[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]




 
     VA CONSTRUCTION POLICY: FAILED PLANS RESULT IN PLANS THAT FAIL

=======================================================================

                                HEARING

                               before the

              SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

                                 of the

                     COMMITTEE ON VETERANS' AFFAIRS
                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                          TUESDAY, MAY 7, 2013

                               __________

                           Serial No. 113-18

                               __________

       Printed for the use of the Committee on Veterans' Affairs


                                 ______

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                     COMMITTEE ON VETERANS' AFFAIRS

                     JEFF MILLER, Florida, Chairman

DOUG LAMBORN, Colorado               MICHAEL H. MICHAUD, Maine, Ranking 
GUS M. BILIRAKIS, Florida            Minority Member
DAVID P. ROE, Tennessee              CORRINE BROWN, Florida
BILL FLORES, Texas                   MARK TAKANO, California
JEFF DENHAM, California              JULIA BROWNLEY, California
JON RUNYAN, New Jersey               DINA TITUS, Nevada
DAN BENISHEK, Michigan               ANN KIRKPATRICK, Arizona
TIM HUELSKAMP, Kansas                RAUL RUIZ, California
MARK E. AMODEI, Nevada               GLORIA NEGRETE MCLEOD, California
MIKE COFFMAN, Colorado               ANN M. KUSTER, New Hampshire
BRAD R. WENSTRUP, Ohio               BETO O'ROURKE, Texas
PAUL COOK, California                TIMOTHY J. WALZ, Minnesota
JACKIE WALORSKI, Indiana

            Helen W. Tolar, Staff Director and Chief Counsel

                                 ______

              SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

                    MIKE COFFMAN, Colorado, Chairman

DOUG LAMBORN, Colorado               ANN KIRKPATRICK, Arizona, Ranking 
DAVID P. ROE, Tennessee              Minority Member
TIM HUELSKAMP, Kansas                MARK TAKANO, California
DAN BENISHEK, Michigan               ANN M. KUSTER, New Hampshire
JACKIE WALORSKI, Indiana             BETO O'ROURKE, Texas
                                     TIMOTHY J. WALZ, Minnesota

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Veterans' Affairs are also 
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                            C O N T E N T S

                               __________

                              May 7, 2013

                                                                   Page

VA Construction Policy: Failed Plans Result In Plans That Fail...     1

                           OPENING STATEMENTS

Hon. Mike Coffman, Chairman, Subcommittee on Oversight and 
  Investigations.................................................     1
    Prepared Statement of Hon. Coffman...........................    26
Hon. Ann Kirkpatrick, Ranking Minority Member, Subcommittee on 
  Oversight and Investigations...................................     2
Hon. Jackie Walorski, Member, Committee on Veterans' Affairs, 
  U.S. House of Representatives, Prepared Statement only.........    26

                               WITNESSES

Lorelei St. James, Director of Physical Infrastructure Issues, 
  Government Accountability Office...............................     3
    Prepared Statement of Ms. St. James..........................    27
Raymond Kelley, Director of Legislative Service, Veterans of 
  Foreign Wars...................................................     5
    Prepared Statement of Mr. Kelley.............................    32
Glenn D. Haggstrom, Principal Executive Director, Office of 
  Acquisition, Logistics, and Construction, U.S. Department of 
  Veterans Affairs...............................................     6
    Prepared Statement of Mr. Haggstrom..........................    34
    Accompanied by:

      Ms. Stella Fiotes, Executive Director, Construction and 
          Facilities Management, Office of Acquisition, 
          Logistics, and Construction, U.S. Department of 
          Veterans Affairs

                        QUESTIONS FOR THE RECORD

Letter and Question Submitted by Rep. Beto O'Rourke, To: VA......    36
VA Response to Questions Submitted by Rep. Beto O'Rourke.........    36
Additional Questions & Answers to VA from the Committee Members..    37


     VA CONSTRUCTION POLICY: FAILED PLANS RESULT IN PLANS THAT FAIL

                          Tuesday, May 7, 2013

             U.S. House of Representatives,
                    Committee on Veterans' Affairs,
              Subcommittee on Oversight and Investigations,
                                                   Washington, D.C.
    The Subcommittee met, pursuant to notice, at 2:00 p.m., in 
Room 334, Cannon House Office Building, Hon. Mike Coffman 
[Chairman of the Subcommittee] presiding.
    Present: Representatives Coffman, Huelskamp, Benishek, 
Walorski, Kirkpatrick, Kuster, and O'Rourke.

             OPENING STATEMENT OF CHAIRMAN COFFMAN

    Mr. Coffman. Good afternoon. I would like to welcome 
everyone to today's hearing titled ``VA Construction Policy: 
Failed Plans Result in Plans That Fail.''
    I ask unanimous consent that several of our colleagues from 
the Committee join us at the dais today to hear about 
construction developments affecting facilities that serve their 
constituents. Hearing no objection, so ordered.
    Providing veterans medical care is a core function of the 
VA. When the VA does health care right, it can be second to 
none. However, the process VA employs to build its health care 
facilities is abysmal and the results lead to delays for much-
needed care to veterans.
    The Government Accountability Office's recent report noted 
that VA's four largest medical center construction projects 
have had an average of cost increase of $366 million and an 
average delay of 35 months. One of the most distressing items 
in the VA report is that VA failed to learn from its mistakes 
as it went from project to project. I must add that many of 
these same issues have been identified by GAO in the past, and 
we seem to be no closer to a better result.
    Ultimately, it is not just major facilities that epitomize 
why VA's construction policy is a debacle. A little more than a 
year, ago this Subcommittee held a hearing on VA's failure to 
perform due diligence and failure to inform Congress of project 
increases regarding the proposed clinic in Savannah, Georgia. 
Based on subsequent correspondence with VA over the past year, 
I am not quite certain VA is getting the message that its 
construction program is dysfunctional and not in keeping with 
industry best practices or veterans' expectations.
    Not only is VA building facilities over budget and late, 
but it is also failing to pay the contractors for the work in a 
timely manner. While ensuring taxpayer dollars are properly 
spent is of utmost importance, VA must pay its bills on time. 
Last week, I visited the Denver project and spoke directly with 
VA about prompt payment to contractors and subcontractors and 
was alarmed by VA's response in the issue, and I will monitor 
their commitment to improving the process.
    Under the Prompt Payment Act and OMB's guidance, a Federal 
agency is expected to, quote, ``to ensure that prime 
contractors disburse the funds that they receive from the 
Federal Government to their small business subcontractors in a 
prompt manner,'' unquote. The Prompt Payment Act also requires 
that the contractor certify that his or her subcontractors are 
receiving payment commensurate with the work performed. But as 
evidence shows, some contractors and subcontractors in these 
four projects have been waiting for months to be paid.
    Moreover, the Small Business Act explains that it is, 
quote, ``the policy of the United States that prime contractors 
establish procedures to ensure the timely payment of amounts 
due pursuant to the terms of their subcontracts with small 
business concerns,'' unquote. VA's failure to abide by the laws 
governing payment to its contractors is unacceptable and is a 
problem in need of an immediate fix.
    Given the number and variety of facilities VA has built 
over the last several years, it is disturbing to me that VA 
continues to employ policies and techniques that have 
repeatedly fallen short. I look forward to hearing from today's 
witnesses regarding VA's construction policies and how we can 
move forward to effectively and efficiently build medical 
facilities for our veterans.
    Mr. Coffman. I now yield to Ranking Member Kirkpatrick for 
her opening statement.

    [The prepared statement of Chairman Coffman appears in the 
Appendix]

           OPENING STATEMENT OF HON. ANN KIRKPATRICK

    Mrs. Kirkpatrick. Thank you, Mr. Chairman, for holding this 
hearing.
    The focus on the construction program of the Department of 
Veterans Affairs is one that needs to remain a top priority for 
this Subcommittee and necessary to ensure that veterans' needs 
are being met. Hundreds of millions of dollars are authorized 
and appropriated every fiscal year to ensure that veterans are 
cared for in the safest, most state-of-the-art buildings to be 
built. The other priority, of course, is that, along with the 
building, there is in place quality and timely health care 
delivery to those who have earned it.
    Today's hearing focuses on a recently released Government 
Accountability report on construction that is very concerning. 
GAO reports that some of the biggest construction projects have 
increased in cost by over 140 percent, while others have 
experienced delays in construction for up to 74 months. While I 
may understand the reasons for some of this, clearly there is a 
need for VA to scrutinize their construction program processes 
and make improvements where it may be necessary to do so.
    I understand that just a few years ago, the VA put in place 
the Strategic Capital Investment Process, or SCIP. I look 
forward to hearing from the VA about how this process is 
working. Additionally, the Subcommittee has been informed that 
the Secretary, in an effort to improve the construction 
process, created a Construction Review Council to serve as the 
single point of oversight and performance accountability for 
the planning, budgeting, execution, and delivery of the VA real 
property capital-asset program. I look forward to hearing from 
the VA on how this Council's report has been beneficial to the 
VA.
    This Committee has held numerous hearings on the VA's 
construction process, and efforts have been made to improve and 
streamline construction projects. Having said that, I also 
believe the VA still struggles to effectively manage the 
program. From the Capital Asset Realignment for Enhanced 
Services to the recently implemented SCIP, problems and 
challenges remain.
    Mr. Chairman, I stand ready to work with my colleagues and 
with the VA as we tackle these issues in front of us today.
    Thank you, and I yield back.
    Mr. Coffman. Thank you, Ranking Member Kirkpatrick.
    I would now like to welcome the panel to the witness table, 
which you are there. On this panel we will hear from Lorelei, 
did I say that right, St. James, Director of Physical 
Infrastructure Issues for the Government Accountability Office; 
Raymond Kelley, Director of Legislative Services for the 
Veterans of Foreign Wars; Mr. Glenn Haggstrom, Principal 
Executive Director, Office of Acquisition, Logistics, and 
Construction for the Department of Veterans Affairs; and 
accompanying Mr. Haggstrom, Ms. Stella Fiotes, Executive 
Director, Construction and Facilities Management, Office of 
Acquisition, Logistics, and Construction, for the Department of 
Veterans Affairs.
    Ms. St. James, you are now recognized for 5 minutes.

     STATEMENTS OF LORELEI ST. JAMES, DIRECTOR OF PHYSICAL 
   INFRASTRUCTURE ISSUES, GOVERNMENT ACCOUNTABILITY OFFICE; 
 RAYMOND KELLEY, DIRECTOR OF LEGISLATIVE SERVICE, VETERANS OF 
   FOREIGN WARS; AND GLENN D. HAGGSTROM, PRINCIPAL EXECUTIVE 
 DIRECTOR, OFFICE OF ACQUISITION, LOGISTICS, AND CONSTRUCTION, 
  U.S. DEPARTMENT OF VETERANS AFFAIRS, ACCOMPANIED BY STELLA 
    FIOTES, EXECUTIVE DIRECTOR, CONSTRUCTION AND FACILITIES 
MANAGEMENT, OFFICE OF ACQUISITION, LOGISTICS, AND CONSTRUCTION, 
              U.S. DEPARTMENT OF VETERANS AFFAIRS

                 STATEMENT OF LORELEI ST. JAMES

    Ms. St. James. Chairman Coffman, Ranking Member 
Kirkpatrick, and Members of the Subcommittee, I am pleased to 
be here today to discuss VA's construction of major medical 
facilities and actions it should take to decrease the time and 
cost of these projects. My testimony today is based on our 
report published a few days ago.
    VA has an important mission of caring for over 6 million 
veterans. Right now, VA has 50 major medical facilities that it 
is either building or renovating, at a cost of more than $12 
billion. This is a huge undertaking. Since before the Las Vegas 
facility was constructed, VA had not built a project of this 
size in over 15 years.
    GAO has reviewed VA's approach to planning and building 
major medical facilities. These are facilities that cost over 
$10 million. VA, however, has struggled to match its aging 
infrastructure with the changing needs of veterans. It must 
also contend with a wide array of stakeholders, including 
Congress and veterans organizations.
    In our report, we found problems around two fundamental 
construction issues: time and money. But to be fair, most 
construction projects, private or public, change from design to 
opening day, and events, sometimes beyond anyone's control, can 
easily add time and money. Even given this, for the VA 
facilities we reviewed, we remain concerned about the amount of 
time and the amount of cost increases from the time projects 
are to be finished and the time they are expected to be 
completed. Why is it taking so long to complete these 
facilities and why have costs increased so much?
    These answers are important. Over the next 10 years, VA 
plans to construct or renovate projects that have an estimated 
value of over $21 billion.
    Of the 50 projects in our review, we reviewed in detail 
four major medical facilities, in Denver, Orlando, New Orleans, 
and Las Vegas. So far, Denver is 18 percent complete, but it 
has taken 10-1/2 years from the selection of the design firm to 
VA's recent estimated completion date. It also experienced a 
144 percent cost increase from the initial cost estimate. In 
Las Vegas, the project took slightly more than 10 years. In 
contrast to VA, we found that the Naval Facilities Engineering 
Command, who builds similar medical facilities under similar 
regulations, designs and builds such facilities in about 4 
years. Similar to Denver, Orlando has experienced a 143 percent 
cost increase, and New Orleans a 59 percent increase.
    While each facility has unique circumstances, we found 
several reasons for these increases, including some that were 
beyond VA's control. For example, due to Hurricane Katrina, 
construction costs in Las Vegas skyrocketed. In Denver and New 
Orleans, political pressure, including pressure from some 
veterans groups, moved VA to change from shared facilities to 
stand-alone facilities. In Orlando, the site changed three 
times from 2004 to 2010, once because VA didn't move quick 
enough to secure needed land. Lastly, unanticipated events, 
such as undetected underground storage tanks, as we saw in New 
Orleans, can impact estimates.
    In VA's November 2012 Construction Review Council report it 
acknowledged several management problems and stated that, among 
other actions, it would submit initial designs to Congress that 
were 35 percent complete, beginning with its 2014 budget 
submission. These estimates are important. Congress uses them 
to make funding decisions and veterans use them to measure when 
medical services will be available.
    Lastly, in VA's management of all major facilities, we 
recommended that VA issue guidance on when to use medical 
equipment planners and they should issue procedures to clarify 
to contractors the roles and responsibilities of all VA 
personnel involved in projects. They should also streamline its 
change order process. VA and contractor officials all cited 
this as a fundamental management problem. VA agreed with our 
recommendations, and we are encouraged by its planned actions, 
but believe these actions should be implemented and monitored 
to ensure that real change occurs.
    Mr. Chairman, this concludes my statement. I am happy to 
answer any questions that you have.

    [The prepared statement of Lorelei St. James appears in the 
Appendix]

    Mr. Coffman. Ms. St. James, thank you so much for your 
testimony.
    And I am going to go ahead and recess the Committee for 
votes and then we will reconvene right after voting.
    [Recess]
    Mr. Coffman. The Committee is called to order.
    Mr. Kelley, you are now recognized for 5 minutes.

                  STATEMENT OF RAYMOND KELLEY

    Mr. Kelley. Mr. Chairman, Ranking Member, Members of the 
Subcommittee, on behalf of the 2 million members of the 
Veterans of Foreign Wars and our auxiliaries, thank you for the 
opportunity to testify today.
    I know everyone has heard these statistics, but they are 
worth repeating. VA's infrastructure is, on average, 60 years 
old. Utilization has risen from 80 percent to 121 percent in a 
matter of 6 years. In that same time period, the facilities 
have eroded, the conditions of those facilities have eroded 
from 81 percent to 71 percent. The VA currently holds 50 major 
construction contracts and has identified a total of 130 major 
construction projects that need to be addressed, all at a cost 
of about $25 billion. VA has a monumental task of expanding and 
replacing its medical facilities, and they must maximize every 
dollar and implement processes that will expedite the 
construction process.
    The VFW has identified four major areas that need to be 
addressed to ensure the construction projects are done in a 
more efficient and cost-effective manner. First, VA must fully 
integrate the Electronic Contracts Management System. Second, 
VA needs to stop using the design-bid-build contracting 
practice. Third, VA must adopt a comprehensive facility master 
plan. And fourth, they should use medical equipment planners 
during the construction of all medical facilities.
    Due to time constraints, I will limit my remarks to just 
two of these areas of concern.
    VA has historically relied on the design-bid-build project 
delivery system when entering into contracts to build major 
facility projects. Of the 50 current VA major facility 
projects, 43 of them are design-bid-build. With this model, an 
architect is selected to design the facility, the design 
documents are used to secure the bid, and then the successful 
contract bid-holder builds the facility. Design-bid-build 
projects often encounter disputes between the consumer--in this 
case VA--and the construction contractor. Because these 
contracts are generally firm fixed price based on the completed 
design, the construction contractor is usually responsible for 
cost overruns unless VA and the contractor agree on any needed 
or proposed changes that occur with change of scope, unforeseen 
site condition changes, or design error. VA and the contractor 
negotiate these changes through change orders. This process can 
become adversarial because neither party wants to absorb the 
costs associated with the change and each change order can add 
months to the project completion date.
    The flaws of design-bid-build projects have become 
apparent, highlighted by the delays in Orlando, Florida, with 
the new medical facility that has been delayed 39 months, due 
in part to change order disputes. This contract must be 
followed through to completion, but VA must use this as a 
lessons learned and change their contracting model to an 
architect-led design build model. A design-build project teams 
the architect and the construction contractor under one 
contract. This method can save VA up to 6 months of time by 
putting the design phase of the construction and the 
construction performance metric together. Placing the architect 
as the lead from the start to finish and having the 
construction contractor work side by side with the architect, 
allows the architect to be an advocate for VA. Also, the 
architect and the construction contractor can work together 
early on the design phase to reduce the number of design 
errors, and it also allows them to identify and modify the 
building plans throughout the project.
    The VFW also believes VA would benefit from the use of 
medical equipment planners. Using these planners, which is an 
industry practice used by the Army Corps of Engineers and other 
Federal agencies, places an experienced medical equipment 
expert at the disposal of the architect and the construction 
contractor. When used properly, the medical equipment planner 
can work with the architect during the design phase and then 
the construction contractor during the build phase to ensure 
that needed space, physical structure, and electrical support 
are adequate for the purchased medical equipment, reducing 
change orders, work stoppages, and the demolition of newly 
built sections of a facility. Using the Orlando facility as an 
example again, issues with the purchase of medical equipment 
caused cost overruns of more than $10 million and construction 
had to be suspended until these issues were resolved.
    Mr. Chairman, this concludes my remarks, and I look forward 
to any questions you or the Committee may have.

    [The prepared statement of Raymond Kelley appears in the 
Appendix]

    Mr. Coffman. Thank you, Mr. Kelley.
    Mr. Haggstrom, you are now recognized and have 5 minutes, 
please.

                STATEMENT OF GLENN D. HAGGSTROM

    Mr. Haggstrom. Thank you, Mr. Chairman.
    Chairman Coffman, Ranking Member Kirkpatrick, distinguished 
Members of the Committee, I am pleased to appear here this 
afternoon to update the Committee on the Department of Veterans 
Affairs' continuing efforts to improve construction procedures 
and planning processes to ensure timely execution of major 
construction projects. Joining me this afternoon from the 
Office of Acquisition, Logistics, and Construction's Office of 
Construction and Facilities Management is Ms. Stella Fiotes, 
the Executive Director. I will provide a brief oral statement 
and request that my full statement be included in the record.
    Through the Department's capital-asset programs, which 
include major and minor construction, nonrecurring maintenance, 
and leasing, we are delivering the infrastructures necessary to 
fulfill our mission to care for and memorialize our Nation's 
veterans. Our continuing goal in the Office of Acquisition, 
Logistics, and Construction is to improve construction 
procedures and planning processes to ensure timely execution of 
major construction and leasing projects to provide state-of-
the-art facilities for our veterans.
    VA continues to make significant improvements in its real 
property capital-asset portfolio. Implemented with the fiscal 
year 2012 budget, the Strategic Capital Investment Planning 
process, or SCIP, is a Department-wide planning process to 
track and prioritize the Department's capital investment needs. 
Using this approach, VA has visibility across its entire 
property portfolio and is able to synchronize the projects we 
undertake in our major infrastructure programs to address our 
most critical needs.
    Some of the steps that we have taken to improve the 
management and oversight of major construction projects include 
implementing the recommendations of the 2009 GAO report and 
undertaking the VA Facilities Management transformation 
initiative, or VAFM, which works to improve planning processes, 
integrate construction and facility operations, and standardize 
the construction process.
    Last April, as a follow-on to the VAFM, Secretary Shinseki 
established a Construction Review Council to serve as the 
single point of oversight and performance accountability for 
the planning, budgeting, execution, and management of the 
Department's real property capital-asset program. Chaired by 
the Secretary, the Construction Review Council identified four 
major findings to improve performance. Actions have been 
identified and are currently being implemented to address these 
findings.
    Finally, we are in the process of reviewing the GAO final 
report, which was released on May 3, 2013, and plan to take 
immediate actions to implement their recommendations.
    In the past 5 years, VA has also accomplished and delivered 
a significant number of projects for veterans. Most recently, 
in fiscal year 2012 and 2013 to date, VA has delivered nearly 
$1 billion worth of facilities. This includes 16 medical 
facilities, including the new Las Vegas hospital, and five new 
cemeteries or cemetery expansions, the vast majority of which 
were delivered without construction delay and within the 
appropriated funds. VA continues to work to complete 52 major 
construction projects to provide the much-needed facilities for 
our veterans and their families.
    I am pleased to update you that since I last appeared 
before the Committee to brief you on the construction of the 
new VA medical center in Orlando, the project has advanced from 
approximately 50 percent completion to approximately 80 percent 
completion today. After issuing Brasfield & Gorrie a show cause 
notice in February of 2013, the Department has notified them 
that they will continue as the contractor on the project. They 
have provided to VA a completion date of April 2014. We will 
continue to work closely with Brasfield & Gorrie to ensure they 
adhere to their projected timeline.
    The lessons we have learned from Orlando and other past 
major construction projects is guiding us in our management of 
the Denver and New Orleans replacement hospitals and future 
projects.
    In closing, VA has a strong history of delivering 
facilities to accomplish our mission to serve veterans, and we 
are committed to meeting our responsibility to design, build, 
and deliver quality facilities to meet the demand for access to 
health care and benefits. The lessons that we have learned from 
our past projects will continue to lead to improvements in the 
management and execution of our capital program as we move 
forward.
    Thank you for the opportunity to testify before the 
Committee today, and we look forward to answering any questions 
the Committee may have.

    [The prepared statement of Glenn D. Haggstrom appears in 
the Appendix]

    Mr. Coffman. Thank you, Mr. Haggstrom.
    Mr. Haggstrom, the VA has 11 projects with a range of cost 
increases from 4 to 59 percent. In all but two of these 
projects the cost increases are over 10 percent. Has VA 
officially informed Congress regarding all of these increases?
    Mr. Haggstrom. Mr. Chairman, I don't know specifically 
which projects you are referencing. But to the best of my 
knowledge, we are very diligent in notifying the Congress if 
there are cost overruns, and the amount of those costs, we must 
notify Congress. If you would provide me a list of those 
projects, I would be happy to supply the record for those.
    Mr. Coffman. It is the projects that are listed in the GAO 
report, the 11 projects listed in the GAO report. Do you need 
us to go over those?
    Mr. Haggstrom. No, I don't. I am in receipt of the GAO 
report. And we will certainly look at those and will reply to 
the Committee.
    Mr. Coffman. So to the best of your knowledge, you don't 
know whether or not Congress was informed?
    Mr. Haggstrom. To the best of my knowledge, we have 
fulfilled all our requirements in the notification of process.
    Mr. Coffman. So Congress was informed?
    Mr. Haggstrom. As far as I know, sir.
    Mr. Coffman. Mr. Haggstrom, does VA believe that their 
obligations for payment of construction completed extends only 
to the prime contractor?
    Mr. Haggstrom. Mr. Chairman, our contractual relationship 
is with the prime contractor and only the prime contractor. We 
do not have privity of contract with the subcontractors. 
However, as you had mentioned in your openings remarks, that we 
do require certification of the prime contractor to the VA to 
ensure that they are paying their subcontractors.
    When you look at what we do, go through the change order 
process, the pay application process, all those things are to 
be resolved with the prime contractor in terms of what payments 
they are due and the payments that they would subsequently make 
to their subcontractors.
    I would like to add that the Miller Act, which was passed 
in 1935, if you will, is really a safety net for 
subcontractors. The Miller Act specifically requires that for 
Federal projects over $150,000, that there is both a 
performance bond and a payment bond that is held by the prime 
contractor so that in the event if the prime contractor has a 
contractual relationship with that subcontractor for a certain 
amount, the subcontractor performs the portion of the project 
for that amount and the prime contractor does not pay that 
subcontractor, the subcontractor has recourse against the prime 
contractor through Federal court.
    Mr. Coffman. But doesn't current law go above that, go 
beyond that in the Prompt Payment Act in terms of defining VA's 
responsibilities to ensure that subcontractors are paid?
    Mr. Haggstrom. Absolutely. And we adhere to that as closely 
as we can. Once a month, we have what we call a pay application 
review with our prime contractor. And during this, the prime 
contractor will provide to VA the portions of the projects that 
have been executed between the last pay application meeting and 
the current pay application meeting. It is our goal and 
requirement that once we receive that information, to process 
that and make payment within 15 days to the prime contractor.
    Mr. Coffman. Let me just say that I think all of you 
referred to the VA facility that is being constructed in 
Denver, and I think that is well within the boundaries of the 
city of Aurora, which is in my congressional district. I think 
there has been a history of those subcontractors not being 
paid, and that is of concern to me.
    Ms. St. James, did contractors submit excessive or 
unwarranted change orders to drive up costs or cause delay?
    Ms. St. James. That wasn't a central focus of our review. 
We understood that the Committee was looking into that. But in 
Orlando, we did hear of instances like that, and we are aware 
of the show cause notice. But we did not verify independently 
whether or not any of those charges were excessive or 
unwarranted.
    Mr. Coffman. Ranking Member Kirkpatrick.
    Mrs. Kirkpatrick. Thank you, Mr. Chairman.
    Ms. St. James, in our briefing book, we have four major 
hospitals: Las Vegas, Orlando, Denver, and New Orleans? And 
staff just gave me a list of just the Orlando problems with the 
contracting officer, with cure notices, show cause notices that 
really have delayed the project. Did you find that that was the 
case with the other three facilities?
    Ms. St. James. I think out of the four that we looked at, 
it was that the relationship between VA and the prime 
contractor was not as favorable, let's say, as the other 
contracts that were out there. There seemed to be more problems 
in Orlando with the prime contractor than we saw in the other 
sites.
    Mrs. Kirkpatrick. Thank you. Do you agree with Mr. Kelley's 
recommendation that they go to an architect-design-build rather 
than just a regular design-build model?
    Ms. St. James. We looked at the different kinds of 
contracts, as you just mentioned, and quite frankly, if you 
have your requirements set up and agreed to and you have a 
contractor and you have a good relationship with that 
contractor, it doesn't really matter the vehicle that you 
choose. A lot of it depends upon the relationships, 
requirements being defined, and the relationship between the 
sub and the prime as well.
    Mrs. Kirkpatrick. So why is that relationship a problem at 
the VA?
    Ms. St. James. In Orlando?
    Mrs. Kirkpatrick. In Orlando.
    Ms. St. James. It is a big project. There are lots of 
change orders. When subcontractors put in for the change 
orders, we saw that the prime would agree with those change 
orders, but VA would not agree with them, and therefore you 
have a disagreement. And when you have a very large project, 
you have lots of change orders. It is just natural to the 
construction. So we found that that was a major problem in 
Orlando, was the difference views of the cost information being 
provided in the change orders. Neither VA or the contractor 
agreed.
    Mrs. Kirkpatrick. Thank you.
    Mr. Haggstrom, on these projects do you have somebody on 
the site who can review change orders who has the authority to 
approve them rapidly at each one of these facilities?
    Mr. Haggstrom. Yes, Congresswoman, we do. We have a 
resident engineering staff, we have a project executive, we 
have contracting officers assigned to all of these projects to 
help facilitate and move the change order process along.
    Mrs. Kirkpatrick. So how would you explain the bad 
relationship that apparently exists between the contractor and 
the VA that ends up with these show cause hearings and orders 
to cure?
    Mr. Haggstrom. Well, if I could, the show cause and cure 
notices do not necessarily delay a project. Those are two 
contracting vehicles that the Federal Government uses as part 
of the procurement process to ensure our rights are protected 
with regard to the contract that was consummated between 
ourselves and the prime contractor and oversight and fiduciary 
responsibility for the money that you have provided us to 
construct these particular facilities.
    With regards to the Orlando project, early on in my 
previous testimony before the Committee, clearly VA had some 
problems in terms of errors and omissions when we started this 
project. Those errors and omissions were corrected through 
working with our AE and with our contractor. Those drawings 
were corrected and put back into place approximately a year 
ago, and we moved forward on those.
    There is a continuing, I think, discussion and issue with 
the prime contractor over the cost of these things. Whether or 
not perhaps the cost that they estimated were underestimated 
with regards to the subcontractors performing this work, again, 
I don't know. But these are all possibilities that drive the 
relationship between ourselves and that prime contractor.
    Mrs. Kirkpatrick. My time is almost expired, but I want to 
ask one other question, and that is, where does the CRC then 
fit in the whole scheme of things? You have somebody on site 
who can approve the change orders and then you have got the 
CRC. So what is their role in terms of direct review and 
oversight of the construction on the site?
    Mr. Haggstrom. The Secretary has made it very clear when we 
formed the CRC that certain elements of the project would have 
to come before the CRC and himself in terms of any change 
orders, significant change orders that would drastically affect 
the cost or the schedule of completion.
    Mrs. Kirkpatrick. My time is almost up. Does that delay 
then the decision on the change order?
    Mr. Haggstrom. It does not.
    Mrs. Kirkpatrick. I yield back my time, but I would like 
another round of questioning if we have time.
    Mr. Coffman. We will have a second round.
    Mr. Huelskamp.
    Mr. Huelskamp. Thank you, Mr. Chairman. I am going to read 
what you have read once already from the GAO report. And I am 
quoting here. It notes: ``Cost increases for these projects 
range from 59 percent to 144 percent, representing a total cost 
increase of nearly $1.5 billion and an average increase of 
approximately $366 million per project. The schedule delays 
range from 14 to 74 months, with an average delay of 35 months 
per project.''
    And I have a question for Mr. Haggstrom, if I might. The 
GAO's report makes clear that for a number of years--and you 
referenced the 2009 report--VA's construction arm has not been 
doing a good job. Yet according to records I have, in 2009 you 
received a $20,470 bonus, in 2010 you received an $18,022 
bonus, and in 2011 you received a $16,300 bonus, all on top of 
your base pay. Given this GAO report and what we have heard 
here, do you really think you deserved these bonuses?
    Mr. Haggstrom. Congressman, those bonuses were not 
determined by myself. Those bonuses were determined by my 
supervisors in the senior leadership at VA. And with all due 
respect, I would ask you to take that up with them.
    Mr. Huelskamp. My question is with you. Do you think you 
deserve those bonuses in light of these GAO reports and these 
cost overruns and delays in construction?
    Mr. Haggstrom. Congressman, I believe I have answered your 
question.
    Mr. Huelskamp. Sir, let me re-ask it. Do you believe you 
deserved these bonuses? It is either yes or no or I refuse to 
answer the question.
    Mr. Haggstrom. I will answer one more time. Those bonuses 
were not by my own doing. Those were from my superiors.
    Mr. Huelskamp. Did they indicate to you, Mr. Haggstrom, why 
you deserved these bonuses when they gave them to you?
    Mr. Haggstrom. Congressman, I have answered as far as I can 
answer.
    Mr. Huelskamp. Did they indicate to you why you deserved 
these bonuses? Surely they told you. They didn't tell you at 
all why you were given a $20,000 bonus in 2009, an $18,000 
bonus? They didn't tell you why you were given a bonus?
    Mr. Haggstrom. Those bonuses, I presume, were based on my 
performance plan and my performance that they viewed and how I 
did my job during those particular years.
    Mr. Huelskamp. I wish you would answer that question. 
Apparently they didn't tell you, then, why you deserved a 
bonus?
    Mr. Haggstrom. No. The bonus came down in my paycheck.
    Mr. Huelskamp. Just magically appeared, I guess, for no 
reason. And I would appreciate perhaps you might visit with 
your superiors, in light of the GAO report. I mean, we are 
talking about $1.5 billion of cost overruns on four projects. 
Are you proud of these particular projects?
    Mr. Haggstrom. I am not, but I think you need to put those 
cost overruns in context.
    Mr. Huelskamp. I am putting it in a bonus context.
    Mr. Haggstrom. No, I am putting it in the fact that when 
you looked or when VA looked at these projects and they costed 
them out, many of these projects started out as nothing more 
than large health care centers when we started the requirements 
definition process. Those matured sometimes into full-fledged 
inpatient medical facilities, based on emerging needs. So you 
have got to look at ultimately what the VA planned to build as 
opposed, in the end, to what they started to build in the 
beginning.
    Mr. Huelskamp. Mr. Haggstrom, the VA for here is you.
    Mr. Haggstrom. Pardon me?
    Mr. Huelskamp. The VA today is you. It wasn't somebody 
else, some other agency determined what they should be. It was 
based on your estimates, what you described to Congress of the 
money you needed for this project. And they come in at an 
average of $366 million per project cost overrun. And you can't 
blame it on the DoD made you do these. I mean, these are the VA 
estimates coming out of the GAO report. And that is what we 
have here.
    Mr. Haggstrom. These are VA estimates based on what we 
started with.
    Mr. Huelskamp. Did you have any--
    Mr. Haggstrom. When you move from a health care facility of 
several hundred thousand square feet to build a full-fledged 
medical inpatient care facility at sometimes 1.5 million square 
feet, you are going to have a change in the cost of that 
project.
    Mr. Huelskamp. Absolutely. Obviously, we were wrong on the 
first estimate. Obviously, you are going to have a massive 
change because you made a mistake at the beginning. And what 
bothers me is you are in charge of these, you are the gentleman 
sent here to represent why this wasn't too bad, and these same 
folks give you a very, very big bonus, multiple years in a row, 
in light of these GAO reports, and you claim not to know why 
you got a bonus.
    That to me, Mr. Chairman, is very disappointing. Bonuses 
are not given just because. They are given for performance. And 
if I was giving a bonus here, we would actually dock your pay. 
And that is what most of my constituents say.
    One last thing I want to note, and you might indicate to 
your superiors as well. I have sent multiple letters to the VA 
that they have ignored on other budgetary issues. In 
particular, I sent a letter on September 23, 226 days ago, and 
the VA just says we don't care what Congress thinks. And that 
is why you wonder why we get upset when you have cost overruns 
and you try to explain to us that your estimates initially were 
wrong and then you get massive bonuses. This is not a proper 
way to run an agency.
    And I yield back, Mr. Chairman.
    Mr. Coffman. Thank you, Mr. Huelskamp.
    Ms. Kuster.
    Ms. Kuster. Thank you very much.
    Mr. Haggstrom, my question is with regard to the change in 
scope of these projects. What were the factors that led to the 
change to a more complex facility? Did it have to do with the 
number of veterans that were coming back from Iraq and 
Afghanistan and the complexity of their issues? And where in 
the Veterans Administration is that type of decision-making 
made?
    Mr. Haggstrom. Certainly. When you look at the 
requirements, the requirements that we work to in construction 
and facilities management are determined by the 
administrations. Principally, we build for Veterans Health 
Administration, the medical facilities, and the National 
Cemetery Administration, our national cemeteries. Those are the 
folks who provide to us, the engineers, what they require in 
order to be built. They use multiple factors. They use the 
demographics. We use the databases that VA has maintained 
through the year. And all those things are subject to change.
    Let's take a look, if you will, just at the Denver facility 
as an example. As we talked before, Denver started out as an 
outpatient community health center when we started to build 
that. Then through the years we went back and forth at the 
senior level in VA to decide is it going to be that or is it 
going to be an inpatient facility with bed towers or are we 
going to use shared facilities with the University of Colorado 
to handle our inpatient loads.
    Ms. Kuster. Excuse me for interrupting, but was the 
Congress kept apprised as these decisions were made?
    Mr. Haggstrom. I am sorry, I can't answer that. I was not a 
part of VA when those major decisions were being made. When 
Secretary Shinseki came in, one of the first things he directed 
as the Secretary of Veterans Affairs is directing us to build a 
full inpatient medical facility. And that is where I 
essentially pick up.
    All those things previous, though, until those decisions 
are made, you can't design a facility. You may be able to look 
at pieces of it, but in terms of designing a full medical 
complex, the relationship of how all these clinics work, the 
inpatient, the diagnostic and treatment, all those can't be 
completed until a decision is made on what is going to be the 
final scope of this facility.
    Ms. Kuster. Thank you. I wanted to say I had a tour during 
our district work period of the VA facility in White River 
Junction, Vermont, New Hampshire being the only State that 
doesn't have a full-service VA hospital, but my constituents go 
to Vermont. And I was very impressed, actually, and I 
understood the complexity, given the age of the building. But 
one of the things that was particularly impressive was the 
opening of a new women's health facility. And I just would love 
to have you comment on the changing types of issues that you 
are dealing with and some of these issues that are coming back 
from the Iraq and Afghanistan war in particular.
    Mr. Haggstrom. Certainly. And while I am not a clinician, 
our involvement in working with the VA staff, the emerging 
requirements in health care today are so different from what 
our veterans faced from World War II and Korea and even 
Vietnam. When you look at today, I believe almost 15 percent of 
our armed forces are women. And so years ago, when you walked 
into a VA hospital you would probably not find very many 
facilities that were equipped to handle women veterans and the 
special needs they have. These are all things that the 
Department is making very focused attention on in terms of 
modifying and modernizing our facilities to cope with these new 
requirements--traumatic brain injury, mental health, post-
traumatic stress syndrome.
    All of those things are, if you will, perhaps they were 
present in previous conflicts. It is only now during our last 
two engagements that these are really coming to the surface and 
having the clinicians look at how we can better treat our 
veterans to help overcome these disabilities.
    Ms. Kuster. Thank you. And just one quick question--my time 
is almost up--for Ms. St. James.
    How do you believe the VA can better communicate within 
their own organization and with contractors to improve upon 
this process so that we are not facing cost overruns and 
delays?
    Ms. St. James. In this regard, we noted that in the 
Council, the VA's Council, Construction Review, that they plan 
to take action on this. And basically what is needed is a 
matrix which indicates who in VA has responsibility for what, 
so that the contractor knows the direction that they should 
follow. We did find in Orlando there was confusion there, and 
the contractor was directed in one case to go ahead and build a 
room, a part of the facility, and then was later directed, 
redesign it.
    So it is really common sense when you have a project that 
is as large and complex as these are, we are talking over a 
million square feet in some of these and 31 acres in some of 
these facilities, you absolutely must have clear communication.
    Ms. Kuster. Thank you very much.
    I yield back the balance, which I do not have.
    Mr. Coffman. Mr. O'Rourke.
    Mr. O'Rourke. Thank you, Mr. Chairman.
    I am interested in the context of the projects that have 
been highlighted today within the SCIP list, or the Strategic 
Capital Investment Planning list. And my understanding is there 
are 3,900 projects that have been identified on that capital 
list that need to be at some point built in order to fill the 
gaps in service to our veterans.
    When these projects go over these many months or these many 
dollars, what does it do to the projects behind them?
    Mr. Haggstrom. In terms of the time, it has no effect. When 
you look at--when you say ``cost overruns,'' what are we 
talking about in terms of a cost overrun? When you look at the 
projects that are under construction today, we are within the 
appropriated amounts that Congress has provided to us to 
construct those facilities, and so if a cost overrun could have 
two different meanings, the cost overrun vis-`-vis what the 
original project was bid at and--
    Mr. O'Rourke. That is what I am trying to get at. So, if 
you are spending $366 million more than you originally 
budgeted, where is that money coming from if not from projects 
that would have been funded further down the list, or did you 
have a contingency of $366 million for that project?
    Mr. Haggstrom. No, there is not a contingency of $366 
million. Conceivably, under what you are talking about, if 
those cost overruns were in fact correct, it would, of course, 
push the program out to the right and projects would not be 
funded as quickly as perhaps we would have liked them to be.
    Mr. O'Rourke. And I see, you know, I am obviously most 
concerned about El Paso, the community I represent and the 
veterans there, who today have to go to Albuquerque for the 
nearest full service veterans hospital, which is a 10-hour 
roundtrip, and these are veterans, whose service extends as far 
back to World War II, going for cortisone treatment, for 
example. And so we desperately, in my opinion, need a full 
service VA hospital in El Paso, and I see we are number 79 in 
that list, and the 2014 request is zero dollars. A few projects 
up, there are dollar requests for those projects.
    So I can't help but read into this that, but for these 
overruns or whatever the term of art is for spending more than 
we originally anticipated, we would have been able to get to 
these projects sooner.
    I don't know, Ms. St. James, if in your analysis of the 
VA's construction projects you were able to correlate, you 
know, these overruns in time and dollars to what it did to our 
ability to construct other projects further down the list.
    Ms. St. James. No, we really did not look at that. I would 
hope, though, that VA's implementation of providing better 
estimates where the design is 35 percent complete at the time 
they submit it to you, that you would have a better idea of 
what the project would cost and that is what we would hope to 
see.
    When VA comes back to you for money, with having 35 percent 
complete done at the initial asking, you should have a better 
idea and a better knowledge of how much more it could actually 
increase. But a lot of things happened that are unanticipated 
as well, but we are aware of the SCIP process. It is relatively 
new, and we have looked at that in the past and within the last 
couple of years.
    Mr. O'Rourke. And I guess, for Mr. Haggstrom again, in El 
Paso, it seems like we have a number of opportunities for a new 
VA facility, full service VA hospital. One is to co-locate it 
with the new William Beaumont, the DoD active duty hospital, 
which is moving forward now. Another is to find a partner 
within the public health community with Texas Tech, for 
example. What do those opportunities do in shortening 
construction time and reducing costs when we are co-locating 
with other facilities? Does that offer a community like El Paso 
an opportunity to jump up a little bit on the list since we 
have a partner with whom we can construct that facility with?
    Mr. Haggstrom. Congressman, with all due honesty, that is a 
very difficult question to answer with regards to how you put 
it because there are so many other factors that are taken into 
consideration when we look at the SCIP process and the planning 
and programming, and many of that goes to the demographics of 
the areas, what the needs of those veterans are and how they 
can be best served.
    If you would like to, for me to take that back as a 
question, I will certainly be more than happy to do that and 
try to provide that for the record.
    Mr. O'Rourke. I appreciate that. Thank you.
    Thank you, Mr. Chairman.
    Mr. Coffman. Thank you, Mr. O'Rourke.
    Ms. St. James, when we talk about say the facility in 
Aurora, Colorado, and the cost overrun issue and the time 
delay, it did start out as a--or I think there was discussion 
at least of being a joint facility and then it was a standalone 
facility, VA facility. How much did that contribute to the cost 
overruns or to the--that delay? But I understand, obviously, 
when it went to bid, it was sent out to bid as a standalone 
facility. I don't think it was sent out to bid as a joint 
facility, so I don't know how you can contribute that as it was 
contributed to the cost overruns.
    Ms. St. James. That is actually a good question. There are 
four cycles from beginning to end for a construction project, 
and we look at it from the very beginning, from the planning 
aspect, and so we felt that if you do not include that planning 
aspect in looking at how long it takes, then you are not really 
looking at the full picture of how VA manages this entire 
process, and in our report, we know that VA really wanted us to 
look at from the construction point on, but I think you have to 
realize that that--the risk is on the contractor from that 
point. Prior to that point, the risk is on VA. So, I think 
their estimates for these projects done decades ago were not 
done as well as they could have been, which is why they are 
looking at doing the 35 percent design to be complete in 
submitting it to you in the very beginning.
    Mr. Coffman. Is that normal to have a certain percentage of 
the design done before they go out to bid, because I know that 
is their practice. Is that also the practice in say the private 
sector?
    Ms. St. James. What we found in VA actually had an industry 
forum and the industry recommended to VA that they have a 35 
percent design complete.
    Mr. Coffman. Okay. Mr. Haggstrom, what is--now, I 
understand, first of all, I just want to commend you on 
putting--in our visit to Aurora, Colorado last week, at the 
facility, I think you or somebody associated with you has said 
that you-all, 2 months ago, put more resources in terms of 
personnel to process the change orders so that the prime gets 
paid and hopefully the subcontractors get paid in a more timely 
manner. And I will certainly be monitoring them, but I want to 
commend you on that. But obviously not having adequate 
resources on the ground has contributed to these delays, and so 
where--where--do the other facilities have the same problems 
that Aurora, Colorado, has in terms of the delay--a delay in 
payments and problems with subcontractors?
    Mr. Haggstrom. We experienced that with Orlando, Mr. 
Chairman, and we took the same steps to remedy that by putting 
additional resident engineers on staff and construction 
management support. I believe we certainly have taken our 
lessons learned from both Orlando and Denver in that we are 
staffing our project in New Orleans, which is currently on cost 
and schedule, to make sure that those same issues are not 
encountered.
    Mr. Coffman. Ms. St. James, other facilities of the Federal 
Government, I think, are managed by the GSA. Should that be the 
same case with the VA? Are their practices better? I mean, 
would the taxpayers and the veterans be better served if in 
fact the process of constructing facilities like health care 
facilities were managed by the GSA instead of the VA?
    Ms. St. James. That is a good question. We actually have 
not looked at, GSA doing that, but I know that VA has reached 
out to GSA in terms of some of its management issues in the 
report that we have been referring to that they put out 
November 2012. But I can say that when you look at these four 
facilities, it really doesn't matter the type of contract you 
have. The relationship that exists between a contractor, the 
prime or the subcontractor, taking 8 to 10 years to build a 
facility, at the end of the line is the veteran, and that is 
where our concern also is.
    Mr. Coffman.--And, I just want to say as a Gulf War veteran 
and Iraq War veteran, I am very disappointed and I think that 
when there are delays in these projects and these projects are 
designed to meet the capacity needs of our veteran population, 
then I believe, and maybe let me refer to Mr. Kelley, I believe 
that care is ultimately delayed. Mr. Kelley.
    Mr. Kelley. I agree with your statement that care is 
delayed. I want to commend VA for using the SCIP process. It 
really does outline what the needs are. They need to put 
processes in place to be able to achieve those. They understand 
that demographics change. If they were to use a master planning 
in the Las Vegas facility, they would have known that adding 
onto Nellis wasn't going to cut it. They knew the demographics 
had changed. They knew the medical equipment and the processes 
that took place needed to change, and they needed a larger 
facility.
    So I think having a full master plan at each facility early 
on would provide them the insight to know, when we start this 
planning process, what do we really need, and then you don't 
have a small facility turning into a large facility and you get 
quicker access to the veterans.
    Mr. Coffman. Ms. Kirkpatrick.
    Mrs. Kirkpatrick. Thank you, Mr. Chairman.
    Mr. Haggstrom, I have over 20 years experience as a health 
care hospital attorney. In that time period, we completely 
remodeled the hospital, project started and completed, then we 
built a huge new addition. That project was started and 
completed. Then we built a cancer center, and that project was 
started and completed.
    In all fairness to you, can you identify differences in 
your procedure between the private sector and the VA that would 
explain these huge delays in construction?
    Mr. Haggstrom. Congresswoman, I have never served in the 
private sector construction industry. My entire, almost 40 
years in public service has been with Air Force civil 
engineering. I was a civil engineer for 28 years in the Air 
Force and subsequently with the Department of Agriculture here 
and VA. So, in all honesty, I am not that familiar with private 
sector developments and how they go about it, but I will tell 
you that there are different requirements when you deal with 
Federal contracting in terms of the contracting process, in 
terms of the due diligence, in terms of how we do our design 
and construction laws that have to be applied, perhaps like 
Davis-Bacon, the Miller Act, all those kinds of things. Those 
are not necessarily applied in the private sector.
    When you look at it, I believe, when you look at the 
Federal sector and how we complete construction projects, we 
exercise significantly greater oversight in terms of what our 
contractors are doing, the quality of what they are doing, and 
the fact of the matter is, just because they tell us there is 
additional money required to finish this out does not 
necessarily mean that we will agree with those contractors. And 
we do our due diligence to ensure that what they are claiming 
is in fact the truth and the fact that they deserve payment. So 
there are a lot of--
    Mrs. Kirkpatrick. Well, let me just interrupt you there. I 
can tell you, in the private sector, we do due diligence also 
and it doesn't cause these kinds of delays, so I have a big 
concern about that. But let me switch to a different line of 
questioning. You mention that one of the reasons the Denver 
project took so long is that--the needs of the veterans were 
changing and you had to change the scope of the project and the 
design, but are you looking down the road at new delivery 
systems in health care, for instance, using technology. Do we 
still need these large medical facilities when we are entering 
an age of telemedicine?
    Mr. Haggstrom. I think that is an excellent point, and Dr. 
Petzel, who heads Veterans Health Administration, clearly is 
looking at the various ways of delivery and not necessarily 
sticking to infrastructure or bricks and mortar, if you will, 
in terms of care for veterans. Telemedicine, home telehelp, in-
home health care, all those kinds of things I know are on the 
VHA's plate in order to do better delivery and provide better 
care for our veterans.
    Mrs. Kirkpatrick. One last question, and I direct this to 
Mr. Kelley. You know, it seems to me that when you have a 10-
year delay in a completion of a project, by the time that 
project is complete, it is already obsolete. Do you see that in 
what you have investigated? Do you see the VA trying to come 
back to Congress asking for authorization to then remodel these 
facilities that have been 10 years in the construction?
    Mr. Kelley. I don't know the facility becomes obsolete. I 
do know that the demographics change, that veterans have an 
expectation when VA comes out into the community and says, we 
are going to build a facility, this is what we are going to 
build, and here is the timeline we are going to build it. Now 
the veterans are invested in this, they are waiting, they have 
marked their calendar. And when that doesn't come through, they 
start getting very, very anxious: Are we not going to get our 
hospital? Is it going to have the full services that we were 
promised? Where am I going to get my medical care? Now that the 
population has grown, the wait lines are getting longer where I 
am at. I have to travel further to receive this care. I have to 
do contract care with a doctor I don't know. So, there are a 
lot of implications. I don't know if it necessarily makes a 
facility obsolete, but it--quicker delivery would provide 
better care to our servicemembers and vets.
    Mrs. Kirkpatrick. No question about it. You know, delayed 
care is denied care. I thank the panel. I thank the Chairman 
for having this hearing.
    Mr. Coffman. Thank you.
    Ms. Kuster.
    Ms. Kuster. Thank you very much, Mr. Chairman, and I, too, 
thank you for having this hearing. I think it is an important 
topic, anything that we can do to meet the needs of the 
veterans, but I also can appreciate the complexity in the 
health care delivery model throughout. And my experience, 25 
years in the private sector on the legal side with health care 
delivery is that it is far more complex now than it certainly 
was.
    My question is along the lines of Representative O'Rourke 
in terms of those who are waiting for facilities, and I am 
looking at much, much smaller facilities. I don't represent an 
urban area. I represent a very rural area in New Hampshire. We 
also have long distances to travel, mountains and weather and 
such, and so what we are looking at is a much smaller clinic 
model, and I am just wondering, this is just a question as to 
how you build facilities, do these big projects hold up a small 
clinic in a rural area?
    Mr. Haggstrom. I don't believe so because the way the 
appropriation is structured and the way you provide us 
resources comes down in two different programs. Well, actually 
several different programs, but the two that focus on 
construction is the Major Construction Program, which are 
facilities at $10 million or greater.
    Ms. Kuster. Right.
    Mr. Haggstrom. Those are line item appropriations where it 
very specifically says we will build X at Y. When you look at 
the Minor Construction Program, that is an appropriation. It is 
not a line item appropriation, and so it is much more flexible 
in terms of responding to the needs of our veterans and where 
those monies are placed to meet those critical needs.
    When you look at the third scenario and one that we have 
relied on very heavily, and that is usually with our community-
based outpatient clinics and our health care facilities, we use 
a build-to-suit model, and there are several break points in 
that leasing process, if you will. The clear break point being 
that if we have an annual rent in excess of $1 million, we must 
attain approval from the Committee to move forward with that. 
For less than a million dollars on service rent during the 
course of a year, the Secretary has the authority to make those 
decisions for those facilities.
    So when you look at it, because when we do a build-to-suit 
model in putting these facilities on the ground, those leasing 
costs are borne by the medical facilities accounts or through 
the annual appropriations process.
    Ms. Kuster. Trust me, where I am talking about, the rent 
will be significantly less that be a million dollars, so--and 
my other question, and if you have this information or if not, 
if you could get back to the Committee, I am very focused on 
serving women veterans, and in particular, those who have 
experienced military sexual trauma or assault. And I was so 
impressed by this White River Junction facility with a separate 
facility for women, separate entrance, very, very well thought 
through with a task force that included veterans in the 
planning and the architecture and the design to make women feel 
safer when they come to the hospital for treatment. Do you 
know, or any of the panel members, the number of facilities or 
the percentage of facilities nationwide that are now equipped 
to deal with the increasing numbers of women veterans 
separately from being mixed in the general population?
    Mr. Haggstrom. Right off the top of my head, I don't, but I 
would be happy to take that question and get the answer for you 
as a matter of record.
    Ms. Kuster. Yeah, I would be very interested, and also, 
just as my time runs down, just for planning purposes, looking 
forward, whether that is something that is being included in 
the planning, and I see you nodding your head, if you would 
like to respond.
    Ms. Fiotes. Yes, it is, Congresswoman. I recently attended 
my first SCIP board meeting and was introduced to the process, 
and among the very many large number of projects and plans that 
were presented by the various medical centers and veterans 
integrated service networks, there was specific reference in 
several cases, in numerous cases, to the specific needs of 
women veterans, and they are considering that, and they are 
planning it in their programming going forward.
    Ms. Kuster. Excellent. Thank you very much.
    I yield back my 2 seconds.
    Mr. Coffman. Mr. O'Rourke.
    Mr. O'Rourke. Thank you. Mr. Kelley offered some 
suggestions to address some of the findings made by Ms. St. 
James and the GAO, and I wonder, Mr. Haggstrom, if you could 
give us your thoughts or your reaction to his suggestions.
    Mr. Haggstrom. Certainly. I fully agree that medical 
planners are a crucial part of these large projects, and we 
have already taken steps to include professional medical 
planners on both the Denver and the New Orleans project, so we 
are moving forward with that.
    With regards to eCMS. ECMS is a contract writing system.
    Mr. O'Rourke. Right.
    Mr. Haggstrom. It is not a program management system, so we 
are in the process of fielding a new program management system 
which is specifically tailored to manage construction projects. 
What we will do, though, is look to interface the contract 
writing system with the program management system so that we do 
have a seamless process for contractual record and all the 
change orders or what goes on, on a project.
    When you look at an AE-led design build, to be honest with 
you, I have never been involved in a project with an AE design 
build, but when we looked at it and we talked about it because 
we did see that you mentioned it, we will take a look at it, 
but one of our initial reactions was bonding capacity of the AE 
firms. So, that could be somewhat problematic in terms of who 
is the lead, the bonding capacity that that particular firm may 
be able to attain, where typically you would probably see a 
much larger bonding capacity on the construction side as 
opposed to on the AE, but these are all things that we will 
certainly take a look at.
    Mr. O'Rourke. I appreciate that. We in our office would be 
interested in hearing your answers to the specific 
recommendations made by Mr. Kelley.
    And then I want to follow up on something that 
Congresswoman Kuster brought up and I tried to address in my 
earlier questions, but essentially learning from what has gone 
less than ideally, I guess, in some of these projects that have 
been highlighted in this report, what can communities like ours 
who need new facilities and need investment from the VA to 
serve veterans who currently are not able to get service in our 
communities and have to travel for that service, what can we do 
to improve that process, whether it is through a co-location, I 
talked about DoD, or through a university system, whether it is 
providing land and leasing opportunities, give us some guidance 
in El Paso on how we can partner with you to be able to service 
these veterans who aren't getting that service today.
    Mr. Haggstrom. I think the things that you said are very 
relative to looking at the future needs. I know VHA, we are in 
many, many communities across the United States, sit down, talk 
with your medical center directors, talk about the requirements 
that you need in your community, make sure they are aware of 
those things, and those things can be put forth as we go into 
the planning and programming process. They can come up through 
the SCIP process, all those kinds of things.
    So, I think you are on the right track. I will tell you, as 
you noted, the number of projects that are in the queue as 
requirements, there is a substantial list, and certainly as 
part of the SCIP process, we do our best to ensure that the 
most critical needs that serve our veterans are first in the 
queue to make sure that they happen.
    Mr. O'Rourke. And are the criteria you use to determine 
ranking within that SCIP process, are those published along 
with--
    Mr. Haggstrom. They would. In fact, I would like to ask Ms. 
Fiotes if she can go through that, having just--
    Mr. O'Rourke. That would be great.
    Mr. Haggstrom.--been on the SCIP process. She is a board 
member, so she participates in that planning process.
    Ms. Fiotes. Thank you for the opportunity.
    Actually, the criteria are very well defined, and the 
entire process is very deliberative, comprehensive and 
integrated, and it starts with a 10-year planning horizon where 
all the VISNs, the networks, present their gaps and their 
proposals how to address these gaps, and by the way, in many 
cases, they also talk about non-capital ways to address the 
gaps, which goes to the Congresswoman's question earlier about 
other, other than just building facilities, solutions.
    Mr. O'Rourke. And those come from the local VHA directors 
or the regional?
    Ms. Fiotes. They come from what we call the Veterans 
Integrated Service Networks, there are 23, I believe, across 
the country, and they--those plans are presented to the SCIP 
board. Along with this 10-year planning horizon, we then do, 
subject matter experts then do a review of the proposed 
projects and the business cases for those projects, and this 
forms the basis for the annual budget request.
    So we go from the 10-year horizon to what should we be 
looking at for the upcoming year. The criteria, to get to your 
initial question, again, are defined and are used for the 
ranking, it includes improving safety and security, fixing what 
we already have, increasing access to veterans, right sizing 
the inventory, ensuring the value of the investment, then, of 
course, the department's initiatives, so they've --and each 
criterion has sub-criteria that, again, the entire process is 
data driven to allow us to do the most objective assessment and 
prioritization.
    Mr. O'Rourke. Thank you. Appreciate that.
    Thank you, Mr. Chairman.
    Mr. Coffman. We will do one last round for anybody that has 
any clean-up questions.
    Mr. Haggstrom, I think you mentioned the electronic 
contract management system, and tell me what that is supposed 
to do again.
    Mr. Haggstrom. The eCMS or Electronic Contract Management 
System is a contract writing tool that we use in VA to put in 
place the various contracts, whether they be service contracts, 
construction contracts or commodity contracts. They are used by 
the contracting workforce to do this, and what it does is, it 
is an electronic repository for the contract files in terms of 
what the terms and conditions are, the standard clauses are, 
what the costs are, when it is gone out to bid, what those bids 
were, all those kinds of things. It is the electronic file for 
contracts.
    Mr. Coffman. Is it designed to make the system more 
efficient?
    Mr. Haggstrom. It is designed to make the contracting 
workforce more productive. It gets us out of the paper 
business. It is transportable so that multiple contracting 
officers can use the same file at different times. We can do 
our risk assessments electronically as opposed to having to go 
out to the contracting offices and look at the paper copies. So 
it is what we are moving to in the department in terms of our 
contracting records.
    Mr. Coffman. Ms. St. James, is that system being utilized 
by VA?
    Ms. St. James. I am sorry. Say again.
    Mr. Coffman. Is the Electronic Contract Management System 
being currently utilized, to your knowledge?
    Ms. St. James. That is a recommendation that again is 
coming out of their report, and I would wholeheartedly push VA 
to do that. Particularly when we were asking questions about 
the change orders and how long things were taking, they 
couldn't really tell us. There was no system to do that. So for 
accountability and for tracking and for metrics, it certainly 
is something that I think needs to be done.
    Mr. Coffman. So it is not being currently used?
    Ms. St. James. Not that I am aware of.
    Mr. Haggstrom. Well, it is being used. When you look at the 
contracts that we are putting in place, the vast majority of--
all the new contracts are in fact going through the Electronic 
Contracting System and into the Federal Procurement Data 
System.
    Ms. St. James. For the four that we looked at as well?
    Mr. Haggstrom. Yes.
    Ms. St. James. Okay. We just know that for the change 
orders, we couldn't get that information easily. There was no 
real good system in order to give that to us.
    Mr. Coffman. Mr. Haggstrom, how long has this system been 
in place and been used? Apparently, there was a mandate in 
2007.
    Mr. Haggstrom. That is correct.
    Mr. Coffman.--for this system. How long has it been 
utilized now?
    Mr. Haggstrom. I believe the system was established, it was 
prior to my arriving there, back around 2006 or so. It was not 
well received. Our OIG did an audit on the usage of the system. 
At that particular time, it was down in the low 40s, the 
percentage, even lower than that. Through the years, this is 
one of the metrics that we track internally to the goal, and I 
believe we are now up in the high 70s to mid 80 percent usage 
of electronic contract writings.
    Mr. Coffman. Is this a mandate by Congress? I mean, is it 
the law?
    Mr. Haggstrom. No, it is a mandate of the department, sir.
    Mr. Coffman. It is a mandate by the--and you put out a memo 
two years ago for everybody to use it and not everybody is 
using it now?
    Mr. Haggstrom. There are pockets of folks that still have 
not fully developed their contracts within the system. We go 
through, we find those. We provide education. We provide 
learning engagements to those folks.
    Mr. Coffman. Well, I mean, you were in the United States 
Air Force. If you gave out a mandate--I mean, you should put a 
memo, we have got a copy of the memo 2 years ago that said 
everybody has got to use this system, and you are saying now 
people decide whether or not they want to use it. That is under 
your leadership? You are saying that that is the way things 
work?
    Mr. Haggstrom. There are cases where people have not used 
the system to the full capability that they should be using it 
to. We go out, we do audit reviews, we find those, we talk with 
the heads of the contracting agency. There is a hierarchy 
within the department from me as the acting chief acquisition 
officer to the heads of contracting authority within the 
various administrations and/or staff offices. These are the 
people that need to enforce through their leadership the use of 
these. I do not have administrative authority over all of the 
people who do contracting in the department. I just have 
functional authority.
    Mr. Coffman. Well, it sounds like you have got a real 
organizational problem. If you have got a system that is 
designed--you know, if you are--the problem is, you have got 
delays; you have got cost overruns; the system isn't working; 
you are not utilizing the system that is designed to make it 
work; you are not able, in your position, to get people to use 
the very system that Congress mandated in 2007. I think that is 
problematic.
    Mr. Haggstrom, on another issue. Is VA requiring surety 
bonds of construction contracts currently?
    Mr. Haggstrom. Yes, they do.
    Mr. Coffman. Okay. Why is the VA making what appears to be 
arbitrary last minute cuts to monthly payments to the prime 
contractor, who then passes the cuts down to subcontractors?
    Mr. Haggstrom. It would be helpful to have a specific issue 
that that surrounds, but that could range from the work was not 
performed--
    Mr. Coffman. Specifically to Aurora, Colorado.
    Mr. Haggstrom. In those particular cases, we have 
encountered areas where the work was in fact not performed but 
was being asked payment for. We found that, in some cases, the 
work was performed years prior, and the time for the request 
for those change orders and payments had been exceeded.
    And we have also found that, in Colorado, there is a 
request for payment above what the budgeted cost, but what that 
is absent of is any rationale of why it was budgeted at X 
dollars and now why it is at Y dollars.
    The contract that we have in place is not a cost-plus 
contract. It is a firm target price contract, where the 
contractor is to adhere to those budgeted amounts. In the case 
where there is clearly a reason, such as a change in scope or 
complexity or something like that, they are well within their 
rights to submit those changes to the VA, and we will respond 
to them. And if they are due additional payments, we will make 
those, based on what our government cost estimate is.
    Mr. Coffman. Why is the VA pushing the prime in 
subcontractors--in what project would this be? In Aurora, 
Colorado, to complete work without an approved change order?
    Mr. Haggstrom. Congressman, we, over the past two months, 
we just sat down with Kiewit Turner and worked to resolve 111 
change orders that Kiewit Turner provided to us as the greatest 
needs to come to resolution on. That was completed back in mid 
April. As a result of that, VA has issued to Kewitt Turner $4 
million in change orders that Kiewit Turner can now invoice the 
VA for, for payment.
    Mr. Coffman. I will take a look at that.
    Mr. Kelley, does the VFW conduct any field work to evaluate 
VA's construction program?
    Mr. Kelley. No, we do not.
    Mr. Coffman. Very well. Mrs. Kirkpatrick.
    Mrs. Kirkpatrick. Thank you, Mr. Chairman.
    I want to follow up on your line of questioning regarding 
the change orders. It appears that the CRC made a 
recommendation, actually looked at the process for change 
orders, and they made a recommendation that the VA examine the 
authority levels of contracting officers in the field to 
execute change orders without additional reviews and that the 
VA consider support for hiring three additional attorneys to 
review change orders.
    Mr. Haggstrom, where are we in terms of those 
recommendations?
    Mr. Haggstrom. The authority for the change or the change 
orders for the contracting officers in the field has been 
increased from $100,000 to $250,000 per change order. That is 
in effect, and we are working with our general counsel to hire 
four additional attorneys that we--would be dedicated to 
helping us manage the contractual requirements required by 
these large contracts.
    Mrs. Kirkpatrick. My last question is, does SCIP apply to 
these four major projects that we are looking at in Las Vegas, 
Denver, Orlando and New Orleans?
    Mr. Haggstrom. They do not. This is pre-SCIP.
    Mrs. Kirkpatrick. And why is that?
    Mr. Haggstrom. SCIP was not, I guess, not envisioned when 
we started the planning and programming and ultimately 
requesting funds for these projects. It was not until fiscal 
year 2012 that the SCIP came into being. All these projects 
were developed and appropriations requested prior to that.
    Mrs. Kirkpatrick. Mr. Kelley, would the processes in SCIP 
help speed up completion of these projects?
    Mr. Kelley. Appropriations at a level that would fund these 
would speed up the process. I don't--I think SCIP can be used 
for part of the planning, but as soon as the contract is 
written, then that is where the delays begin, in my opinion. 
There is some delay in the planning of that because I think 
there is some long-term master planning that needs to happen 
that would allow them to have a better understanding prior to 
planning, but SCIP, SCIP lays out some of that. I think they 
can go in a little deeper, but I don't think that--SCIP, in the 
process of determining need, affects the way the contracts 
are--in the end, are done or completed.
    Mrs. Kirkpatrick. Ms. St. James, could you prioritize for 
us the top three changes that you think the VA needs to make to 
speed up completion of these projects?
    Ms. St. James. Well, we made three recommendations in our 
report that really were ran or systematic--systemic issues 
throughout, and one of them was on the medical planners. You 
absolutely need the medical planners to be involved up front 
and to have guidance on when they should be used and 
particularly in these very large complex medical facilities. 
The communication, that needs to be clearly laid out so that 
you don't have delays in what the contractor understands that 
they need to do. And then the change order process, that change 
order process was really systemic throughout. And when you have 
delays, sometimes up to 6 months, it doesn't work well, and if 
they don't get the process changed with the change orders and 
streamline that, then you are going to continue to see delays, 
and that is within the construction.
    VA needs to get their planning to go away from, and I 
understand that they are, from rough orders of magnitude and 
giving Congress what they think they need. They need to put 
that planning effort up front, which I believe they are trying 
to do, and then to manage that construction process, including 
correcting the change order.
    Mrs. Kirkpatrick. Thank you.
    I yield back.
    Mr. Coffman. Thank you. My thanks to the panel. You are now 
excused.
    The obstacles facing VA construction are disheartening, but 
I look forward to working with the VA to improve its 
construction practices and to create a system that is both fair 
to the veterans who have served this country and to the 
taxpayers who foot the bill.
    With that, I ask unanimous consent that all Members have 5 
legislative days to revise and extend their remarks and include 
extraneous material.
    Without objection, so ordered.
    I want to thank all Members and witnesses for their 
participation in today's hearing. This hearing is now 
adjourned.

    [Whereupon, at 4:12 p.m., the Subcommittee was adjourned.]



                            A P P E N D I X

                              ----------                              

           Prepared Statement of Hon. Mike Coffman, Chairman

    Good afternoon. I would like to welcome everyone to today's hearing 
titled ``VA Construction Policy: Failed Plans Result in Plans That 
Fail.''
    Providing veterans medical care is a core function of VA. When VA 
does health care right, it can be second to none. However, the process 
VA employs to build its health care facilities is abysmal and the 
result leads to delays for much needed care to veterans
    The Government Accountability Office's recent report noted that 
VA's four largest medical-center construction projects have had an 
average cost increase of $366 million dollars and an average delay of 
thirty-five months. One of the most distressing items in the GAO report 
is that VA failed to learn from its mistakes as it went from project to 
project. I must add that many of these same issues have been identified 
by GAO in the past and we seem to be no closer to a better result.
    Unfortunately, it is not just major facilities that epitomize why 
VA's construction policy is a debacle. A little more than a year ago, 
this Subcommittee held a hearing on VA's failure to perform due 
diligence and failure to inform Congress of project increases regarding 
the proposed clinic in Savannah, Georgia. Based on subsequent 
correspondence with VA over the past year, I am not quite certain VA is 
getting the message that its construction program is dysfunctional and 
not in keeping with industry best practices or veterans' expectations.
    Not only is VA building facilities over budget and late, but it is 
also failing to pay the contractors for their work in a timely manner. 
While ensuring taxpayer dollars are properly spent is of the utmost 
importance, VA must pay its bills on time. Last week, I visited the 
Denver project and spoke directly with VA about prompt payment to 
contractors and subcontractors and was alarmed by VA's response to the 
issue. Under the Prompt Payment Act, and OMB's guidance, a Federal 
agency is expected ``to ensure that prime contractors disburse the 
funds that they receive from the Federal Government to their small 
business subcontractor in a prompt manner.'' The Prompt Payment Act 
also requires that the contractor certify that his sub-contractors are 
receiving payment commensurate with the work performed. But as evidence 
shows, some contractors and subcontractors in these four projects have 
been waiting for months to be paid.
    Moreover, the Small Business Act explains that it is ``the policy 
of the United States that its prime contractors establish procedures to 
ensure the timely payment of amounts due pursuant to the terms of their 
subcontracts with small business concerns.'' VA's failure to abide by 
the laws governing payment to its contractors is unacceptable and is a 
problem in need of an immediate fix.
    Given the number and variety of facilities VA has built over the 
last several years, it is disturbing to me that VA continues to employ 
policies and techniques that have repeatedly fallen short.
    I look forward to hearing from today's witnesses regarding VA's 
construction policy and how we can move forward to effectively and 
efficiently build medical facilities for our veterans.

                                 
               Prepared Statement of Hon. Jackie Walorski

    Mr. Chairman and Ranking Member, it's an honor to serve on this 
Committee.
    I thank you for holding this hearing on such an important issue for 
our veterans and the future of veteran health care.
    The Department of Veterans Affairs (VA) oversees an impressive 
health care delivery system comprised of 152 hospitals and 821 
community-based outpatient clinics (CBOCs) in addition to close to 300 
veteran centers. \1\ These facilities have a reputation for providing 
quality care specific to veteran needs; however, many of these 
facilities are in desperate need of repair and modifications to 
accommodate the influx of new veterans as well as a veteran population 
composed of approximately 43 percent who are 65 or older. \2\
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    \1\ Department of Veterans Affairs, National Center for Veterans 
Analysis and Statistics, ``Department of Veterans Affairs Statistics at 
a Glance,'' Updated 4 February 2013. http://www.va.gov/vetdata/docs/
Quickfacts/Winter--13--sharepoint.pdf.
    \2\ Ibid.
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    There is an obvious greater need for state-of-the-art facilities 
that can address the unique needs of all veterans. This is why I am 
determined to ensure the replacement CBOC proposed for South Bend 
remains on schedule to open in 2015. The approximately 53,000 veterans 
in Indiana's Second Congressional District have earned access to the 
primary care and mental health services promised with this new 
facility. \3\
---------------------------------------------------------------------------
    \3\ There are an estimated 53,318 veterans in IN-02. This data was 
compiled on 09/30/2012, based on the district lines from the 112th 
Congress. http://www.va.gov/vetdata/Veteran--Population.asp.
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    The delays and significant cost increases for other VA medical 
center projects are disturbing. This is an issue which necessitates 
immediate action from the VA.
    I look forward to working with my colleagues and our panelists to 
establish a plan of action for the Department of Veterans Affairs which 
eliminates redundancies and streamlines processes that promote greater 
efficiency in the construction of major medical-facility projects.
    Thank you.

                                 
                Prepared Statement of Lorelei St. James

    Chairman Coffman, Ranking Member Kirkpatrick, and Members of the 
Subcommittee:
    I am pleased to be here today to discuss our recent work examining 
cost increases and schedule delays at the Department of Veterans 
Affairs' (VA) major medical-facility construction projects. \1\ 
According to VA's fiscal year 2013 budget submission to Congress, the 
Veterans Health Administration's (VHA) existing infrastructure does not 
fully align with the current health care needs of the veteran 
population. \2\ To help address this situation, VA has 50 major 
medical-facility projects \3\ under way, including new construction and 
the renovation of existing medical facilities, at a cost of more than 
$12 billion. Although VA has taken steps to improve its process for 
managing these construction projects, opportunities exist for VA to 
improve its efforts.
---------------------------------------------------------------------------
    \1\ GAO, VA Construction: Additional Actions Needed to Decrease 
Delays and Lower Costs of Major Medical-Facility Projects, GAO-13-302 
(Washington, D.C.: April 4, 2013).
    \2\ U.S. Department of Veterans Affairs, Fiscal Year 2013 Budget 
Request. Construction IV (Washington, D.C.: 2012).
    \3\ 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. 
Sec.  8104. These projects cost at least $10 million, some in the 
hundreds of millions of dollars. The project types include new 
construction, renovation of existing structures, expansion, or a 
combination of types. The total number of major VA medical-facility 
projects is based on agency data from November 2012.
---------------------------------------------------------------------------
    This testimony discusses VA construction management issues, 
specifically (1) the extent to which the cost, schedule, and scope for 
selected new medical-facility projects have changed since they were 
submitted to Congress and the reasons for these changes, (2) actions VA 
has taken to improve its construction management practices, and (3) the 
opportunities that exist for VA to further improve its management of 
the costs, schedule, and scope of these construction projects. This 
testimony is based on our April 2013 report. In that report, we discuss 
VA's current 50 major medical-facility projects, including the original 
cost estimates and completion dates and the projects' current status 
according to November 2012 data. \4\ To understand issues involving 
costs estimates and completion dates, we took a more detailed review of 
four VA medical-facility projects in Las Vegas, Orlando, New Orleans 
and Denver. We also reviewed and analyzed construction documents, VA's 
Strategic Plan Fiscal Years 2011 to 2015, and other relevant documents. 
We interviewed officials from VA; veterans support organizations; 
architectural and engineering firms; general contractor construction 
firms; and construction management firms. The work on which this 
statement is based was conducted from April 2012 to April 2013 in 
accordance with generally accepted government auditing standards. For a 
more detailed explanation of our scope and methodology, see the April 
2013 report.
---------------------------------------------------------------------------
    \4\ We identified reasons for selected facilities' overall cost and 
schedule changes, but were not able to identify the extent to which 
specific reasons changed these costs and schedules, unless specifically 
noted.
---------------------------------------------------------------------------
    In summary, we recognize that some cost increases and schedule 
delays result from factors beyond VA's control; however, our review of 
VA's largest projects indicated weaknesses in VA's construction 
management processes also contributed to cost increases and schedule 
delays. Given that VA is currently involved in 50 major medical-
facility construction projects, including four large medical centers, 
VA should take further action to improve its management of costs, 
schedule, and scope of these projects.

Cost Increases and Schedule Delays at the Four Largest Projects 
        Occurred for a Variety of Reasons
Cost Increases and Schedule Delays
    Costs increased and schedules were delayed considerably for VA's 
four largest medical-facility construction projects, when comparing 
November 2012 construction project data with the cost and schedule 
estimates first submitted to Congress. Cost increases ranged from 59 
percent to 144 percent, \5\ representing a total cost increase of 
nearly $1.5 billion and an average increase of approximately $366 
million per project. The schedule delays ranged from 14 to 74 months 
with an average delay of 35 months per project (see table 1).
---------------------------------------------------------------------------
    \5\ According to the Office of Management and Budget (OMB), federal 
agencies should keep a contingency fund of 10 to 30 percent above total 
estimated costs to address increased costs on construction projects. 
However, this guidance applies after construction has begun, and many 
of the cost increases we observed occurred before that time. The 
construction contractor is generally responsible for cost increases and 
schedule overruns under the terms of the fixed-price contract. OMB 
Circular No. A-11, Appendix 8 (2012).

[GRAPHIC] [TIFF OMITTED] T2234.001

    Source: GAO Analysis of VA data.
    a - The column titled ``total estimated years to complete'' is 
reported to the nearest quarter year and is calculated from the time VA 
approved the architecture and engineering firm to the current estimated 
completion date. We calculated the ``number of months extended'' column 
by counting the months from the initial estimated completion date to 
the current estimated completion date, as reported by VA. According to 
VA, the dates in the initial estimated completion dates are from the 
initial budget prospectus, which assumed receipt of full construction 
funding within 1 to 2 years after the budget submission. In some cases, 
construction funding was phased over several years and the final 
funding was received several years later. Naval Facilities Engineering 
Command officials we spoke with told us that historically, their 
medical facility projects take approximately 4 years from design to 
completion. We calculated the percentage change in cost by using the 
initial total estimated costs and total estimated costs, as reported by 
VA.
    b - VA provided time extensions to the Orlando, Florida contractor 
extending the contract completion date to July 2013. Because of an 
ongoing dispute between VA and the general contractor regarding 
performance of the contract in Orlando, VA issued a ``show-cause'' 
notice to the contractor on January 31, 2013. The show-cause notice 
provides the contractor an opportunity to present any facts relevant to 
the dispute. As of the publication of this testimony, VA has yet to 
determine the next steps to resolve this matter. July 2013 is 
considered the current completion date provided to us by VA officials. 
However, the general contractor disagrees with this date and has 
estimated that it will be spring 2014.

    Of the remaining 46 major medical-facility projects, 26 are under 
construction or were recently completed. Of these 26, half have 
experienced cost increases, but the other half experienced either no 
change in costs or a decrease in costs. Nineteen of 24 construction 
projects currently under construction or recently completed have 
experienced schedule delays. \6\
---------------------------------------------------------------------------
    \6\ VA did not provide schedule data for both initial estimated 
completion date and current estimated completion date for two projects 
under construction.
---------------------------------------------------------------------------
    In commenting on a draft of our April 2013 report, VA contends 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 prior to the award of 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. \7\ 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.
---------------------------------------------------------------------------
    \7\ GAO, VA Construction: VA is Working to Improve Initial Project 
Cost Estimates, but Should Analyze Cost and Schedule Risks, GAO-10-189 
(Washington, D.C.: Dec. 14, 2009).
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Reasons for Cost Increases and Schedule Delays at VA's Four Largest 
        Projects and Related Scope Changes
    At each of the four locations we reviewed, different factors 
contributed to cost increases and schedule delays:

      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.
      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.
VA Has Taken Steps to Improve Its Construction Management Practices
    VA has made improvements in 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. \8\ 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. \9\ The report revealed 
that the challenges identified on a project-by-project basis were not 
isolated incidents but were indicative of systemic problems facing VA, 
and made several recommendations to address these problems. But VA has 
not yet developed specific guidance or instructions for how to 
implement the recommendations.
---------------------------------------------------------------------------
    \8\ The Construction Review Council was comprised of officials from 
the VA, including the secretary, deputy secretary, chief of staff, 
under secretaries, and assistant secretaries, as well as key leaders 
across the department. The Secretary of VA chaired nine meetings from 
April 18 through June 15, 2012, to review the VA construction program 
and identify challenges that led to changes in scope, cost over-runs, 
and scheduling delays of major projects.
    \9\ VA, The Construction Review Council Activity Report 
(Washington, D.C.: November 2012).
---------------------------------------------------------------------------
    VA has taken some other actions to improve construction project 
management. For example, VA has collaborated with other federal 
agencies involved in medical facilities construction to tap their 
experience, and convened a construction industry forum to communicate 
about ways to improve medical facilities construction practices. In 
addition, VA has taken steps to involve construction contractors 
earlier in some projects to allow coordination with the architectural 
and engineering firms in designing and planning a project.

Opportunities Exist for VA to Further Improve Its Construction 
        Management Practices
    Although VA has made improvements in its management of major 
medical-facility construction projects, many of these projects continue 
to experience cost increases and schedule delays. We recognize that 
some cost increases and schedule delays result from factors beyond VA's 
control; however, our review of VA's four largest projects indicates 
that weaknesses in VA's construction management processes-in 
particular, those listed below--also contributed to cost increases and 
schedule delays:

Using Medical Equipment Planners
    VA officials have emphasized that they need the flexibility to 
change their heath care processes in response to the development of new 
technologies, equipment, and advances in medicine. \10\ Given the 
complexity and sometimes rapidly evolving nature of medical technology, 
many health care organizations employ medical equipment planners to 
help match the medical equipment needed in the facility to the 
construction of the facility. Federal and private sector stakeholders 
during our review reported that medical equipment planners have helped 
avoid schedule delays. VA officials told us that they sometimes hire a 
medical equipment planner as part of the architectural and engineering 
firm services to address medical equipment planning. However, we found 
that for costly and complex facilities, VA does not have guidance for 
how to involve medical equipment planners during each construction 
stage of a major hospital and has sometimes relied on local VHA staff 
with limited experience in procuring medical equipment to make medical-
equipment- planning decisions. In Orlando, medical equipment 
specifications changed several times and led to cost increases of at 
least $14 million in addition to schedule delays, as these issues 
forced VA to suspend construction until the issues were resolved. In 
our April 2013 report, we recommended that the Secretary of VA develop 
and implement agency guidance to assign of medical equipment planners 
to major medical construction projects. VA agreed and said it planned 
to address this recommendation.
---------------------------------------------------------------------------
    \10\ VA, Strategic Plan Refresh: FY2011-FY2015, (Washington, D.C).
---------------------------------------------------------------------------
Sharing Information on the Roles and Responsibilities of VA's 
        Construction-Management Staff
    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. \11\ However, we found that the roles and 
responsibilities of CFM and VHA staff are not always well communicated 
and that it is 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. For example, contractor officials at one site said that 
VA's project manager directed them to defer the design of specific 
rooms until medical equipment was selected for the facility; however, 
VA's central office then directed the contractor to proceed with 
designing the rooms. This conflicting direction from VA could require 
the contractor to redesign the space, further expending project 
resources. 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. In April 2013, we recommended that the Secretary of 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. VA agreed and stated they had actions underway to improve 
communication involving roles and responsibilities.
---------------------------------------------------------------------------
    \11\ VA, Construction Primer (Washington, D.C.: January 2013).
---------------------------------------------------------------------------
Managing the Change- Order Process
    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 \12\ and agency guidance 
\13\ state that change orders must be made promptly, and 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 
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. \14\ However, officials at two 
sites, New Orleans and Orlando, said that it was common for VA to take 
6 months to process a change order, even though VA has directed its 
staff to eliminate or minimize delays. \15\ Processing delays may be 
caused by the difficulty involved in VA's and contractors' coming to 
agreement on the costs of changes and the multiple levels of review 
required for many of VA's change orders. In April 2013, we recommended 
that the Secretary of VA issue and take steps to implement guidance on 
streamlining the change-order process based on the findings and 
recommendations of the Construction Review Council. \16\ VA concurred 
with our recommendation and was reviewing the options proposed by the 
Construction Review Council to streamline the change-order process.
---------------------------------------------------------------------------
    \12\ 48 C.F.R. Sec.  43.201
    \13\ VA, VA Resident Engineer Handbook, ``Chapter 3: Major 
Construction: Contract Changes'' (3.24) (Washington, D.C.)
    \14\ Specifically, we interviewed the U.S. Army Corps of Engineers 
and Naval Facilities Engineering Command. We recognize that the 
Department of Veterans Affairs serve different populations in the 
defense community--active duty military personnel and veterans, 
respectively. However, these organizations construct similar medical 
facilities, in addition to abiding by federal government regulations 
for construction projects.
    \15\ Although officials at one of these sites said that VA's 
timeliness of the change order process has improved, they noted that a 
change order still takes an average of 2 to 3 months, indicating to 
them that further improvement is needed.
    \16\ GAO-13-302.
---------------------------------------------------------------------------
    We provided a draft of our April 2013 report for VA for review and 
comment. In its written comments, VA concurred with our 
recommendations.
    Chairman Coffman and Ranking Member Kirkpatrick, and Members of the 
Subcommittee, this completes my prepared statement. I would be pleased 
to respond to any questions that you may have at this time.

Contacts and Acknowledgments
    If you have any questions about this testimony, please contact 
Lorelei St. James at (202) 512-2834 or [email protected]. Other key 
contributors to this testimony include are Ed Laughlin (Assistant 
Director), Nelsie Alcoser, George Depaoli, Raymond Griffith, Joshua 
Ormond, Amy Rosewarne, James Russell, Sandra Sokol, and Crystal Wesco.

    This is a work of the U.S. government and is not subject to 
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if you wish to reproduce this material separately.

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                Prepared Statement of Raymond C. Kelley

    MR. CHAIRMAN AND MEMBERS OF THE SUBCOMMITTEE:
    On behalf of the nearly 2 million men and women of the Veterans of 
Foreign Wars of the United States (VFW) and our Auxiliaries, I would 
like to thank you for the opportunity to testify today regarding VA 
construction policy.
    As the Department of Veterans Affairs (VA) strives to improve the 
quality and delivery of care for our wounded, ill and injured veterans, 
the facilities that provide that care continue to erode. With buildings 
that have an average age of 60 years, VA has a monumental task of 
replacing or expanding the existing medical facilities. From 2004 to 
2010, utilization of VA health care facilities grew from 80 percent to 
121 percent, while the conditions of these facilities declined from 81 
percent to 71 percent over the same period of time.
    In 2010, VA adopted the Strategic Capital Investment Planning 
(SCIP) process to identify current and future infrastructure needs. 
Based on this process, VA identified 130 major construction projects 
that need to be completed by 2021 to eliminate the current and future 
gaps in utilization and safety. The price tag to close these major 
construction gaps is between $21 billion and $25 billion. To even come 
close to accomplishing these projects, VA must maximize every dollar 
and implement processes that will expedite the construction process.
    The VFW has identified four major areas that need to be addressed 
to ensure that construction projects are done in a more efficient and 
cost effective manner. First, VA must use the electronic Contract 
Management System (eCMS) to its fullest potential; second, VA needs to 
change from using the design-bid-build practice; third, VA must adopt a 
comprehensive facility master plan; and forth, VA should being using 
medical equipment planners on all major construction projects.
    eCMS is VA's centralized electronic contract writing and management 
platform that is intended to replace the current contract writer. eCMS 
is designed to reduce costs, standardize the acquisition process, 
reduce workload and improve communication for any contract valued at 
$25,000 or more.
    Roll-out and utilization of eCMS has been slow. By VA's own 
account, usage has gone from 17 percent in 2008, to 77 percent in 2012. 
The VA Office of Acquisitions and Logistics and Construction (OALC) has 
mandated that all contracts costing more than $25,000 must be processed 
through eCMS. However, design flaws within eCMS prevent it from being 
an effective tool in contract management and fiscal oversight, and 
causes contract officers who use the program to also write the contract 
through the National Acquisition Center's Contract Management system. 
Therefore, eCMS's information is incomplete and cannot be relied upon 
for making sound procurement decisions and causes contract officers to 
duplicate their effort, which results in inefficient use of time and 
resources.
    VA projects that system upgrades to eCMS will be completed in 2014. 
Congress must ensure that the resources that are needed to complete 
these upgrades are available and they must provide oversight to confirm 
eCMS is being utilized. While the system is improving, OALC must follow 
through with its mandate to write contracts in eCMS, so OALC can 
consistently capture data, allowing them to make better acquisition 
decisions.
    VA has historically relied on the design-bid-build project delivery 
system when entering into contracts to build major medical facility 
projects. Of the 50 current VA major medical facility projects, 43 of 
them are design-bid-build. With this model, an architect is selected to 
design a facility, the design documents are used to secure a bid, and 
then the successful contract bid holder builds the facility.
    Design-bid-build projects often encounter disputes between the 
costumer - VA in this case - and the construction contractor. Because 
these contracts are generally firm-fixed-price, based on the completed 
design, the construction contractor is usually responsible for cost 
overruns, unless VA and the contractor agree on any needed or proposed 
changes that occur with a change of scope, unforeseen site condition 
changes or design errors. VA and the contractor negotiate these changes 
through change orders. This process can become adversarial, because 
neither party wants to absorb the cost associated with the change, and 
each change order can add months to the project completion date.
    The flaws of design-bid-build projects have become very apparent, 
highlighted by the delays in Orlando, Florida, where a new medical 
facility has been delayed by 39 months due mostly to change order 
disputes. This contract must be followed through to completion, but VA 
must use this as a lessons-learned and change their contracting model 
to an Architect-led design-build model.
    A design-build project teams the architectural/engineering company 
and the construction contractor under one contract. This method can 
save VA up to six months of time by putting the design phase and the 
construction performance metric together. Placing the architect as the 
lead from start to finish, and having the construction contractor work 
side-by-side with the architect, allows the architect to be an advocate 
for VA. Also, the architect and the construction contractor can work 
together early on in the design phase to reduce the number of design 
errors, and it also allows them to identify and modify the building 
plans throughout the project.
    VA must also use master planning at all of its facilities. Master 
planning will allow VA to examine and project potential changes in 
technology, patient care practices and changes in veteran demographics. 
The new Las Vegas Medical Center is an example of not knowing the trend 
in the veteran population, causing the project to be delayed while the 
scope of the project was changed. Early on, VA only planned to expand 
an existing facility, later realizing that a much larger facility was 
needed to meet the needs of the veterans in the community. Having a 
thorough master plan could have eliminated some the 74-month delay in 
the construction of this facility.
    The last area the VFW would like to discuss that has been 
identified as causing delays in medical facility construction is the 
purchase of medical equipment. VA wants to equip its facilities with 
the most up-to-date equipment. However, procuring medical equipment 
after the design of the facility inevitably causes building delays 
while the designs are redrawn, and in some cases some demolition of 
recently constructed areas must take place to accommodate the newly 
purchased medical equipment.
    The VFW believes that VA would benefit from the use of medical 
equipment planners. Using these planners, which is an industry practice 
used by the Army Corps of Engineers and other federal agencies, places 
an experienced medical equipment expert at the disposal of the 
architect and construction contractor. When used properly, a medical 
equipment planner can work with the architect during the design phase 
and then the construction contractor during the build phase to ensure 
needed space, physical structure and electrical support are adequate 
for the purchased medical equipment, reducing change orders, work 
stoppages, and the demolition of newly built sections of a facility.
    Using a medical equipment planner can reduce schedule delays and 
cost overruns. Using the Orlando facility as an example again, issues 
with the purchase of medical equipment caused cost overruns of more 
than $10 million and construction had to be suspended until the issues 
were resolved.
    It is important for VA to become more efficient at constructing 
facilities. Veterans have expectations that medical facilities will be 
available when VA first states what the completion date will be. It is 
obvious by looking at the number of delays and cost overruns that the 
contracting and building procedures that VA currently uses are 
antiquated and are costing VA millions of dollars more for each project 
and causing five to six year delays in much needed medical facilities. 
By implementing these four initiatives, future major construction 
projects will have better oversight, cost controls and more efficient 
procedures for unforeseen changes in the construction of facilities.
    Mr. Chairman, this concludes my remarks and I look forward to any 
questions you or the Committee may have.
 Information Required by Rule XI2(g)(4) of the House of Representatives
    Pursuant to Rule XI2(g)(4) of the House of Representatives, VFW has 
not received any federal grants in Fiscal Year 2013, nor has it 
received any federal grants in the two previous Fiscal Years.

                                 
                Prepared Statement of Glenn D. Haggstrom

    Chairman Coffman, ranking member Kirkpatrick, distinguished members 
of the subcommittee, I am pleased to appear here this afternoon to 
update the subcommittee on the Department of Veterans Affairs' (VA) 
continuing efforts to improve construction procedures and planning 
processes to ensure timely execution of major construction projects. 
Joining me this afternoon is Stella Fiotes, Executive Director, 
Construction and Facilities Management, OALC.
    The Department's infrastructure programs which include major and 
minor construction, non-recurring maintenance, and leasing are part of 
our ongoing mission to care for and memorialize our Nation's Veterans. 
We are committed to meeting our responsibility to design, build, and 
deliver quality facilities as tools to meet the demand for access to 
health care and benefits.
    VA has made significant improvements in its real property capital 
asset portfolio to provide state of the art facilities to meet the 
needs of Veterans, allowing for the highest standard of service. We 
have taken on the challenge of updating our aging infrastructure to 
allow for management of increased workload demands; changing Veteran 
patient demographics; advances in medical technology; new complex 
treatment protocols and advanced procedures; delivering patient-
centered care and services closer to where Veterans live; and evolving 
Federal requirements.
    The focus of my testimony today is on VA's major construction 
program - our program identification, process improvements and 
challenges, and accomplishments. This will provide you a perspective of 
how we deliver VA's major construction projects.

Program Identification
    The Strategic Capital Investment Planning (SCIP) process was 
implemented with the fiscal year (FY) 2012 budget. This Department-wide 
planning process prioritizes the Department's future capital investment 
needs to strategically target VA's limited resources to most 
effectively improve the delivery of services and benefits to Veterans, 
their families and survivors by addressing VA's most critical 
infrastructure needs and performance gaps and investing wisely in VA's 
future. Using this approach, VA has visibility across its entire real 
property portfolio and is able to synchronize the projects we undertake 
in our major infrastructure programs to address our most critical 
needs. As part of this, VA has identified critical milestones for 
review in the life-cycle of a project from the planning and programming 
stages to the disposition of a facility when it is no longer functional 
for its purpose or needed to fulfill the mission.

Process Improvements
    VA has taken several steps to improve the management and oversight 
of major construction projects. In 2009, the VA Facility Management 
(VAFM) transformation initiative was established to improve planning 
processes; integrate construction and facility operations; and 
standardize the construction process. VAFM identified a need for the 
following:

       1. An enterprise approach to integrated master planning - Plans 
were piloted in 2011 and are moving to full operation;

       2. Systems for project management - VA procured a collaborative 
project management software system in 2012 and is completing phase one 
fielding and will complete fielding in 2014. This software supports 
leases, major construction, minor construction as well as non-recurring 
maintenance (NRM), and;

       3. Post occupancy evaluations (POE) - The POE program, piloted 
in 2012, is now standard practice for the major construction program 
and is expanding to the minor construction program. POE evaluates the 
completed construction to assure closure of all gaps and deficiencies 
noted in the approved project scope.

    In April 2012, as a follow on to the VAFM initiative, the Secretary 
of Veterans Affairs established the Construction Review Council (CRC) 
to serve as the single point of oversight and performance 
accountability for the planning, budgeting, execution, and management 
of the Department's real property capital asset program. Chaired by the 
Secretary, the CRC identified findings to improve performance in four 
major areas:

       1. Development of requirements - Add rigor to the requirements 
development phase of the project and complete 35 percent of a project's 
design prior to requesting major construction funds. This assures that 
full requirements are identified early, designed, costed and managed 
through the construction cycle which results in more complete cost 
estimates and scopes in VA's budget submissions.

       2. Design Quality - VA has also implemented policy requiring 
constructability reviews as part of every design review. These reviews 
identify design errors and omissions prior to construction allowing the 
design to be corrected, thereby reducing changes during construction.

       3. Funding - VA is implementing an integrated approach to 
activation and funding to assure the project construction program is 
coordinated with information technology (IT) and medical equipment 
budgets and plans. This identifies the funding and planning for the 
procurement of medical equipment and IT infrastructure, and 
incorporating major equipment delivery and installation into the master 
construction schedule.

       4. Program Management and Automation - VA continues to educate 
and certify project managers and deploy modern collaborative tools for 
project management to ensure project cost, scope, and schedule growth 
is controlled.

    Further, VA has implemented the findings of the December 2009 
Government Accountability Office's (GAO) report on ``VA Construction: 
VA is Working to Improve Estimates, but Should Analyze Cost and 
Schedule Risks'' and now performs risk analysis for potential cost and 
schedule delays as part of the project design process. The 
recommendations in the May 2013 GAO report on ``VA Construction: VA 
Additional Actions Needed to Decrease Delays and Lower Costs of Major 
Medical-Facility Projects'' are improvements that were also previously 
identified and are currently being addressed.

Challenges and Accomplishments
    VA bears the responsibility to manage all projects efficiently and 
to be good stewards of the resources entrusted to us by Congress and 
the American people.
    Last year we briefed the House Veterans Affairs Committee on the 
construction of the new VA medical center in Orlando. The Orlando 
project includes 134 inpatient beds, an outpatient clinic, a 120-bed 
community living center, a 60-bed domiciliary, parking garages, and 
support facilities all located on a new site. VA expects to serve 
nearly 113,000 Veteran enrollees. The construction project has advanced 
from approximately 50% completion a year ago to approximately 80 
percent today. While the project has been challenged by design errors 
and omissions, medical equipment coordination, and contractor 
performance, VA remains committed to working with our contractor to 
ensure a quality project is delivered to meet the needs of Veterans and 
their families.
    The lessons learned from Orlando and past major construction 
projects are guiding us in our management of the Denver and New Orleans 
replacement hospitals. Both complexes will be full-service tertiary 
care medical centers that include specialty care; outpatient clinics; 
inpatient services; central energy plant and parking structures; as 
well as other support services. Both facilities are under construction 
with completion dates of 2015 and 2016 respectively. Lessons learned 
have resulted in increased staff to assure timely project and contract 
administration; partnering sessions that include VA and the 
construction and design contractors; early involvement of the medical 
equipment planning and procurement teams; and engagement in executive 
level on-site project reviews. VA will continue to provide regular 
updates to the Congressional Committees to ensure you are fully 
informed on the progress of these medical centers.
    While VA's major construction program has encountered challenges, 
it has also completed and delivered significant projects for Veterans 
in the past five years. In FY 2012 and FY 2013 to date, VA has 
delivered nearly $1 billion worth of facilities. This includes 16 
medical facilities, including the new Las Vegas hospital, and five new 
cemeteries or cemetery expansions, the vast majority of which were 
delivered without construction delay and within the appropriated funds. 
VA continues work to complete 52 major construction projects to provide 
the much needed facilities for our Veterans and their families.

Conclusion
    VA has a strong history of delivering facilities to accomplish our 
mission to serve Veterans. We continually seek innovative ways to 
further improve our ability to design and construct state-of-the-art 
facilities for Veterans and their families and we regularly engage in 
forums composed of both the private and public sectors that discuss 
best practices and challenges in today's construction industry. The 
lessons learned from our past construction projects will continue to 
lead to improvements in the management and execution of our capital 
program as we move forward. Thank you for the opportunity to testify 
before the committee today. I look forward to answering any questions 
the Committee has regarding these issues.

                                 
                        Questions For The Record

      Letter and Question Submitted by Rep. Beto O'Rourke, To: VA
    May 10, 2013

    The Honorable Eric K. Shinseki
    Secretary
    U.S. Department of Veterans Affairs
    810 Vermont Avenue, NW
    Washington, DC 20420

    Dear Mr. Secretary:

    In reference to our Subcommittee on Oversight & Investigations 
hearing entitled, ``VA Construction Policy: Failed Plans Result in 
Plans That Fail,'' that took place on May 7, 2013, I would appreciate 
it if you could answer the enclosed hearing questions by the close of 
business on June 10, 2013.
    Committee practice permits the hearing record to remain open to 
permit Members to submit additional questions to the witnesses. 
Attached are additional questions directed to you.
    In preparing your answers to these questions, please provide your 
answers consecutively and single-spaced and include the full text of 
the question you are addressing in bold font. To facilitate the 
printing of the hearing record, please e-mail your response in a Word 
document, to Jian Zapata at [email protected] by the close of 
business on June 10, 2013. If you have any questions please contact her 
at 202-225-9756.

    Sincerely,

    MICHAEL H. MICHAUD
    Ranking Member

    CW:jz

          Questions Submitted by Representative Beto O'Rourke
    Mr. Glenn D. Haggstrom
    1. Please identify the factors that go into determining the 
Strategic Capital Investment Planning (SCIP) priority for a facility 
that is co-located with either a U.S. Department of Defense (DoD) 
facility or a private or public medical center.

                                 
        VA Response to Questions Submitted by Rep. Beto O'Rourke
           Question Submitted by Representative Beto O'Rourke

    Question: Please identify the factors that go into determining the 
Strategic Capital Investment Planning (SCIP) priority for a facility 
that is co-located with either a U.S. Department of Defense (DoD) 
facility or a private or public medical center.

    VA Response: The Department of Veterans Affairs (VA) Strategic 
Capital Investment Planning (SCIP) process provides an innovative and 
methodologically-rigorous approach to providing a single, integrated 
list of its prioritized capital investment projects. To identify 
projects that best meet the Department's critical needs, SCIP relies on 
a data-driven approach that includes the use of gap analysis, strategic 
capital assessment, and long-term capital planning.
    For the President's 2014 Budget proposal, VA ranked each capital 
project according to how well each addressed six major criterion it 
identified as critical for addressing the Department's and Veteran-s' 
needs. Criteria include improving safety and security for Veterans and 
VA staff; fixing and extending the useful life of current 
infrastructure; increasing access; right-sizing inventory; maximizing 
value; and the degree to which the project addresses mission critical 
initiatives that are outlined in the Department's strategic plan. SCIP 
criteria also includes collaboration with the Department of Defense 
(DoD). Projects that have a VA/DoD component are given priority points 
that factor into the project's overall prioritization score. Once a 
recommendation is made, the integrated list is reviewed by VA 
leadership for approval and inclusion in the annual budget request. It 
should be noted that DoD's Capital Investment Decision Model (CIDM) 
also contains a scoring component in its criteria that awards incentive 
points for collaborative proposals that support both Departments.
    VA and DoD have a long list of collaborating in the provision of 
medical care to their respective beneficiaries. Support of capital 
construction collaborations with DoD comports with Departmental 
initiatives. The VA/DoD Joint Executive Council established a 
Construction Planning Committee (CPC) to facilitate collaboration 
between the Departments and ensure an integrated approach to planning, 
design, construction (major and minor), leasing and other real 
property-related initiatives for shared medical facilities. This 
integration enhances service delivery and assures projects that are 
mutually beneficial to both Departments. In order to enhance existing 
capital asset management planning processes, the CPC developed a common 
approach to identify and to share common data elements and to improve 
communication. In 2012, the CPC shared point-of-contact information 
with both VA and DoD planners as well as three data points: population, 
workload, and purchased care, for utilization in each Department's 
capital planning processes. In 2013, the CPC added two additional data 
elements: access and available space, to aid in the early 
identification of potential joint construction and leasing 
opportunities at the field level.
    While supportive of collaboration, VA does not have statutory 
authority to construct or lease joint VA/DoD facilities. This is a 
significant impediment to the Department's ability to collaborate 
effectively with DoD. To address this issue, VA and DoD have both 
proposed legislation in fiscal year 2014 that would alleviate existing 
roadblocks to planning and funding future joint medical facility 
projects.

                                 
    Additional Questions & Answers to VA from the Committee Members

    1. VA previously stated that it concurred with GAO's 
recommendations for improving VA's construction management practices. 
As such, please provide an overview of what actions VA is taking to 
address these recommendations.

    VA Response: Included in GAO's report, Appendix IV, are Comments of 
the Department of Veterans Affairs (VA). VA intends to address the 
report recommendations as follows:

    Recommendation 1: Develop and implement agency guidance for 
assignment of medical equipment planner to major medical construction 
projects.

    VA Comment: Concur. VA concurs that medical equipment planning is 
critical to mitigating project cost and schedule risks.
    In coordination with the Veterans Health Administration (VHA), the 
Office of Acquisition, Logistics, and Construction (OALC) is evaluating 
criteria for the assignment of medical equipment planners to major 
construction projects, as well as medical equipment planner project 
roles and responsibilities, and will develop and implement the 
appropriate VA guidance. Additionally, VA has ensured that medical 
equipment planners are incorporated into the Denver and New Orleans 
major construction project teams.

    Recommendation 2: Develop and disseminate procedures for 
communicating to contractors clearly defined roles and responsibilities 
of VA officials that manage major medical facility projects, 
particularly the change order process.

    VA Comment: Concur. VA concurs with the importance of establishing 
and communicating clearly defined roles and responsibilities, 
particularly with respect to the change order process.
    VA currently addresses the roles and responsibilities under the 
contract with the designer at the design kickoff meetings and with 
construction contractors at the pre-construction conference. Roles and 
responsibilities relative to changes are discussed in detail and 
followed in writing. The contracting officer provides a letter 
specifically naming individuals with the authority to execute changes 
and the limits of their authority. The contractor is required to sign 
the letter, acknowledging understanding of the stipulated authorities 
and limits.
    VA's project management plan (PMP) template requires the creation 
of a communications plan and matrix to assure clear and consistent 
communications with all parties. The communications plan must address 
the following:

       a. generation, collection, dissemination, and storage of project 
information;

       b. regular project communication, such as meetings and in-
progress reviews;

       c. frequency and method of communication (e.g., e-mail, phone); 
and

       d. stakeholder roles and responsibilities. An appendix to the 
plan provides more specific information on the development of the plan 
and provides a sample of a typical communications plan matrix. VA will 
continue to review and define these communications plans and develop 
procedures to ensure distribution to all the stakeholders.

    VA has also added a Construction Peer Excellence Review to assure 
effective communication and collaboration are incorporated on projects 
during construction. This program is an adaptation of the General 
Services Administration (GSA) program. VA has GSA staff on loan to 
stand up the program and perform the initial reviews. The program 
involves industry leaders visiting the site and assessing individual 
and ``team'' effectiveness.

    Recommendation 3: Issue and take steps to implement guidance on 
streamlining the change order process based on the findings and 
recommendations of the Construction Review Council.

    VA Comment: Concur. VA is developing and will implement guidance to 
streamline the change order process to reduce review time and increase 
proactive action. These strategic activities include:

       a. Establishing time goals for processing change orders and 
modifications to the contract. These time goals for processing will 
clearly convey to the staff the acceptable performance level. These 
time goals will be benchmarked with other Federal agencies to assure VA 
incorporates best practice initiatives; and

       b. Standing up a metrics program that will allow leadership to 
monitor change order processing time in order to affect resources to 
bring the change order processing time within acceptable standards.

    In order to immediately streamline the process, VA has placed 
contracting staff on-site in New Orleans, Orlando, Denver, Manhattan, 
and Palo Alto and has additional contracting officers available to 
deploy to any site requiring support to shorten review and processing 
time. Additionally, VA has hired four additional attorneys dedicated to 
the major construction program. These attorneys are being integrated 
into the project teams to assure timely counsel and review of actions.

    2. In response to GAO's recommendation to develop and disseminate 
procedures for communicating to contractor's clearly defined roles and 
responsibilities of VA officials responsible for managing major 
medical-facility projects, VA states that it will develop procedures to 
ensure distribution to all stakeholders. Please explain what these 
procedures might include to ensure all stakeholders are made aware of 
these roles and responsibilities.

    VA Response: Please refer to response to Question 1, Recommendation 
2.

    3. In response to VA's concerns with GAO's methodology, VA 
recommends using an alternative methodology such as calculating the 
estimated completion date from when the construction contract was 
awarded, rather than when the project was first submitted to Congress. 
Can you please explain this methodology and why you think it is better 
model to use?

    VA Response: To clarify, VA did not recommend an alternative 
methodology. Rather, VA requested GAO to consider and include 
additional cost and schedule information that provides a more 
comprehensive perspective regarding changes to construction 
requirements and their impact on initial cost and schedule estimates. 
VA detailed this request in its March 27, 2013 response to the draft 
GAO report, and provides the same explanation below.
    VA has significant concerns with Tables 3 and 5 of the GAO report 
regarding the calculation of cost increases and schedule delays. 
Designs, initial cost estimates, and schedule completion dates are 
developed years prospectively, well before Congress appropriates 
funding and the contract to construct is awarded, which determines 
initial cost and ultimate completion date of the construction project. 
For example, GAO referenced numerous cost increases in the Denver 
project, which in some cases were driven by a change in requirements; 
however, they failed to mention that during the mid-2000s (i.e., 2004-
2008), the construction market was experiencing extremely high cost 
escalation which greatly contributed to the project's overall cost 
increases. This was highlighted in the prospectus submitted for the 
fiscal year 2008 budget.
    As another example, Orlando indicated a completion date of April 
2010 in the first prospectus included in the budget (referred to 
throughout the report as ``Initial Estimated Completion Date''). 
However, Orlando did not receive its final funding for the main 
hospital building until fiscal year 2010, making it impossible to 
complete the project any time during that fiscal year.
    As a result, VA asked GAO to consider and include a clarifying/
amplifying footnote to the Initial `Estimated Completion Date' column 
of Tables 3 and 5, as follows, ``The dates represented here are from 
the initial budget prospectus, which assumed receipt of full 
construction funding within one to two years after budget submission. 
In some cases, construction funding was phased over several years, and 
the final funding was received several years later.''
    A more accurate depiction of the project cost and construction 
schedule would be to make a comparison between the total appropriations 
received and the current total estimated cost. For schedule issues, a 
more accurate comparison would be the initial completion date 
established at the award of construction contract and the actual or 
estimated construction contract completion date.
    Therefore, VA recommended adding the table below to supplement 
Table 3:

[GRAPHIC] [TIFF OMITTED] T2234.002

    a. Considering that VA's estimates are provided to Congress to 
authorize and appropriate funds to projects, please discuss the 
validity of these initial estimates?

    VA Response: The initial project construction cost estimates are 
valid, based on the situation at the time of submission; however, as 
noted above, the time of these initial estimates may precede actual 
appropriation by several years, during which significant changes in 
requirements (i.e., Veterans' needs, material and labor costs, and 
market pricing) may necessitate adjustments to cost and schedule.

    b.What steps has VA taken to develop accurate cost estimates?

    VA Response: As noted in the November 2012 Construction Review 
Council report, VA began requiring that major construction projects 
reach 35 percent design completion prior to budget submission. The 35 
percent design threshold will establish a true baseline cost estimate, 
reflective of all requirements, with the benefit of engineering 
studies. Furthermore, the 35 percent design threshold incorporates user 
group input, thus ensuring a coordinated facility approach.

    c.Would VA's recommended methodology account for any delays 
experienced prior to awarding the construction contract?

    VA Response: To reiterate, VA did not recommend an alternative 
methodology; VA requested the inclusion of additional relevant cost and 
estimate data. VA believes that providing the above table based on 
final appropriations, along with Tables 3 and 5 of the report, based on 
initial budget estimates provides specific context and helps account 
for delays experienced prior to award of construction project 
contracts.

    4. In response to GAO's recommendation to develop and disseminate 
procedures for communicating to contractor's clearly defined roles and 
responsibilities of VA officials responsible for managing major 
medical-facility projects, VA states that it will develop procedures to 
ensure distribution to all stakeholders. Please explain what these 
procedures might include to ensure all stakeholders are made aware of 
these roles and responsibilities.

    VA Response: Please refer to response to Question 1, Recommendation 
2.

    5. Where are the contracting officers located?

    VA Response: Contracting Officers (CO) in support of OALC's major 
construction program are currently located at four regional offices 
(National Region, Washington, DC; Eastern Region, Silver Spring, 
Maryland; Central Region, North Chicago, Illinois; Western Region, Mare 
Island, California), and at the project sites in Denver, Coloardo; New 
Orleans, Los Angeles; Orlando, Florida; and Palo Alto, California. OALC 
has Administrative Contracting Officers (ACO) who are Senior Resident 
Engineers (SRE) on every construction site. The ACOs/SREs hold Level I 
contracting warrants and have the authority to issue contract changes 
up to $100K each.

    a. If long distance, how well does the long-distance management 
model work when the Contracting Officer has the ultimate responsibility 
to ensure this gets done on time and within budget for the job site?

    VA Response: The acquisition team is comprised of a Project Manager 
(PM), CO and ACO. PMs hold a Federal Acquisition Certification for 
Program and Project Managers (FAC-P/PM) and ACOs hold a Federal 
Acquisition Certification for Contracting (FAC-C). The COs maintain 
close communications with on-site ACOs, PMs and SREs. The COs visit the 
project site as needed; have regularly-scheduled meetings with the 
contractors both in person and using available technology, and; hold 
conferences, review progress status reports, and participate in weekly 
progress meetings.

    b. How many projects are the Contracting Officers responsible for?

    VA Response: The number of COs varies from site to site, depending 
on the demands of the project. The average workload is four to six 
projects per CO.

    6. Has the VA developed specific guidance on implementing the 
recommendations of the Construction Management Review Council?

    VA Response: Yes, VA has developed specific guidance on 
implementing the recommendations of the Construction Review Council 
(CRC).

    a. Please provide this committee with a copy of that implementation 
plan.

    VA Response: VA has a draft Capital Programs Improvement Plan 
(CPIP) which details VA's plan of action to implement the CRC report 
requirements. This plan has been drafted in coordination with the 
appropriate internal stakeholders and with the oversight of the former 
Deputy Secretary of VA. The draft CPIP is currently going through 
formal internal VA review and approval and VA will provide a copy upon 
completion. In the interim, progress continues to be made to close the 
CRC recommendations.

    b. Please provide a copy of the Construction Management Review 
Council's report from November 2012.

    VA Response: A copy of the Construction Review Council report was 
provided to Congressional committees, including HVAC, on January 23, 
2013. See Attachment A.

    7. What obstacles prevent VA from completing major medical-facility 
projects on time and within cost?

    VA has outlined its cost and schedule challenges in completing 
major medical facilities in the CRC Report. VA is working to eliminate 
these challenges and improve its delivery of major medical facility 
projects, on time and within budget.

    8. Can you describe in greater detail the problems you found with 
the way change orders are processed? When does VA plan on completing 
the development and implementation of new guidance concerning change 
orders?

    VA Response: VA's change order process involves several levels of 
internal and external review to ensure due diligence is taken. VA's 
review of the process found several opportunities for improvement in 
the following areas:

       1. Construction change orders require analysis against the 
contractor's Critical Path Method (CPM) project schedule. VA in-house 
expertise was over-extended, and this contributed to delays in 
analyzing time extension requests. VA is in the process of hiring CPM 
scheduler consultants for on-site support starting on the large 
projects. VA also has plans to maximize use of existing Indefinite 
Delivery/Indefinite Quantity contracts for additional support.

       2. VA has taken several steps to address any delays attributed 
to Office of General Counsel reviews. OALC's Senior Procurement 
Executive granted individual deviations from VA Acquisition Regulation 
(VAAR) 801.602-83 (concerning the documents submitted for legal or 
technical review on contract modifications) for the Denver, New 
Orleans, and Orlando projects. The VAAR requires legal review of all 
unilateral contract modifications when one or more of the following 
conditions are met:

       The total modification value is $100,000 or more.
       The modification is for a time extension of sixty (60) 
days or more.
       The contractor takes exception to VA's accord and 
satisfaction language.

    The individual deviations granted exemption from legal review 
modifications with a value of $250,000 or less, and with time 
extensions of no more than sixty (60) days. The deviations for these 
projects provided an opportunity to expedite contract modifications 
under $250,000. In addition, VA has made additional positions available 
within the Office of General Counsel (OGC) to allow additional staffing 
to assist in processing reviews. This has increased the ability of COs, 
ACOs and SREs to process change orders.

       3. VA encountered Defense Contract Audit Agency (DCAA) audit 
delays on contractor's proposals. OALC received a VAAR deviation for a 
third-party audit through the General Services Administration to 
mitigate dependence on DCAA. VA also engaged in a service agreement 
with VA Office of the Inspector General to assist OALC with the audit 
demands.

       4. In order to meet project demands due to the hiring problems, 
VA has temporarily assigned COs and ACOs/SREs with warrant authority to 
support the Denver project and complete the review of contracting 
modifications. There are contract specialists and one additional CO 
supporting the New Orleans project on-site. At the Orlando project, in 
addition to the onsite ACOs/SREs and a contract specialist, the CO 
travels to the site every other week.

       5. VA is in the process of developing internal project control 
measures to monitor progress and expedite the change order process.

    9. What actions can VA take if a prime contractor is not paying a 
subcontractor on time or at all for work that is completed?

    VA Response: VA requires all prime contractors provide a payment 
bond as required by the Miller Act (40 U.S.C. Sec. Sec.  3131-3134). 
The performance bond guarantees the United States that the construction 
work will be performed to completion. The payment bond assures payment 
to subcontractors and suppliers supplying labor and materials in the 
course of performance of the contract. Any subcontractor or supplier 
who has so furnished labor or material under a contractual relationship 
with the contractor and who has not been paid in full within ninety 
(90) days after the last labor was performed or material supplied, may 
bring suit on the payment bond for the unpaid balance. Subcontractors 
and suppliers to second or lower-tiered subcontractors are not 
protected by the Miller Act. VA routinely provides the bond information 
to subcontractors that allege non-payment. VA also engages the prime 
contractor on all non-payment issues brought forward by subcontractors 
and reminds the prime contractor of its responsibility to pay 
subcontractors in a timely manner from the money VA provides for 
progress payments. Continued non-payment will impact the prime's final 
performance evaluation.

    10. VA states that it is currently evaluating criteria for 
assigning medical equipment planners to major construction projects and 
will later develop and implement appropriate guidance for VA. What 
criteria are being weighed and when does VA expect to make a final 
decision on the matter?

    VA Response: VA has directed that all major medical projects employ 
a medical planner. The medical planner will be provided by the designer 
and continue with the project through construction.
    VA's goal is timely procurement of medical equipment. VA sent the 
following guidance to all project managers on May 15, 2013:

         ``Effective immediately, all medical projects that involve the 
medical center procuring medical equipment to be installed during the 
construction will retain the services of a Medical Equipment Planner. 
The Medical Equipment Planner services shall begin during design and 
continue through construction. The Medical Equipment Planner will work 
with the medical center Activation Team and provide reports to the 
Project Manager through the Design Manager and Senior Resident 
Engineer.''

    The Medical Equipment Planner is to provide the Project Manager 
with the information to update the Integrated Master Schedule and will 
provide advance notice of delays so the Project Manager has the 
opportunity to implement mitigation measures.
    Projects under construction and over 40 percent complete are 
considered far enough along that they do not need to hire Medical 
Equipment Planner services. Medical Equipment Planners are not required 
for parking structures, central energy plants, or other projects that 
do not include medical equipment. The Medical Equipment Planner role is 
being incorporated into the Project Management Plan.
    VA Central Office will issue a formal set of instructions by end of 
July 2013.

    11. How does the VA deal with the volatility of the construction 
market as experienced in Las Vegas?
    a. In its assessment of the Las Vegas medical-facility project, GAO 
notes that, ``As construction of the medical facility progressed, the 
economic recession that began in 2008 drove construction costs lower 
than what was estimated. As a result, VA was able to add features back 
into the project that had been eliminated and still stay on budget.'' 
What happens when the construction market picks back up and costs once 
again increase?

    VA Response: VA includes an allowance for cost escalation in every 
project estimate. OALC performs local market surveys for each major 
project area to keep abreast of factors that may affect construction 
costs and contractor bids. OALC also requires the design and Architect-
Engineering firm to submit a local market survey with each design 
submission. Escalation factors are based upon these surveys and Office 
of Management and Budget (OMB) guidance. VA also structures Requests 
for Proposals to include deductive alternate bids that may be exercised 
in the event that bids exceed available funds.
    The years just prior to 2008 were a period of high cost escalation. 
Escalation rates far exceeded OMB projections and escalation allowances 
used by Federal agencies across the board. In order to mitigate market 
escalation, value engineering was conducted to reduce the cost of the 
Las Vegas VA Medical Center (VAMC) and all other projects under design 
during that period. In 2008 the construction market abruptly changed 
from one of hyper-escalation and little competition to one of hyper-
competition and plummeting costs. This amplified the cost savings of 
value engineering measures that had been taken and resulted in project 
bids far below budget.
    Currently there are no indications that escalation will return to 
the double-digit rates experienced in the years immediately preceding 
the recession. All market surveys and industry analyst projections 
indicate escalation will be below five percent annually for the next 
three to five years. Projects in development include appropriate 
allowances for escalation based on their projected schedules. Costs may 
exceed current budget estimates should projects be delayed beyond the 
projected schedules. Value engineering measures would be taken and 
project scopes may need to be reduced.

    Question 12: In the recent GAO report, it was noted how additional 
phases of the Las Vegas medical center project - specifically the 
upgrade to the women's clinic - have pushed the completion date back to 
June 2014. As female Veterans account for approximately 10 percent of 
the overall Veteran population, can you explain why the decision was 
made mid-construction to upgrade the women's clinic?

    VA Response: VA completed the construction documents used to award 
the construction contract for the new medical center on May 22, 2008. 
The standards used in the design of the Women's Clinic were from VHA 
Handbook 1330.1, dated July 16, 2004. VA updated this VHA handbook on 
May 21, 2010, to incorporate new standards for the delivery of health 
care to Women Veterans. Since the new medical center tower is still 
under construction, the Las Vegas VAMC decided to pursue upgrading the 
Women's Clinic prior to the opening. On July 21, 2011, the Las Vegas 
VAMC requested approval from VA's Capital Asset Board to upgrade to the 
Women's Clinic to meet the new standards. The request was approved. VA 
has proceeded with the design and construction.
    Additionally, construction of four large Primary Care Clinics (PCC) 
was underway. Timing of construction at these PCCs allowed for 
modifications to meet these increased privacy standards. Change orders 
were issued to the three contractors adding the individual restrooms to 
four exam rooms at each PCC with minimal cost and no delay in schedule. 
The PCCs currently provide care to female Veterans until the new 
medical center can be completed. This has led to a good response from 
female Veterans enrolled in the program with improved convenience and 
access. The remodel of the Women's Health Center at the medical center 
has not delayed or interfered with the activation of the rest of the 
facility.

    Question 12a: Did the VA utilize the women stakeholders in 
designing the clinic?

    VA Response: Yes. Throughout the design, women stakeholders 
participated in all user group meetings and VA solicited, reviewed, and 
incorporated comments/suggestions in the design.

    13. Please provide a status update on the Orlando, New Orleans, and 
Denver projects? When do you anticipate these projects will be 
completed? What major obstacles still remain for each project, if any?

    VA Response: Attached are the April 2013 fact sheets for the Denver 
(Attachment B), Orlando (Attachment C), and New Orleans (Attachment D) 
major construction projects, which include current project status and 
any major obstacles. VA is finalizing internal review of the May 2013 
fact sheets, and will provide immediately after internal clearance. VA 
will continue to provide this information monthly.

                                 
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