VA Construction: VA's Actions to Address Cost Increases and Schedule Delays at Major Medical-Facility Projects
Published: 2015-01-21T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The VA operates one of the nation's largest health care delivery systems. In April 2013, GAO reported that VA was managing the construction of 50 major medical-facility projects at a cost of more than $12 billion. This statement discusses VA construction management issues, specifically, (1) the extent to which the cost, schedule, and scope for four selected major medical-facility projects has changed and the reasons for these changes, (2) actions GAO reported that VA had taken since 2012 to improve its construction management practices, and (3) VA's response to GAO's recommendations for further improvements in its management of these construction projects.
This statement is based on GAO's April 2013 report ( GAO-13-302 ) and May 2013 ( GAO-13-556T ) and April 2014 ( GAO-14-548T ) testimonies. GAO included selected updates on VA projects--”located in Denver, Colorado; Las Vegas, Nevada; New Orleans, Louisiana; and Orlando, Florida--and documentation obtained from VA in April 2014 and January 2015.
section_title: What GAO Found
paragraphs: In April 2013, GAO found that costs substantially increased and schedules were delayed for Department of Veterans Affairs' (VA) largest medical-facility construction projects, located in Denver, Colorado; Las Vegas, Nevada; New Orleans, Louisiana; and Orlando, Florida. As of January 2015, in comparison with initial estimates, the cost increases for these projects ranged from 66 percent to 144 percent and delays ranged from 14 to 86 months. Since the 2013 report, some of the projects have experienced further cost increases and delays. For example, the cost for the New Orleans project increased by nearly $40 million, and delays at the Orlando project has extended from 39 months to 57 months. Several factors, including changes to veterans' health care needs, site-acquisition issues, and a decision in Denver to change plans from a medical center shared with a local medical university to a stand-alone VA medical center, contributed to increased costs and schedule delays.
In its April 2013 report, GAO found that VA had taken some actions since 2012 to address problems managing major construction projects. Specifically, VA established a Construction Review Council in April 2012 to oversee the department's development and execution of its real property programs. VA also took steps to implement a new project delivery method, called Integrated Design and Construction, which involves the construction contractor early in the design process to identify any potential problems early and speed the construction process. However, in Denver, VA did not implement this method early enough to garner the full benefits of having a contractor early in the design phase.
VA stated it has taken actions to implement the recommendations in GAO's April 2013 report. In that report, GAO identified systemic reasons that contributed to overall schedule delays and cost increases at one or more of four reviewed projects and recommended ways VA could improve its management of the construction of major medical facilities. In response, VA has
issued guidance on assigning medical equipment planners to major medical facility projects who will be responsible for matching the equipment needed for the facility in order to avoid late design changes leading to cost increases and delays;
developed and disseminated procedures for communicating to contractors clearly defined roles and responsibilities of the VA officials who manage major medical-facility projects to avoid confusion that can affect the relationship between VA and the contractor; and
issued a handbook for construction contract modification (change-order) processing which includes milestones for completing processing of modifications based on their dollar value and took other actions to streamline the change order process to avoid project delays.
VA has implemented GAO's recommendations; however, the impact of these actions may take time to show improvements, especially for ongoing construction projects, depending on several issues, including the relationship between VA and the contractor.
section_title: What GAO Recommends
paragraphs: In its April 2013 report, GAO recommended that VA (1) develop and implement agency guidance for assignment of medical equipment planners; (2) develop and disseminate procedures for communicating to contractors clearly defined roles and responsibilities of VA officials; (3) issue and take steps to implement guidance on streamlining the change-order process. VA implemented GAO's recommendations.

section_title: Letter
paragraphs: I am pleased to be here today to discuss information from our April 2013  report regarding the construction of new major Department of Veterans  Affairs’ (VA) medical facilities. That report examined VA’s actions to  address cost increases and schedule delays at four of its largest and  most expensive major medical-facility construction projects—located in  Denver, Colorado; Orlando, Florida; New Orleans, Louisiana; and Las  Vegas, Nevada. At the time of our review, VA had 50 major medical- facility projects under way, including new construction and renovation of  existing medical facilities, at a cost of more than $12 billion.
My statement today discusses VA construction management issues,  specifically (1) the extent to which the cost, schedule, and scope for the  four selected medical-facility projects changed since this information was  first submitted to VA’s authorizing committees  and the reasons for these  changes, (2) actions VA has taken to improve its construction  management practices, and (3) VA’s response to recommendations we  made in our report for it to further improve its management of the costs,  schedule, and scope of these construction projects. This testimony is  based on our April 2013 report and May 2013, and April 2014 testimonies  on this topic, as well as selected updates. These selected updates  include information on the status of VA’s major medical center projects in  Las Vegas, Orlando, New Orleans and Denver.
To conduct these updates, we obtained documentation and other  information from VA officials on the current status of its major medical- facility projects and actions it took to address our recommendations in  April 2014 and again in January 2015. Detailed information on the scope  and methodology used for our April 2013 report and April 2013 and May  2014 testimonies can be found in those products. We conducted the work  for this statement in accordance with generally accepted government  auditing standards. Those standards require that we plan and perform the  audit to obtain sufficient, appropriate evidence to provide a reasonable  basis for our findings and conclusions based on our audit objectives. We  believe that the evidence obtained provides a reasonable basis for our  findings and conclusions based on our audit objectives.
subsections: section_title: Cost Increases and Schedule Delays at the Four Largest Projects Occurred for a Variety of Reasons
subsections: section_title: Cost Increases and Schedule Delays
paragraphs: In our April 2013 report, we found that costs increased and schedules  were delayed for all four of VA’s largest medical-facility construction  projects, when comparing November 2012 construction project data with  the cost and schedule estimates first submitted to Congress. Since our  2013 report, these projects have experienced further increases and  delays. When we compared the most recent construction project data,of December 2014, with the cost and schedule estimates first submitted   as  to Congress, cost increases ranged from 66 percent to 144 percent,representing a total cost increase of over $1.5 billion and an average  increase of approximately $376 million per project. For example, the cost  for the New Orleans project increased by nearly $40 million. Schedule  delays have also increased since our April 2013 report. Specifically, in  April 2013 we reported that the schedule delays ranged from 14 to 74  months with an average delay of 35 months per project. The delays now  range from 14 to 86 months. For instance, the delays in Orlando have  extended from 39 months to 57 months. Table 1 presents updated  information on cost increases and schedule delays for these four projects  compared with original estimates.
We found in April 2013 that of the four largest medical-facility construction  projects VA had underway, Denver had the highest cost increase. We  reported that the estimated cost increased from $328 million in June 2004  to $800 million, as of November 2012. Further, VA’s initial estimated  completion date was February 2014; subsequently VA estimated the  project would be completed in May 2015. However, in April 2014, VA’s  primary contractor on the project had expressed concerns that the project  would ultimately cost more to complete. In a January 2015 update, VA  stated that the final project cost and schedule will be determined pursuant  to execution of interim cost plus fixed fee contract and issuance of a long  term contract by the U.S. Army Corps of Engineers.
In commenting on a draft of our April 2013 report, VA stated that using  the initial completion date from the construction contract would be more  accurate than using the initial completion date provided to Congress;  however, using the initial completion date from the construction contract  would not account for how VA managed these projects before it awarded  the construction contract. Cost estimates at this earlier stage should be  as accurate and credible as possible because Congress uses these initial  estimates to consider authorizations and make appropriations decisions.  We used a similar methodology to estimate changes to cost and schedule  of construction projects in a previous report issued in 2009 on VA  construction projects. We believe that the methodology we used in our  April 2013 and December 2009 report on VA construction provides an  accurate depiction of how cost and schedules for construction projects  can change from the time they are first submitted to Congress. It is at this  time that expectations are set among stakeholders, including the  veterans’ community, for when projects will be completed and at what  cost. In our April 2013 report, we made recommendations to VA,  discussed later in this statement, to help address these cost and schedule  delays.
section_title: Reasons for Cost Increases and Schedule Delays and Related Scope Changes
paragraphs: In our April 2013 report, we found that different factors contributed to cost  increases and schedule delays at each of the four locations we reviewed:
Changing health care needs of the local veteran population  changed the scope of the Las Vegas project. VA officials told us  that the Las Vegas Medical Center was initially planned as an  expanded clinic co-located with Nellis Air Force Base. However,  VA later determined that a much larger medical center was  needed in Las Vegas after it became clear that an inpatient  medical center shared with the Air Force would be inadequate to  serve the medical needs of local veterans.
Decisions to change plans from a shared university/VA medical  center to a stand-alone VA medical center affected plans in  Denver and New Orleans. For Denver and New Orleans, VA  revised its original plans for shared facilities with local universities  to stand-alone facilities after proposals for a shared facility could  not be finalized. For example, in Denver, plans went through  numerous changes after the prospectus was first submitted to  Congress in 2004. In 1999, VA officials and the University of  Colorado Hospital began discussing the possibility of a shared  facility on the former Fitzsimons Army base in Aurora, Colorado.  Negotiations continued until late 2004, at which time VA decided  against a shared facility with the University of Colorado Hospital  because of concerns over the governance of a shared facility. In  2005, VA selected an architectural and engineering firm for a  stand-alone project, but VA officials told us that the firm’s efforts  were suspended in 2006 until VA acquired another site at the  former Army base adjacent to the new university medical center.  Design restarted in 2007 before suspending again in January  2009, when VA reduced the project’s scope because of lack of  funding. By this time, the project’s costs had increased by  approximately $470 million, and the project’s completion was  delayed by 14 months. The cost increases and delays occurred  because the costs to construct operating rooms and other  specialized sections of the facility were now borne solely by VA,  and the change to a stand-alone facility also required extensive  redesign.
Changes to the site location by VA delayed efforts in Orlando. In  Orlando, VA’s site location changed three times from 2004 to  2010. It first changed because VA, in renovating the existing VA  hospital in Orlando, realized the facility site was too small to  include needed services. However, before VA could finalize the  purchase of a new larger site, the land owner sold half of the land  to another buyer, and the remaining site was again too small.
Unanticipated events in Las Vegas, New Orleans, and Denver  also led to delays. For example, VA officials at the Denver project  site discovered they needed to eradicate asbestos and replace  faulty electrical systems from pre-existing buildings. They also  discovered and removed a buried swimming pool and found a  mineral-laden underground spring that forced them to continually  treat and pump the water from the site, which impacted plans to  build an underground parking structure.
section_title: VA Took Steps to Improve Its Construction Management Practices, But Did Not Implement Changes Early Enough to Impact Denver Project
paragraphs: In our April 2013 report, we found that VA had taken steps to improve its  management of major medical-facility construction projects, including  creating a construction-management review council. In April 2012, the  Secretary of Veterans Affairs established the Construction Review  Council to serve as the single point of oversight and performance  accountability for the planning, budgeting, executing, and delivering of  VA’s real property capital-asset program. The council issued an internal  report in November 2012 that contained findings and recommendations  that resulted from meetings it held from April to July 2012. The report  stated that the challenges identified on a project-by-project basis were not  isolated incidents but were indicative of systemic problems facing VA.
In our 2013 report we also found that VA had taken steps to implement a  new project delivery method—called the Integrated Design and  Construction (IDC) method. In response to the construction industry’s  concerns that VA and other federal agencies did not involve the  construction contractor early in the design process, VA and the Army  Corps of Engineers began working to establish a project delivery model  that would allow for earlier contractor involvement in a construction  project, as is often done in the private sector.
We found in 2013 that VA did not implement IDC early enough in Denver  to garner the full benefits. VA officials explained that Denver was initiated  as a design-bid-build project and later switched to IDC after the project  had already begun. According to VA officials, the IDC method was very  popular with industry, and VA wanted to see if this approach would  effectively deliver a timely medical facility project. Thus, while the intent of  the IDC method is to involve both the project contractor and architectural  and engineering firm early in the process to ensure a well coordinated  effort in designing and planning a project, VA did not hire the contractor  for Denver until after the initial designs were completed. According to VA,  because the contractor was not involved in the design of the projects and  formulated its bids based on a design which had not been finalized, these  projects required changes that increased costs and led to schedule  delays. VA staff responsible for managing the project said it would have  been better to maintain the design-bid-build model throughout the entire  process rather than changing mid-project because VA did not receive the  value of having contractor input at the design phase, as the IDC method  is supposed to provide. For example, according to Denver VA officials,  the architectural design called for curved walls rather than less expensive  straight walls along the hospital’s main corridor. The officials said that had  the contractor been involved in the design process, the contractor could  have helped VA weigh the aesthetic advantages of curved walls against  the lower cost of straight walls.
section_title: VA Reports Taking Actions to Implement GAO Recommendations
paragraphs: In our April 2013 report we identified systemic reasons that contributed to  overall schedule delays and cost increases, and recommended that VA  take actions to improve its construction management of major medical  facilities: including (1) developing guidance on the use of medical  equipment planners; (2) sharing information on the roles and  responsibilities of VA construction project management staff; and (3)  streamlining the change order process. Our recommendations were  aimed at addressing issues we identified at one or more of the four sites  we visited during our review. VA has implemented our recommendations;  however, the impact of these actions may take time to show  improvements, especially for ongoing construction projects, depending on  several issues, including the relationship between VA and the contractor.  Since completing our April 2013 report, we have not reviewed the extent  to which these actions have affected the four projects, or the extent to  which these actions may have helped to avoid the cost overruns and  delays that occurred on that specific project.
subsections: section_title: Using Medical Equipment Planners
paragraphs: On August 30, 2013, VA issued a policy memorandum providing  guidance on the assignment of medical equipment planners to major  medical construction projects. The memorandum states that all VA major  construction projects involving the procurement of medical equipment to  be installed in the construction will retain the services of a Medical  Equipment Specialist to be procured through the project’s architectural  engineering firm.
Prior to issuance of this memorandum, VA officials had emphasized that  they needed the flexibility to change their heath care processes in  response to new technologies, equipment, and advances in medicine.
Given the complexity and sometimes rapidly evolving nature of medical  technology, many health care organizations employ medical equipment  planners to help match the medical equipment needed in the facility to the  construction of the facility. Federal and private sector stakeholders  reported that medical equipment planners have helped avoid schedule  delays. VA officials told us that they sometimes hire a medical equipment  planner as part of the architectural and engineering firm services to  address medical equipment planning. However, in our April 2013 report  we found that for costly and complex facilities, VA did not have guidance  for how to involve medical equipment planners during each construction  stage of a major hospital and has sometimes relied on local Veterans  Health Administration (VHA) staff with limited experience in procuring  medical equipment to make medical equipment planning decisions. Thus,  we recommended that the Secretary of VA develop and implement  agency guidance to assign medical equipment planners to major medical  construction projects. As mentioned earlier, in August 2013, VA issued  such guidance.
section_title: Sharing Information on the Roles and Responsibilities of VA’s Construction- Management Staff
paragraphs: In September 2013, in response to our recommendation, VA put  procedures in place to communicate to contractors the roles and  responsibilities of VA officials that manage major medical facility  construction projects, including the change order process. Among these  procedures is a Project Management Plan that requires the creation of a  communications plan and matrix to assure clear and consistent  communications with all parties.
Construction of large medical facilities involves numerous staff from  multiple VA organizations. Officials from the Office of Construction and  Facilities Management (CFM) stated that during the construction process,  effective communication is essential and must be continuous and involve  an open exchange of information among VA staff and other key  stakeholders. However, in our April 2013 report, we found that the roles  and responsibilities of CFM and VHA staff were not always well  communicated and that it was not always clear to general contracting  firms which VA officials hold the authority for making construction  decisions. This can cause confusion for contractors and architectural and  engineering firms, ultimately affecting the relationship between VA and  the general contractor. Participants from VA’s 2011 industry forum also  reported that VA roles and responsibilities for contracting officials were  not always clear and made several recommendations to VA to address  this issue. Therefore, in our 2013 report, we recommended that VA  develop and disseminate procedures for communicating—to  contractors—clearly defined roles and responsibilities of the VA officials  who manage major medical-facility projects, particularly those in the  change-order process. As discussed earlier in this statement, VA  disseminated such procedures in September 2013.
section_title: Streamlining the Change- Order Process
paragraphs: On August 29, 2013, VA issued a handbook for construction contract  modification (change-order) processing which includes milestones for  completing processing of modifications based on their dollar value. In  addition, as of September 2013, VA had also hired four additional  attorneys and assigned on-site contracting officers to the New Orleans,  Denver, Orlando, Manhattan and Palo Alto major construction projects to  expedite the processing and review of construction contract modifications.  By taking steps to streamline the change order process, VA can better  ensure that change orders are approved in a prompt manner to avoid  project delays.
Most construction projects require, to varying degrees, changes to the  facility design as the project progresses, and organizations typically have  a process to initiate and implement these changes through change  orders. Federal regulations and agency guidance state that change  orders must be made promptly, and agency guidance states in addition  that there be sufficient time allotted for the government and contractor to  agree on an equitable contract adjustment. VA officials at the sites we  visited as part of our April 2013 review, including Denver, stated that  change orders that take more than a month from when they are initiated  to when they are approved can result in schedule delays, and officials at  two federal agencies that also construct large medical projects told us  that it should not take more than a few weeks to a month to issue most  change orders. Processing delays may be caused by the difficulty  involved in VA and contractors’ coming to agreement on the costs of  changes and the multiple levels of review required for many of VA’s  change orders. As discussed earlier, VA has taken steps to streamline  the change order process to ensure that change orders are approved in a  prompt manner to avoid project delays.
Chairman Miller and Ranking Member Brown, and Members of the  Committee, this completes my prepared statement. I would be pleased to  respond to any questions that you may have at this time.
section_title: Contacts and Acknowledgements
paragraphs: If you have any questions about this testimony, please contact David Wise  at (202) 512-2834 or WiseD@gao.gov. Other key contributors to this  testimony include are Ed Laughlin (Assistant Director), Nelsie Alcoser,  George Depaoli, Raymond Griffith, Hannah Laufe, Amy Rosewarne,  Nancy Santucci, and Crystal Wesco.
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