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VA Construction: Improved Processes Needed to Monitor Contract Modifications, Develop Schedules, and Estimate Costs

GAO-17-70 Published: Mar 07, 2017. Publicly Released: Mar 07, 2017.
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Highlights

What GAO Found

The Department of Veterans Affairs (VA) has taken steps to address challenges in managing projects to build medical facilities. In response to statutory requirements and additional congressional direction, VA is outsourcing management of certain such projects to the U.S. Army Corps of Engineers (USACE). As of October 2016, VA had 23 ongoing projects costing $100 million or more. VA and USACE have entered into interagency agreements for 12 of these 23 projects. The agreements entail USACE's managing the projects while VA retains responsibility for their overall completion, including activation (making the facility ready for full operation after construction, such as adding medical equipment). VA has also revised policies and procedures for managing projects not outsourced to USACE, such as streamlining the change order process, or approving changes to a facility's design.

VA still has opportunities to improve tracking change orders for major projects and estimating cost and schedules for the $1.675-billion Denver construction project—the only USACE-managed project under construction thus far:

Specifically, while VA has issued guidelines to streamline the change order process and plans to collect data on time frames, it lacks a mechanism to systematically collect or monitor data on time frames to process change orders. Although VA's contract management software collects information on dates change orders were initiated and approved, VA does not use the software to determine if changes are approved within the required time. Further, it does not currently track reasons for change orders, such as whether VA medical staff requested them. VA plans to replace this software with a system that records this information. Although procurement of this system has been delayed, VA intends to implement a system to monitor time frames by March 2017. However, it is not yet clear how VA plans to use new information it collects to oversee change orders because VA lacks a mechanism to oversee and monitor changes to a facility's design as a project progresses. Without such a mechanism, VA cannot determine how processing timeframes and design changes affect costs and schedules and thus is at risk for unexpected cost increases and schedule delays.

In assessing VA's medical facility project in Denver, GAO found opportunities to improve cost estimates and schedules . VA's activation cost increased from $272 million in 2012 to $341 million currently. However, the current estimate is not reliable; VA officials could not provide information on how they developed it and GAO could not determine if it meets criteria in the GAO Cost Estimating and Assessment Guide. Further, GAO's analysis showed that the construction and activation schedules are not integrated, so that the construction schedule's milestones do not align with the activation schedule. Leading practices and VA policies both call for integrating such schedules to help ensure projects' successful and timely completion. However, VA's policies to integrate such schedules are inconsistent and unclear. The combined problems with the activation cost estimate and schedule integration put Denver's VA medical facility at risk of further cost increases and delays. Without reliable information on activation costs and schedules for the Denver project, VA has no assurance that the schedules are realistic and that current funding will suffice to complete construction and activation.

Why GAO Did This Study

VA has 26 ongoing medical-facility construction projects intended, for example, to provide improved care to veterans returning from Afghanistan and Iraq. GAO has previously reported on VA's weaknesses in managing major projects. Congress continues to have questions about VA's project management practices and mandated that VA outsource to other federal entities the design and construction of certain ongoing projects and future projects costing $100 million or more.

In response to a 2016 defense authorization, this report assesses 1) VA's actions since 2013 to address challenges managing projects costing $100 million or more and 2) opportunities for improvements in managing these projects, particularly VA's medical facility in Denver, CO, the only project outsourced to USACE that is under construction. GAO reviewed reports on VA management of projects, interviewed VA and USACE officials, and visited five projects to compare their management to VA policies and procedures. Selected projects include the most costly, those in various stages of construction and projects managed by VA and USACE. GAO also analyzed the estimated cost and schedule of the Denver project for adherence to best practices.

Recommendations

VA should (1) establish a mechanism to monitor change orders, (2) develop a reliable activation cost estimate for the Denver project, and (3) clarify policies on integrating schedules. VA concurred with our recommendations. VA and USACE provided technical comments which we incorporated as appropriate.

Recommendations for Executive Action

Agency Affected Recommendation Status
Department of Veterans Affairs
Priority Rec.
To improve VA's management of medical-facility construction projects and its accountability and to allow for more informed decision making by Congress and VA, the Secretary of Veterans Affairs should establish a mechanism to monitor the extent that major facilities projects are following guidelines on change orders' time frames and design changes.
Closed – Implemented
In 2017, GAO reported that the Department of Veterans Affairs had taken steps to address challenges in managing projects to build medical facilities (costing $100 million or more), in particular streamlining the change order process, or approving changes to a facility's design. However, while VA had issued guidelines to streamline the change order process and planned to collect data on time frames, it lacked a mechanism to systematically collect or monitor data on time frames to determine whether change orders are approved within the guidelines VA established. Although VA's contract management software collected information on dates change orders were initiated and approved, VA did not use the software to determine if changes were approved within the required time. Further, VA did not track reasons why change orders occur, such as whether VA medical staff requested them. VA planned to replace this software with a system that recorded this information, but procurement of this system was delayed. Consequently, VA intended to implement a system to monitor time frames by March 2017. However, it was not clear how VA planned to use the new information it collected to oversee change orders because VA lacked a mechanism to oversee and monitor changes to a facility's design as a project progressed. Without such a mechanism, VA could not determine how processing time frames and design changes affect costs and schedules and thus was at risk for unexpected cost increases and schedule delays. Therefore, GAO recommended that VA should establish a mechanism to monitor the extent that major facilities projects are following guidelines on change orders' time frames and design changes. In 2018, GAO confirmed that VA has acquired the new system to monitor change orders and design changes. Specifically, the new system has begun collecting data on the time frames to approve change orders, as well as the length of time that pending change orders have been open. The new system also tracks milestones in the change order process and generates a report that assigns responsibility for ensuring that change orders are completed. VA has also revised its Contract Modification Manual-used to establish processing time frames for change orders on construction contracts-to require that these data are to be used. Finally, VA has also begun collecting data on the reasons why change orders occur by having medical facility resident engineers enter a code to track the various types of change orders that arise during a construction project. This code is one of the pieces of data that is required to create a change order in VA's system. As a result of these actions, VA is in a better position to determine how processing time frames and design changes affect costs and schedules.
Department of Veterans Affairs To improve VA's management of medical-facility construction projects and its accountability and to allow for more informed decision making by Congress and VA, the Secretary of Veterans Affairs should develop an activation cost estimate for the Denver project that is reliable and conforms with best practices as described in the GAO Cost Estimating and Assessment Guide.
Closed – Not Implemented
Given that the activation of the Denver project is to be completed in early 2019, developing an activation cost estimate for the project would not be practical at this point. Therefore, GAO is closing this recommendation as not implemented.
Department of Veterans Affairs To improve VA's management of medical-facility construction projects and its accountability and to allow for more informed decision making by Congress and VA, the Secretary of Veterans Affairs should clarify Office of Construction and Facilities Management (CFM) policies to require that: (1) all projects have an integrated master schedule to ensure that the integrated master schedules include and link all construction and activation activities, and (2) the policies on integrated master schedule for projects managed by CFM and USACE are consistent.
Closed – Implemented
In 2017, GAO reported that the Department of Veterans Affairs (VA) had taken steps to address challenges in managing projects to build medical facilities (costing $100 million or more). In response to statutory requirements and additional congressional direction, VA outsourced to the U.S. Army Corps of Engineers (USACE) the management of a new VA medical facility construction project in Denver, CO, while VA retained responsibility for managing activation (making the facility ready for full operation after construction, such as adding medical equipment) of the new facility. However, GAO's analysis showed that the construction and activation schedules for the Denver project were not integrated, so that the construction schedule's milestones did not align with the activation schedule to form an integrated master schedule (IMS). Leading practices and VA policies both called for an IMS that links construction and activation activities, which help ensure projects' successful and timely completion. However, VA's policies were inconsistent and unclear, including not specifically requiring that the construction schedule for the projects-including the Denver project-that USACE managed be integrated with VA's activation schedule. Without clear policies that integrate and align construction and activation activities into a master schedule, VA lacks the ability to produce reliable schedules and could result in additional delays for the Denver project. Therefore, GAO recommended that VA clarify its policies to require that: (1) all projects have an integrated master schedule to ensure that the integrated master schedules include and link all construction and activation activities, and (2) the policies on integrated master schedule for projects managed by VA and USACE are consistent. In 2018, GAO confirmed that VA enhanced its ability to produce reliable and integrated master schedules. Specifically, VA provided documentation indicating that it had integrated and aligned its construction and activation schedules for the Denver project. VA also clarified its policies by requiring integrated master schedules for all projects through final activation, including construction projects that USACE manages. As a result of these actions, VA is in a better position to produce integrated and accurate schedules for its medical facility construction projects, which will allow Congress and VA to make more informed decisions regarding these projects.

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Topics

Construction contractsContract modificationsInteragency agreementsSchedule slippagesContract managementCost and scheduleCost estimatesMedical facilitiesPolicies and proceduresProject managementConstruction