if 

the results are similar. Different data sets converging toward one value provides a high degree of confidence in the data. 

6. Was the data gathered from historical actual cost, schedule, and program and technical sources? 

Met; cost estimators used local pricing of labor and material as well as local escalation rates. Historical data were used 

when applicable, but the Las Vegas area has not had major hospital construction in recent years. 

Officials stated the cost estimate is based on local pricing of labor and material. They stated that although the cost estimating firm has 

data collected over 20 years, the hospital estimate is not entirely based on historical data. Officials told us this is because there have 

been no large-scale hospitals built in Las Vegas in recent years; and the last major VA hospital was constructed over 20 years ago. 

Due to project uniqueness, pricing was based primarily on quotes and estimates. The estimate used local escalation rates instead of 

OMB rates because of the high real estate costs in the Las Vegas area at the time of the estimate construction. Officials stated that 

the estimates include pricing for labor and detailed materials, such as linear feet of wire, light fixtures, cubit years of concrete, and 

pounds of steel and rebar. In addition, officials stated that material estimates went through peer reviews. 

Step Seven: Develop the Point Estimate and Compare it to an independent cost estimate

Step 7 pulls all the information together to develop the point estimate—the best guess at the cost estimate, given the underlying data. 

High-quality cost estimates usually fall within a range of possible costs, the point estimate being between the best and worst case 

extremes. The cost estimator must perform several activities to develop a point estimate: develop the cost model by estimating each 

WBS element, using the best methodology, from the data collected; include all estimating assumptions in the cost model; express

costs in constant-year dollars; time-phase the results by spreading costs in the years they are expected to occur, based on the

program schedule; and add the WBS elements to develop the overall point estimate. 

Having developed the overall point estimate, the cost estimator must then validate it by thoroughly understanding and investigating 

how the cost model was constructed. For example, all WBS cost estimates should be checked to verify that calculations are accurate 

(no double counting) and account for all costs, including indirect costs. Moreover, proper escalation factors should be used to inflate 

costs so that they are expressed consistently and accurately. Finally, the cost estimator should compare the cost estimate against the 

independent cost estimate and examine where and why there are differences; perform cross-checks on cost drivers to see if results 

are similar; and update the model as more data become available or as changes occur and compare the results against previous 

estimates. 

7. Did the cost estimator consider various cost estimating methods like analogy, engineering build up, parametric, extrapolating from 

actual costs, and expert opinion (if none of the other methods can be used)? 

Met; the cost estimate is based on a detailed engineering buildup methodology using estimated labor and material prices, 

and crosschecked against independent cost assessments. The estimate was vetted through experts to ensure costs were 

appropriately captured. 

The cost estimate is based on a detailed engineering buildup methodology using estimated labor and material prices. Officials stated 

that parametric methodologies were used to conduct crosschecks during early design, when details were not that well defined. At the 

request of the VA, two additional cost estimates were performed and compared against the original estimate. These independent 

third-party estimates were performed using price databases and parametric techniques. The crosscheck estimates were provided to

the VA in February and April of 2008, several weeks before the final detailed estimate was delivered in May 2008. 

The detailed estimate is vetted through layers of experts, including the architect, outside peer reviews by third-party consultants, and 

VA resident engineers. In addition, officials stated that the required breakout by the VA ensures transparency and documents that all 

costs are properly captured. 
Appendix V: Construction of New Medical 

Center Complex in Las Vegas, Nevada 

Page 65 GAO-10-189 VA Construction 

Step Eight: Conduct a Sensitivity Analysis

Sensitivity analysis should be included in all cost estimates because it examines the effects of changing assumptions and ground 

rules. Since uncertainty cannot be avoided, it is necessary to identify the cost elements that represent the most risk and, if possible, 

cost estimators should quantify the risk using both a sensitivity and uncertainty (see step 9) analysis. In order for sensitivity analysis to 

reveal how the cost estimate is affected by a change in a single assumption, the cost estimator must examine the effect of changing 

one assumption or cost driver at a time while holding all other variables constant. By doing so, it is easier to understand which variable 

most affects the cost estimate. 

8. Did the cost estimate included a sensitivity analysis that identified using a range of possible costs the effects of changing key cost 

driver assumptions or factors? 

Not met; a sensitivity analysis was not performed. 

While officials noted that market surveys were conducted for the cost estimate and contingency was included, a formal sensitivity 

analysis was not performed because it was not requested by the VA. The cost estimating firm performs market surveys at each stage 

of design, evaluating local capital and the availability of trade skills in the local market. However, officials stated that the final product 

to VA is a point estimate because they are not they are not afforded the luxury of providing ranges of costs. 

Step Nine: Conduct a Risk and Uncertainty Analysis

Because cost estimates predict future program costs, uncertainty is always associated with them. Moreover, a cost estimate is usually 

composed of many lower-level WBS elements, each of which comes with its own source of error. Once these elements are added 

together, the resulting cost estimate can contain a great deal of uncertainty. Risk and uncertainty refer to the fact that because a cost 

estimate is a forecast, there is always a chance that the actual cost will differ from the estimate. A lack of knowledge about the future 

is only one possible reason for the difference. Another equally important reason is the error resulting from historical data 

inconsistencies, assumptions, cost estimating equations, and factors typically used to develop an estimate. In addition, biases are 

often found in estimating program costs and developing program schedules. The biases may be cognitive—often based on estimators’ 

inexperience—or motivational, where management intentionally reduces the estimate or shortens the schedule to make the project 

look good to stakeholders. Recognizing the potential for error and deciding how best to quantify it is the purpose of risk and 

uncertainty analysis. 

Since cost estimates are uncertain, making good predictions about how much funding a program needs to be successful is difficult. In 

a program’s early phases, knowledge about how well technology will perform, whether the estimates are unbiased, and how external 

events may affect the program is imperfect. For management to make good decisions, the program estimate must reflect the degree

of uncertainty, so that a level of confidence can be given about the estimate. Quantitative risk and uncertainty analysis provide a way 

to assess the variability in the point estimate. Using this type of analysis, a cost estimator can model such effects as schedules 

slipping, missions changing, and proposed solutions not meeting user needs, allowing for a known range of potential costs. Having a 

range of costs around a point estimate is more useful to decision makers, because it conveys the level of confidence in achieving the 

most likely cost and also informs them on cost, schedule, and technical risks. 

9. Was a risk and uncertainty analysis conducted that quantified the imperfectly understood risks and identified the effects of changing 

key cost driver assumptions and factors? 

Partially met; while cost estimators did not perform a formal uncertainty analysis, risk assessments were developed on the 

availability of trades. 

Officials stated that while VA does not require a formal uncertainty analysis, cost estimators did perform an internal risk analysis 

evaluating at-risk trades. From that risk analysis, estimators stated they had a low level of confidence in the availability of mechanical, 

plumbing and electrical trades. Officials stated that part of the risk was based on how competitive the market was in Las Vegas at the 

time they prepared the estimate. Officials told us that the VA does not require an uncertainty analysis and the analysis is, generally 

speaking, not a construction industry best practice. 
Appendix V: Construction of New Medical 

Center Complex in Las Vegas, Nevada 

Page 66 GAO-10-189 VA Construction 

Step Ten: Document the Estimate

Documentation provides total recall of the estimate’s detail so that it can be replicated by someone other than those who prepared it. It 

also serves as a reference to support future estimates. Documenting the cost estimate makes available a written justification showing 

how it was developed and aiding in updating it as key assumptions change and more information becomes available. Estimates 

should be documented to show all parameters, assumptions, descriptions, methods, and calculations used to develop a cost estimate. 

A best practice is to use both a narrative and cost tables to describe the basis for the estimate, with a focus on the methods and 

calculations used to derive the estimate. With this standard approach, the documentation provides a clear understanding of how the 

cost estimate was constructed. Moreover, cost estimate documentation should explain why particular methods and data sets were 

chosen and why these choices are reasonable. It should also reveal the pros and cons of each method selected. Finally, there should 

be enough detail so that the documentation serves as an audit trail of backup data, methods, and results, allowing for clear tracking of 

a program’s costs as it moves through its various life-cycle phases. 

10. Did the documentation describe the cost estimating process, data sources, and methods step by step so that a cost analyst 

unfamiliar with the program could understand what was done and replicate it? 

Partially met; while the documentation for the most part provided detailed material and labor build up, we were not able to 

trace the data back based on the documentation alone. 

While officials stated that the estimate was in part based off data from previous estimates and market surveys, the cost estimate 

documentation delivered to VA does not trace estimated values to raw or normalized data. For instance, the delivered cost estimate 

documentation does not provide a basis or supporting data for included labor dollars or general conditions markup that would allow an 

analyst unfamiliar with the project to recreate them. 

Step Eleven: Present Estimate to Management for Approval

A cost estimate is not considered valid until management has approved it. Since many cost estimates are developed to support a 

budget request or make a decision between competing alternatives, it is vital that management is briefed on how the estimate was 

developed, including risks associated with the underlying data and methods. Therefore, the cost estimator should prepare a briefing 

for management with enough detail to easily defend the estimate by showing how it is accurate, complete, and high in quality. The 

briefing should present the documented life cycle cost estimate with an explanation of the program’s technical and program baseline. 

11. Was there a briefing to management that included a clear explanation of the cost estimate so as to convey its level of 

competence? 

Met; the estimate is vetted through layers of experts, including the architect, outside peer reviews by third-party consultants, 

and VA resident engineers. 

Officials stated that the cost estimate was first reviewed by the architect responsible for the detailed design of the hospital. After this 

initial review, the estimate is then presented to the VA. The cost estimate is part of the milestone submittal outlined in the contractual 

requirements between the architectural firm and the VA. Officials stated that the cost estimate review is a month-long process.

The detailed estimate is vetted through layers of experts, including the architect, outside peer reviews by third-party consultants, and 

VA resident engineers. These reviews helped refine the estimate and its underlying assumptions. For example, officials stated that 

one third-party reviewer took issue with the assumed price of steel in the estimate. VA officials stated that they use information from 

the peer reviews prior to giving the estimate their approval. 

At the request of the VA, two additional cost estimates were performed and compared against the original estimate. These 

independent third-party estimates were performed at a unit-level using pricing databases. The crosscheck estimates were provided to 

the VA in February and April of 2008, several weeks before the final detailed estimate was delivered in May 2008. 
Appendix V: Construction of New Medical 

Center Complex in Las Vegas, Nevada 

Page 67 GAO-10-189 VA Construction 

Step Twelve: Update the Estimate to Reflect Actual Costs and Changes

The cost estimate should be regularly updated to reflect all changes. Not only is this a sound business practice, it is also a 

requirement outlined in OMB’s Capital Programming Guide.5

 The purpose of updating the cost estimate is to check its accuracy, 

defend the estimate over time, shorten turnaround time, and archive cost and technical data for use in future estimates. After the 

internal agency and congressional budgets are prepared and submitted, it is imperative that cost estimators continue to monitor the 

program to determine whether the preliminary information and assumptions remain relevant and accurate. Keeping the estimate fresh 

gives decision makers accurate information for assessing alternative decisions. Cost estimates must also be updated whenever 

requirements change, and the results should be reconciled and recorded against the old estimate baseline. The documented 

comparison between the current estimate (updated with actual costs) and old estimate allows the cost estimator to determine the level 

of variance between the two estimates. In other words, it allows estimators to see how well they are estimating and how the program 

is changing over time. 

12. Is there a process for the estimating team to update the estimate with actual costs as it becomes available? 

Not met; the VA does not require the cost estimating firm to update the construction cost estimate with actual costs once 

the project is underway. 

The estimate is not updated once construction begins. Officials from the cost estimating firm stated that they attempt to collect past 

bid results when possible; however, the tracking and reporting of actual costs by the estimator is not part of the contractual 

requirements between the VA and the A/E firm. VA officials stated that because this is a fixed price contract, the contractor is 

responsible for managing the costs. However, regardless of what type of contract or what organization is managing costs, the purpose 

of updating the cost estimate is to check its accuracy, defend the estimate over time, shorten turnaround time of future estimates, and 

archive cost and technical data for use in future estimates. 

Source: GAO analysis of VA information. 

The first two phases of the project have been completed and, according to 

VA officials, Phase III will be completed in February 2010. However, the 

nursing home completed in Phase III of the project will not be open for 

patient care until the medical center becomes operational in 2012, as the 

nursing home relies upon the hospital for patient medical care and food 

service. Since the nursing home will be vacant for about 2 years before the 

medical center opens, VA may use part of the nursing home for 

administrative offices. 

The final phase of the project, the construction of the new medical center, 

is underway with completion scheduled for August 2011. According to VA 

officials, the medical center is scheduled to become operational in the 

spring of 2012, depending upon how quickly the equipment for the hospital 

can be purchased and the additional personnel can be hired. Our analysis 

of the construction schedule of the medical center is in table 9. 

 

5

OMB, Capital Programming Guide: Supplement to Circular A-11, Part 7, Preparation, 

Submission, and Execution of the Budget. 

Project Schedule 
Appendix V: Construction of New Medical 

Center Complex in Las Vegas, Nevada 

Page 68 GAO-10-189 VA Construction 

Table 9: Extent That Construction Schedule for Las Vegas Hospital Met Best Practices 

Best practice Explanation Met? GAO analysis 

Capturing activities The schedule should reflect all activities 

as defined in the project’s work 

breakdown structure, which defines in 

detail the work necessary to accomplish 

a project’s objectives, including activities 

to be performed by both the owner and 

contractors. 

Substantially met The schedule is required by contract to 

include approximately 2,500 to 3,000 

activities in order to sufficiently detail the 

level of work required (the actual 

schedule has 6,089 activities, 

approximately 16 detail activities per 

milestone). Each activity is mapped to an 

activity ID number, building area, and 

work trade, which allows the scheduler to 

quickly filter the schedule by type of work 

or subcontractor. The schedule is 

reviewed by the VA CFM for 

completeness to ensure all necessary 

activities and milestones are included. 

Construction drawings and specifications 

are used to create the schedule, which 

officials stated helps to ensure the entire 

scope is included. However, we found 

several key activities were missing from 

the approved baseline schedule, including 

redesign for ductwork; submit, approve, 

fabrication, and delivery of electrical 

equipment; contractor approval time for 

changes above $100,000; government 

furnished equipment delivery milestones; 

systemwide testing; and effort related to 

telecommunications. 
Appendix V: Construction of New Medical 

Center Complex in Las Vegas, Nevada 

Page 69 GAO-10-189 VA Construction 

Best practice Explanation Met? GAO analysis 

Sequencing activities The schedule should be planned so that 

critical project dates can be met. To 

meet this objective, activities need to be 

logically sequenced—that is, listed in 

the order in which they are to be carried 

out. In particular, activities that must be 

completed before other activities can 

begin (predecessor activities), as well 

as activities that cannot begin until other 

activities are completed (successor 

activities), should be identified. This 

helps ensure that interdependencies 

among activities that collectively lead to 

the accomplishment of events or 

milestones can be established and used 

as a basis for guiding work and 

measuring progress. 

Substantially met All detail activities and milestones in the 

baseline schedule are properly 

sequenced. Each activity—except the 

start and finish milestones—has at least 

one predecessor or successor. Out of 

5,701 detail activities, we found less than 

1 percent that were not properly driving 

the start date of a predecessor activity 

start date. There are no lags in the 

schedule, as required by contract 

specifications. There is one hard Finish 

No Later Than constraint on the finish 

milestone, which the VA CFM 

recommended be removed. Program 

management officials stated that the 

constraint is used solely to calculate 

negative float. The VA requires a diagram 

of the schedule network, similar to a 

PERT diagram, which clearly displays the 

relationships between tasks. However, 

because the schedule is missing several 

key activities, it is uncertain whether or 

not all activities are scheduled in the 

correct order. 

Assigning resources to 

activities 

The schedule should reflect what 

resources (e.g., labor, materials, and 

overhead) are needed to do the work, 

whether all required resources will be 

available when needed, and whether 

any funding or time constraints exist. 

Substantially met The VA requires schedules to be cost 

loaded with prorated overhead and profit, 

and the total price loaded into the 

schedule must equal the total contract 

price. Officials stated that the term 

“resources” is defined as manpower by 

the VA schedule specifications. 

Accordingly, each detail activity has an 

associated manpower requirement. 

However, because the baseline schedule 

is missing key contractor activities such 

as ductwork redesign, systemwide 

testing, and telecommunications effort, it 

is uncertain how or whether resources are 

properly allocated. 

Establishing the duration of 

activities 

The schedule should realistically reflect 

how long each activity will take to 

execute. In determining the duration of 

each activity, the same rationale, 

historical data, and assumptions used 

for cost estimating should be used. 

Durations should be as short as 

possible and have specific start and end 

dates. The schedule should be 

continually monitored to determine 

when forecasted completion dates differ 

from planned dates; this information can 

be used to determine whether schedule 

variances will affect subsequent work. 

Met As required by VA schedule contract 

specifications, activity durations are 20 

days or less, except for procurement 

activities. Our analysis shows the median 

task duration is 5 days. Approximately 8 

percent of the remaining activities are 1 

day in duration. All activities are based on 

a standard 5-day workweek with holidays.
Appendix V: Construction of New Medical 

Center Complex in Las Vegas, Nevada 

Page 70 GAO-10-189 VA Construction 

Best practice Explanation Met? GAO analysis 

Integrating activities 

horizontally and vertically 

The schedule should be horizontally 

integrated, meaning that it should link 

products and outcomes associated with 

other sequenced activities. These links 

are commonly referred to as “handoffs” 

and serve to verify that activities are 

arranged in the right order to achieve 

aggregated products or outcomes. The 

schedule should also be vertically 

integrated, meaning that the dates for 

starting and completing activities in the 

integrated master schedule should be 

aligned with the dates for supporting 

tasks and subtasks. Such mapping or 

alignment among levels enables 

different groups to work to the same 

master schedule. 

Met The schedule is vertically integrated, with 

all activities subsumed under organized 

higher levels. Each activity is mapped to 

an area and trade, clearly indicating which 

subcontractor is responsible for what work 

in each area at any time. Our analysis 

shows the schedule to be, in general, 

horizontally integrated due to the high 

number of straightforward finish-start links 

and continuous critical path. 

Establishing the critical path 

for activities 

Scheduling software should be used to 

identify the critical path, which 

represents the chain of dependent 

activities with the longest total duration. 

Establishing a project’s critical path is 

necessary to examine the effects of any 

activity slipping along this path. 

Potential problems along or near the 

critical path should also be identified 

and reflected in scheduling the duration 

of high-risk activities. 

Substantially met Officials stated the critical path is 

calculated by the scheduling software and 

will become a crucial tool for managing 

the construction project once the project 

is fully underway. Our analysis shows the 

existing critical path to be structurally 

sound, running the length of the schedule 

and encompassing several major 

milestones. However, because the 

schedule is missing key activities, we 

cannot be certain the activities are 

sequenced logically. It is uncertain 

whether or not missing activities would 

appear on the critical path once inserted 

into the network. 

Identifying the float between 

activities 

The schedule should identify the float—

the amount of time by which a 

predecessor activity can slip before the 

delay affects successor activities—so 

that a schedule’s flexibility can be 

determined. As a general rule, activities 

along the critical path have the least 

float. Total float is the total amount of 

time by which an activity can be delayed 

without delaying the project’s 

completion (if everything else goes 

according to plan). 

Met Total float represents the amount of time 

an activity can slip before it affects the 

project finish date. It is therefore a crucial 

tool for resource allocation and risk 

mitigation. There appear to be excessive 

values of total float in the schedule. But 

officials stated that the project schedule 

will have excessive float in some areas. 

For instance, mobilization tasks in the 

beginning of the project will have high 

float. Furthermore, officials stated that this 

construction project is unique because the 

hospital’s foundation and control plant 

were constructed in prior phases. 

Therefore, upfront Phase IV tasks related 

to work performed in earlier phases may 

appear to have excessive float. 
Appendix V: Construction of New Medical 

Center Complex in Las Vegas, Nevada 

Page 71 GAO-10-189 VA Construction 

Best practice Explanation Met? GAO analysis 

Conducting a schedule risk 

analysis 

A schedule risk analysis should be 

performed using statistical techniques to 

predict the level of confidence in 

meeting a project’s completion date. 

This analysis focuses not only on critical 

path activities but also on activities near 

the critical path, since they can affect 

the project’s status. 

Not met The program has not performed a 

schedule risk analysis (SRA) and officials 

stated that SRAs are not typically done in 

the construction industry. However, best 

practices suggest that even at the 

construction bid phase, an SRA can be 

used to determine a level of confidence in 

meeting the completion date or whether 

proper reserves have been incorporated 

into the schedule. An SRA will calculate 

schedule reserve, which can be set aside 

for those activities identified as high risk. 

Without this reserve, the program faces 

the risk of delays to the scheduled 

completion date if any delays were to 

occur on critical path activities. 

Updating the schedule using 

logic and durations to 

determine dates 

Partially met At the time of the analysis the baseline 

schedule had not been fully statused. 

Notice to Proceed (NTP) was given to the 

general contractor on October 22, 2008, 

and work began in October. The contract 

requires the general contractor to submit 

a network schedule to the VA within 60 

days of the NTP; yet, the schedule was 

not received until April 21, 2009—181 

days after the NTP. Moreover, the 

schedule was received 50 days after the 

project executive notified the contractor 

on March 2, 2009, that the schedule was 

over 60 days late. The VA CFM 

recommended the first submitted 

schedule be rejected by the local resident 

engineer’s office. A second schedule was 

submitted on June 15, 2009, and the VA 

CFM recommended the schedule for 

approval on June 29, 2009. General 

contractor officials stated that they have 

been tracking progress on an internal 

schedule since October 2008. The VA is 

requiring the general contractor to retroactively status the approved schedule for 

the previous months. By September 2009, 

contractor officials had retroactively 

statused the schedule up to August 2009. 

Source: GAO analysis of VA information. 

The sole best practice that the schedule did not meet is conducting a 

schedule risk analysis (SRA), which is not required by the VA schedule 

specifications. VA officials told us that they do not conduct SRAs and that 

a risk analysis is typically not performed in the construction industry. In 

August and September 2009, we performed our own schedule risk analysis 

Schedule Risk Analysis 
Appendix V: Construction of New Medical 

Center Complex in Las Vegas, Nevada 

Page 72 GAO-10-189 VA Construction 

on the construction schedule. Specifically, we analyzed the C07P

schedule, which was the latest statused version available to us at the time 

of the analysis. 

A schedule risk analysis uses statistical techniques to predict a level of 

confidence in meeting a program’s completion date. This analysis focuses 

on critical path activities and on near-critical and other activities, since any 

activity may potentially affect the program’s completion date. The objective 

of the simulation is to develop a probability distribution of possible 

completion dates that reflect the program and its quantified risks. From the 

cumulative probability distribution, the organization can match a date to its 

degree of risk tolerance. For instance, an organization might want to adopt a 

program completion date that provides a 70 percent probability that it will 

finish on or before that date, leaving a 30 percent probability that it will 

overrun, given the schedule and the risks. The organization can thus adopt a 

plan consistent with its desired level of confidence in the overall integrated 

schedule. This analysis can give valuable insight into what-if drills and 

quantify the impact of program changes. 

In developing a schedule risk analysis, probability distributions for each 

activity’s duration have to be established. Further, risk in all activities 

must be evaluated and included in the analysis. Some people focus only on 

the critical path, but because we cannot know the durations of the 

activities with certainty, we cannot know the true critical path. 

Consequently, it would be a mistake to focus only on the deterministic 

critical path when some off-critical path activity might become critical if a 

risk were to occur. Typically, three-point estimates—that is, best, most 

likely, and worst case estimates—are used to develop the probability 

distributions for the duration of workflow activities. 

Once the distributions have been established, a Monte Carlo simulation 

uses random numbers to select specific durations from each activity 

probability distribution and calculates a new critical path and dates, 

including major milestone and program completion. The Monte Carlo 

simulation continues this random selection thousands of times, creating a 

new program duration estimate and critical path each time. The resulting 

frequency distribution displays the range of program completion dates 

along with the probabilities that these dates will occur. Table 10 provides a 

range of dates and the probability of the project completing on those dates 

or earlier, based on our 3,000-iteration Monte Carlo simulation. For 

example, according to our SRA, there is a 5 percent chance that the 

project will finish on or before December 1, 2011. Likewise, there is an 80 

percent chance that the project will finish on or before May 17, 2012. 
Appendix V: Construction of New Medical 

Center Complex in Las Vegas, Nevada 

Page 73 GAO-10-189 VA Construction 

Because completion on any date is uncertain, it is more realistic to show a 

range of possible completion dates than to focus on a single date. In 

deciding which percentile to use for prudent scheduling, there is no 

international best practice standard. The chosen percentile depends on the 

riskiness and maturity of the project. For some projects we emphasize the 

80th percentile as a conservative promise date. While the 80th percentile 

may appear overly conservative, it is a useful promise date if a number of 

new but presently unknown risks (i.e., “unknown unknowns”) are 

anticipated. The 50th percentile date may expose the project to overruns. 

Table 10: Probability of Project Completion 

 As scheduleda

5th

percentile 

50th

percentile 

80th

percentile 

95th

percentile 

Finish date Oct. 20, 2011 Dec. 1, 2011 Mar. 1, 2012 May 17, 2012 Aug. 23, 2012 

Months beyond scheduled finish date - 1.4 4.4 6.9 10.1 

Source: GAO analysis of VA data. 

a

The actual “as scheduled” finish date in the schedule is August 29, 2011. However, this finish date 

does not include the 21 working days of negative float that were in the schedule at the time of our 

analysis. Moreover, an additional 22 working days (1 month) were added to allow time for overall 

system commissioning. VA officials told us that the system commissioning would take at least 1 

month to complete beyond the scheduled finish date. 

In the case of the medical center construction schedule, our analysis 

concludes that VA should realistically expect turnover from the general 

contractor between March 1, 2012, and May 17, 2012, the 50th and 80th 

percentiles, respectively. The must finish date of August 29, 2011, is very 

unlikely.6

 Our analysis shows the probability of completing medical center 

turnover by October 20, 2011, is less than 1 percent with the current 

schedule without risk mitigation. 

The project executive identified 22 different risks as a preliminary exercise 

to our SRA. Using these risks as a basis for discussion, we interviewed 14 

experts familiar with the project, including VA resident engineers, general 

contractor officials, and A/E consultants. Each interviewee was asked four 

general questions: 

 

6

At the time of our analysis, the projected finish of August 29, 2011, did not include 21 days 

of negative float or a month of required system commissioning. Moreover, VA officials told 

us in September, after the SRA was completed, that delays in steel procurement had 

already pushed the scheduled completion date to October 2011. 

Identified risks 
Appendix V: Construction of New Medical 

Center Complex in Las Vegas, Nevada 

Page 74 GAO-10-189 VA Construction 

1. To provide an estimate of the probability an identified risk will 

occur on the project in such a way that some activity durations are 

affected. The estimated probability is translated into the percentage of 

the iterations that are chosen at random during the simulation. For 

example, if the expert believed weather has a 10 percent chance of 

affecting some activities, then, on average, weather risk will occur in 

10 percent of the Monte Carlo iterations. 

2. If the interviewee believed the risk could occur, the interviewee was 

asked to identify which activities’ durations would be affected. For 

example, activities related to steel erection or concrete pouring may be 

affected if the weather risk occurs. 

3. Upon identifying affected activities, interviewees were then asked to 

provide a 3-point estimate for the impact on duration. These are low, 

most likely, and high impact estimates. Estimates were provided as 

percentages, which were applied to the activity durations in the Monte 

Carlo simulation if the risk occurred. For example, if the weather risk 

occurs, a 10-day steel erection activity may be affected a minimum of 

110 percent, a most likely of 150 percent, or a maximum of 200 percent 

(i.e., the 3-point estimates for steel erection if weather risk occurs are 

11 days minimum, 15 days most likely, and 20 days maximum). If the 

risk does not occur, there is no change to the original estimated 

duration. 

4. Finally, interviewees were asked to identify any risks they believe 

we did not account for. 

We began the interviews with 22 risks and through the interview process 

identified 11 more risks. During data analysis, some risks were 

consolidated with others or eliminated due to a low amount of data. In all, 

20 risks were identified and incorporated into the Monte Carlo simulation. 

These include 18 risk drivers, 1 schedule duration risk,7

 and 1 overall 

system commissioning activity that was not included in the baseline 

schedule. The final risk drivers used in the SRA are: 

• Occupancy needs may change. 

• Design may be inadequate. 

• Steel design may be inadequate. 

 

7

The schedule duration risk is applied to each activity duration to represent the inherent 

inaccuracy of scheduling. 
Appendix V: Construction of New Medical 

Center Complex in Las Vegas, Nevada 

Page 75 GAO-10-189 VA Construction 

• Medical technology may change. 

• Work may be misfabricated. 

• Equipment may not meet design requirements. 

• Subcontractors may fail. 

• Suppliers may not deliver equipment on time. 

• Resident Engineer (RE) staffing may be inadequate. 

• Contractor field office staffing may be inadequate. 

• Architect/Engineer (A/E) staffing may be inadequate. 

• Labor may not be available. 

• Contractor coordination problems may exist. 

• Communication between RE, contractor, and A/E may be ineffective. 

• May experience problems testing systems. 

• Construction disciplines may not be coordinated. 

• Vendor drawings may not be submitted on time. 

• Change orders under $100,000 may affect schedule. 

Most risks received multiple responses during the interviews. During data 

analysis, we combined and analyzed data from the interviews to create 

ranges and probabilities for each of the 18 risk drivers. 

Because risks are multiplicative, several risks occurring on the same 

activity may overestimate the true risk. That is, in the Monte Carlo 

simulation, risks occur in a series, one after another, so that an activity 

that has several risks may be unrealistically extended if all risks occur. For 

example, drawing approval activities may possibly be affected by RE, 

contractor field office, or A/E staffing being inadequate, as well as the 

schedule duration risk. If all risks occurred, drawing approval activities 

will most likely be overestimated. In reality, an activity may successfully 

recover from two or more risks simultaneously, so that the actual risk is 

not multiplicative. Therefore, to avoid overestimation of risk, the impact 

ranges of risks that occur together are reduced. That is, the 3-point 

duration estimates for risks that occur together frequently were reduced; 

in this particular analysis, we decreased the estimated duration impact 

ranges by a factor of 0.3. This adjustment helps temper any over-estimated 

risk caused by a multiplication of risk factors. 

Of the 6,098 activities in the schedule, 3,193 had risk drivers assigned to 

them. Some activities had one or two risks assigned, but some had as 

many as seven assigned. 

Risks can impact the schedule in several ways: they can have a high 

probability of occurring, have a large percentage impact on the durations 

Prioritizing risks and risk 

mitigation 
Appendix V: Construction of New Medical 

Center Complex in Las Vegas, Nevada 

Page 76 GAO-10-189 VA Construction 

of the activities they affect, and/or they can apply to risk-critical paths, 

which may differ from the baseline deterministic critical path. Beyond 

applying 20 risks to the schedule, we are interested in identifying the 

marginal impact of each risk. That is, we are interested in identifying 

which risks have the largest impact on the schedule, because these are the 

risks that should be targeted first for mitigation. 

To find the marginal impact of a risk on the total project risk at a certain 

percentile, the Monte Carlo simulation is performed with the risk 

removed. The difference between the finish dates of the simulation with all 

the risks and the simulation with the missing risk yields the marginal 

impact of the risk. Table 11 gives the priority of risks at the 80th percentile 

and the marginal impact of each risk. 

Table 11: Risks at the 80th Percentile 

Risk 

Marginal impact in 

calendar days

Design may be inadequate 59

Occupancy needs may change 48

Change orders under $100,000 may affect schedule 21

Schedule duration estimates may be inaccurate 18

Construction disciplines may not be coordinated 16

System commissioning may take longer than a month 15

Work may be misfabricated 8

Labor may not be available 5

Suppliers may not deliver equipment on time 6

Steel design may be inadequate 9

Remaining risks 5

Total 210

Source: GAO analysis of VA information. 

The marginal impact directly translates to potential calendar days saved if 

the risk is mitigated. Once risks are prioritized at the percentile desired by 

management, a risk mitigation workshop can be implemented to deal with 

the high-priority risks in order. The prioritized list of risks will form the 

basis of the workshop, and risk mitigation plans can be analyzed using the 

risk model to determine how much time might be saved. Project managers 

cannot expect to completely mitigate any one risk nor is it reasonable to 

expect to mitigate all risks. In addition, risk mitigation will add to the 

project budget. However, some opportunities may be available to partially 

mitigate risks. 
Appendix V: Construction of New Medical 

Center Complex in Las Vegas, Nevada 

Page 77 GAO-10-189 VA Construction 

During our interviews with the local VA office in North Las Vegas, we 

identified several missing activities: 

• Redesign for ductwork. 

• Submittal, approval, fabrication, and delivery of all Division 16 (electrical 

equipment). 

• Effort related to building the tunnel from the central plant to the hospital 

basement. 

• VA-furnished equipment delivery to the general contractor. 

• Systemwide testing. 

• Effort related to telecommunications. 

Missing activities will lead to an underestimation of schedule risk because 

these activities may become critical either in the baseline schedule or the 

SRA. In particular, the missing fabrication and delivery of electrical 

equipment assumes that the equipment will be at the construction site 

when needed. Since the schedule does not contain activities for the 

delivery of this equipment, risks leading to delays in delivery of electrical 

equipment are not reflected in the SRA results. 

Additionally, during our analysis, we identified 58 remaining activities with 

finish dates that did not drive successor activities. That is, the activities 

are open ended. This is a potential problem because the open-ended 

activity can have an extended duration and not drive any successor in the 

SRA simulation. However, officials stated that they were aware of these 

open ends and they did not believe them to be an issue. 

Schedule issues 
Appendix VI: Cost Increases and Schedule 

Delays 

Page 78 GAO-10-189 VA Construction 

We found some projects that experienced both cost increases and 

schedule delays, while other projects experienced only a cost increase and 

still others experienced only a schedule delay. All projects, and whether 

they experienced a cost increase, a schedule delay, or both, are in table 12. 

Table 12: Projects That Experienced a Cost Increase and/or a Schedule Delay 

Location Description Cost increase Schedule delay 

American Lake, WA Seismic corrections X 

Anchorage, AK Outpatient clinic X 

Atlanta, GA Modernize patient wards X 

Bay Pines, FL Outpatient clinic X 

Biloxi, MS Hospital restoration/consolidation X 

Gulfport, MS Environmental cleanup 

Syracuse, NY Spinal cord injury/disease center X X 

Fayetteville, AR Clinical addition X 

Cleveland, OH Brecksville consolidation X 

Denver, CO New medical facility X 

Gainesville, FL Renovate patient rooms X 

Indianapolis, IN Ward modernization 

Columbia, MO Operating suite replacement X 

Las Vegas, NV New medical facility X X 

Long Beach, CA Seismic corrections X 

Martinsburg, WV Capital region data center X 

New Orleans, LA New medical facility X 

Des Moines, IA Extended care building X 

Palo Alto, CA Seismic corrections building 2 X X 

Palo Alto, CA Centers for ambulatory care and polytrauma rehabilitation 

Pittsburgh, PA Medical center consolidation X 

St. Louis, MO Medical facility improvement and cemetery expansion X 

San Antonio, TX Ward upgrades and expansion 

San Antonio, TX Polytrauma center and renovation of building 1 

San Juan, PR Seismic corrections X X 

San Juan, PR Seismic corrections X 

Tampa, FL Upgrade electrical system 

Tampa, FL Polytrauma expansion X X 

Orlando, FL New medical facility X 

Temple, TX IT building 

Walla Walla, WA Multi specialty care 

Appendix VI: Cost Increases and Schedule 

Delays 
Appendix VI: Cost Increases and Schedule 

Delays 

Page 79 GAO-10-189 VA Construction 

Location Description Cost increase Schedule delay 

Milwaukee, WI SCI Center X 

Total 32 18 11 

Source: GAO analysis of VA data. 
Appendix VII: GAO Contact and Staff 

Acknowledgments 

Page 80 GAO-10-189 VA Construction 

Terrell Dorn (202) 512-6923 or dornt@gao.gov

In addition to the contact person named above, Tisha Derricotte, Colin 

Fallon, Hazel S. Gumbs, Ed Laughlin, Jason T. Lee, Susan Michal-Smith, 

Karen Richey, John W. Shumann, and Frank Taliaferro also made key 

contributions to this report. 

Appendix VII: GAO Contact and Staff 

Acknowledgments 

GAO Contact 

Staff 

Acknowledgments 

(545081) 
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