    [House Hearing, 114 Congress]
    [From the U.S. Government Publishing Office]

    DEPARTMENT OF VETERANS AFFAIRS LEASES: IS THE VA OVERPAYING FOR LEASED
                              MEDICAL FACILITIES?

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

                                    (114-54)

                                    HEARING

                                   BEFORE THE

                                SUBCOMMITTEE ON
        ECONOMIC DEVELOPMENT, PUBLIC BUILDINGS, AND EMERGENCY MANAGEMENT

                                     OF THE

                                  COMMITTEE ON
                       TRANSPORTATION AND INFRASTRUCTURE
                            HOUSE OF REPRESENTATIVES

                        ONE HUNDRED FOURTEENTH CONGRESS

                                 SECOND SESSION

                                   __________

                               SEPTEMBER 28, 2016

                                   __________

                           Printed for the use of the
                 Committee on Transportation and Infrastructure

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                 COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE

                      BILL SHUSTER, Pennsylvania, Chairman
    DON YOUNG, Alaska                    PETER A. DeFAZIO, Oregon
    JOHN J. DUNCAN, Jr., Tennessee,      ELEANOR HOLMES NORTON, District of
      Vice Chair                             Columbia
    JOHN L. MICA, Florida                JERROLD NADLER, New York
    FRANK A. LoBIONDO, New Jersey        CORRINE BROWN, Florida
    SAM GRAVES, Missouri                 EDDIE BERNICE JOHNSON, Texas
    CANDICE S. MILLER, Michigan          ELIJAH E. CUMMINGS, Maryland
    DUNCAN HUNTER, California            RICK LARSEN, Washington
    ERIC A. ``RICK'' CRAWFORD, Arkansas  MICHAEL E. CAPUANO, Massachusetts
    LOU BARLETTA, Pennsylvania           GRACE F. NAPOLITANO, California
    BLAKE FARENTHOLD, Texas              DANIEL LIPINSKI, Illinois
    BOB GIBBS, Ohio                      STEVE COHEN, Tennessee
    RICHARD L. HANNA, New York           ALBIO SIRES, New Jersey
    DANIEL WEBSTER, Florida              DONNA F. EDWARDS, Maryland
    JEFF DENHAM, California              JOHN GARAMENDI, California
    REID J. RIBBLE, Wisconsin            ANDRE CARSON, Indiana
    THOMAS MASSIE, Kentucky              JANICE HAHN, California
    MARK MEADOWS, North Carolina         RICHARD M. NOLAN, Minnesota
    SCOTT PERRY, Pennsylvania            ANN KIRKPATRICK, Arizona
    RODNEY DAVIS, Illinois               DINA TITUS, Nevada
    MARK SANFORD, South Carolina         SEAN PATRICK MALONEY, New York
    ROB WOODALL, Georgia                 ELIZABETH H. ESTY, Connecticut
    TODD ROKITA, Indiana                 LOIS FRANKEL, Florida
    JOHN KATKO, New York                 CHERI BUSTOS, Illinois
    BRIAN BABIN, Texas                   JARED HUFFMAN, California
    CRESENT HARDY, Nevada                JULIA BROWNLEY, California
    RYAN A. COSTELLO, Pennsylvania
    GARRET GRAVES, Louisiana
    MIMI WALTERS, California
    BARBARA COMSTOCK, Virginia
    CARLOS CURBELO, Florida
    DAVID ROUZER, North Carolina
    LEE M. ZELDIN, New York
    MIKE BOST, Illinois
                                    ------                                7

     Subcommittee on Economic Development, Public Buildings, and Emergency
                                   Management

                      LOU BARLETTA, Pennsylvania, Chairman
    ERIC A. ``RICK'' CRAWFORD, Arkansas  ANDRE CARSON, Indiana
    THOMAS MASSIE, Kentucky              ELEANOR HOLMES NORTON, District of
    MARK MEADOWS, North Carolina             Columbia
    SCOTT PERRY, Pennsylvania            ALBIO SIRES, New Jersey
    RYAN A. COSTELLO, Pennsylvania       DONNA F. EDWARDS, Maryland
    BARBARA COMSTOCK, Virginia           DINA TITUS, Nevada
    CARLOS CURBELO, Florida              PETER A. DeFAZIO, Oregon (Ex
    DAVID ROUZER, North Carolina             Officio)
    BILL SHUSTER, Pennsylvania (Ex       VACANCY
        Officio)
                                    CONTENTS

                                                                       Page

    Summary of Subject Matter........................................    iv

                                   TESTIMONY

    Rebecca Shea, Acting Director, Physical Infrastructure Issues,
      U.S. Government Accountability Office..........................     3
    James M. Sullivan, Director of the Office of Asset Enterprise
      Management, U.S. Department of Veterans Affairs................     3
    Chris Wisner, Assistant Commissioner for Leasing, Public
      Buildings Service, U.S. General Services Administration........     3

                   PREPARED STATEMENTS SUBMITTED BY WITNESSES

    Rebecca Shea.....................................................    25
    James M. Sullivan................................................    39
    Chris Wisner.....................................................    56

                           SUBMISSIONS FOR THE RECORD

    James M. Sullivan, Director of the Office of Asset Enterprise
      Management, U.S. Department of Veterans Affairs, responses to
      questions for the record from the following Representatives:

        Hon. Mark Meadows of North Carolina..........................    47
        Hon. David Rouzer of North Carolina..........................    52

    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

    DEPARTMENT OF VETERANS AFFAIRS LEASES: IS THE VA OVERPAYING FOR LEASED
                              MEDICAL FACILITIES?

                                  ----------

                         WEDNESDAY, SEPTEMBER 28, 2016

                      House of Representatives,
                  Subcommittee on Economic Development,
            Public Buildings, and Emergency Management,
                Committee on Transportation and Infrastructure,
                                                        Washington, DC.
        The subcommittee met, pursuant to call, at 10:34 a.m., in
    room 2253, Rayburn House Office Building, Hon. Lou Barletta
    (Chairman of the subcommittee) presiding.
        Mr. Barletta. The subcommittee will come to order. I want
    to thank the witnesses from the Government Accountability
    Office, the Department of Veterans Affairs [VA], and the
    General Services Administration [GSA] for being here today.
        The purpose of today's hearing is to make sure medical
    facilities are delivered quickly and cost effectively so that
    our veterans can receive the medical care that they require.
    Now, the Transportation and Infrastructure Committee is
    involved because the Public Buildings Act requires all leases
    over $2.85 million to be authorized by our committee and the
    Senate Environment and Public Works Committee.
        Now, GSA can delegate this leasing authority to other
    agencies, but it cannot waive the requirement for congressional
    authorization. Providing quality health care to our veterans is
    my top concern. Our men and women in uniform put their lives on
    the line to protect our country and our freedoms. Medical
    facilities, whether owned or leased, are a critical part of
    delivering healthcare services. Unfortunately, the VA has
    struggled greatly to require health care facilities on time, on
    budget, and in compliance with the law.
        The VA's new Colorado hospital is so far over budget and
    behind schedule that the Army Corps of Engineers has had to
    take over management of the project. And the VA's leasing
    program has been too slow and out of compliance with the Public
    Buildings Act and the most basic Government accounting rules.
        Both the GAO and the VA inspector general have detailed a
    history of VA's mismanagement of its real estate. In fact, in a
    2012 letter from the House Veterans' Affairs Committee to the
    VA, the committee expressed concerns about the ways that the
    VA's seven healthcare clinic leases passed in 2009. In 2013,
    the inspector general reported VA's management of timeliness
    and costs in the healthcare clinic lease procurement process
    has not been effective.
        On top of all this, the Congressional Budget Office at OMB
    raised serious questions about how the VA has been accounting
    and budgeting for these leases. Unfortunately, as highlighted
    at our July hearing, many agencies with leasing authority,
    outside of GSA, do not understand the legal limits of their
    authority. We have seen agencies like the SEC and the Commodity
    Futures Trading Commission find themselves in serious trouble
    because of this. Exceeding the legal limitations can result in
    Anti-Deficiency Act violations, which have criminal penalties
    and significant project delays.
        In 2013 and 2014, OMB raised serious questions whether the
    VA had, in fact, exceeded its leasing authority. As a result,
    the administration directed the GSA to step in. GSA must ensure
    the VA's leases are properly authorized and do not violate the
    Anti-Deficiency Act.
        On September 12, 2014, the committee officially received a
    letter from the VA requesting approval of six leases for their
    healthcare clinics, recognizing projects over GSA's threshold
    of $2.85 million required this committee's approval. The
    committee approved them 5 days later despite having to gather
    updated information to evaluate costs.
        It has now been 2 years since this committee approved those
    six leases, and we have not received any new prospectuses for
    healthcare clinics since then. We understand there are eight
    additional leases requiring our authorization that were
    included among the 27 leases in the 2014 Choice Act. Because of
    this committee's role in approving these leases, the committee,
    along with the Veterans' Affairs Committee, requested GAO
    conduct a review of the VA healthcare clinic leasing.
        Specifically, the GAO examined a few key areas. One, the
    criteria VA uses to determine whether to lease or own medical
    facilities. Two, the accuracy of VA's cost estimates for
    projects. And, three, how the VA is aligning its leasing
    process with that of the GSA.
        Today, we want to hear what improvements have been made and
    what still needs to be done to make sure that the VA medical
    leases are cost effective and comply with the law.
        We also want to receive updates on the previous six
    projects we authorized in 2014 and a timetable on when we will
    receive the additional eight. With all the issues the VA is
    grappling with to ensure our veterans are served in a timely
    manner, the VA should take full advantage of the opportunity to
    leverage GSA's real estate expertise.
        I look forward to hearing more from our witnesses on these
    issues. Thank you.
        I now call on the ranking member. Before that, I ask
    unanimous consent that Members not on this subcommittee be
    permitted to sit with the subcommittee at today's hearing,
    offer testimony, and ask questions. So be it.
        And now I call on the ranking member of the subcommittee,
    Mr. Carson, for a brief opening statement.
        Mr. Carson. Thank you, Chairman Barletta, and thank you for
    your leadership.
        Prior to 2014, the VA used their own real estate authority
    to sign leases for medical facilities. However, the VA in
    consultation with the Office of Management and Budget, later
    determined that it did not have legal authority necessarily to
    enter into multiyear leases. The VA now relies on GSA's
    authority to execute these leases. In 2014, this committee
    approved six prospectuses submitted by GSA on behalf of the VA.
    These six medical facility leases were the first of their kind
    to be approved by the committee.
        Now, typically, these facilities include mental health
    clinics, readjustment counseling centers, research, and other
    types of clinical spaces. Because the VA is working with the
    GSA to execute these leases, they have now come before this
    committee for approval. Although we approved the first six
    leases, Chairman Barletta and I and members of the Veterans'
    Affairs Committee thought it was appropriate to request GAO's
    study to the VA's choices in managing its real property assets.
        While we want to support the VA's efforts to provide
    essential health care to our country's veterans, it is also
    important that this committee have some assurances that the VA
    is managing its real estate assets as efficiently as possible.
    Every dollar saved in a real estate transaction is a dollar
    that can be redirected to supportive services for veterans, an
    important priority for every Member of Congress.
        I look forward to today's testimony from the VA, GSA, and
    GAO on how this program is being managed and how improvements
    can be made going forward.
        Thank you, Chairman. I yield back.
        Mr. Barletta. Thank you.
        On our panel today we have Ms. Rebecca Shea, Acting
    Director of Physical Infrastructure Issues, Government
    Accountability Office; Mr. James M. Sullivan, Director of the
    Office of Asset Enterprise Management, United States Department
    of Veterans Affairs; and Mr. Chris Wisner, Assistant
    Commissioner for Leasing, Public Buildings Service, General
    Services Administration.
        I ask unanimous consent that our witnesses' full statements
    be included in the record.
        Without objection, so ordered.
        Each of you is now recognized for 5 minutes. And, Ms. Shea,
    you may proceed.

         TESTIMONY OF REBECCA SHEA, ACTING DIRECTOR, PHYSICAL
     INFRASTRUCTURE ISSUES, U.S. GOVERNMENT ACCOUNTABILITY OFFICE;
     JAMES M. SULLIVAN, DIRECTOR OF THE OFFICE OF ASSET ENTERPRISE
      MANAGEMENT, U.S. DEPARTMENT OF VETERANS AFFAIRS; AND CHRIS
     WISNER, ASSISTANT COMMISSIONER FOR LEASING, PUBLIC BUILDINGS
             SERVICE, U.S. GENERAL SERVICES ADMINISTRATION

        Ms. Shea. Thank you. Good morning, Chairman Barletta,
    Ranking Member Carson, and members of the subcommittee. I am
    pleased to be here today to talk about GAO's review of VA's
    practices for leasing major medical facilities. VA operates the
    largest healthcare network in the U.S. with over 2,700
    facilities, nearly half of which are leased. Many of VA's
    facilities are aging, and to replace them and expand access to
    veterans, VA has increasingly turned to leasing rather than
    construction and ownership to provide these important services
    to veterans.
        Over the past 10 years, the number of medical facilities
    leased by VA grew to just under 1,300 facilities, 57 of these
    were major medical facility leases, spaces with average annual
    rent in excess of $1 million.
        Today, I will discuss our June 2016 report, the focused on
    factors affecting VA's decisions, cost estimating process, and
    alignment with GSA requirements.
        Turning, first, to the factors effecting VA's leasing
    decisions, we found that VA leases major medical facilities,
    because leasing can more quickly result in a finished facility
    and because it provides VA flexibility to relocate at the end
    of the lease term, which is limited to 20 years. In fact, VA
    cited flexibility to move in all of its major medical lease
    proposals since 2015, including some in which VA estimated the
    construction of its own facility would be less costly.
        According to VA, moving supports changing priorities such
    as meeting requirements for veterans access and changing
    security and compliance standards. As we have noted in our past
    work, disposing of federally owned facilities can be difficult,
    suggesting a certain level of support for VA's argument for
    this flexibility. However, VA does not assess whether or how it
    has actually benefited from this flexibility when justifying
    its leases.
        In our June report, we recommended that VA annually assess
    how it has used the flexibility afforded by leasing and provide
    this information to Congress in its annual budget submission.
    Doing so would enhance the transparency of VA's decisionmaking
    and provide Congress with important information it needs for
    authorizing and funding decisions. VA agreed and plans to do
    this moving forward.
        Turning to VA's cost estimating process for leases, we
    found VA's process met several but not all of GAO's standards
    for reliable cost estimates.
        In particular, VA's process was comprehensive and well-
    documented, but it did not account for common and sometimes
    large variations between the estimate and actual facility cost.
    In fact, for 18 of the 23 leases we reviewed, the actual lease
    costs were at a minimum 15 percent above or below the initially
    proposed lease cost usually because of changes to proposed
    design.
        For example, actual cost for VA's San Francisco facility
    were 26 percent over the estimated cost while actual cost for
    the Montgomery, Alabama, facility were 44 percent below the
    original estimate. Providing Congress with more accurate
    estimates would support its authorization in funding decisions.
        Accordingly, VA recently issued a new design guide to
    reduce the risk of changes after proposing leases to Congress
    as well as a lessons-learned study to identify improvements for
    its cost estimating process. However, it is still early, and
    the success of these initiatives or leases currently in the
    pipeline will depend on how well VA implements them.
        Lastly, we found that VA has made progress meeting GSA
    requirements for delegated leasing authority. For example, as a
    result of VA's new training and management review process, GSA
    is now able to approve VA's proposals more quickly. However,
    few of VA's high-cost leases have gone through GSA's approval
    process, and their complexity can make it more difficult to
    align with GSA's requirements.
        In closing, VA should begin implementing our
    recommendations by collecting the information it needs to
    assess how it has used the flexibilities afforded by leasing.
    Doing so will enhance the transparency of VA's decisionmaking
    process and provide both VA and Congress with data to make the
    most informed decisions.
        VA should also monitor whether its recent changes such as
    the design guide, lesson learned, and management review process
    are working as intended so they can make timely adjustments if
    necessary.
        Thank you, Mr. Chairman. This ends my prepared statement,
    and I look forward to your questions.
        Mr. Barletta. Thank you for your testimony.
        Mr. Sullivan, you may proceed.
        Mr. Sullivan. Good morning, Mr. Chairman Barletta, Ranking
    Member Carson, and members of the subcommittee. I am happy to
    be here today to discuss how VA provides critically needed
    healthcare services to veterans through a wide variety of
    leased facilities. The Department maintains approximately 155
    million square feet in more than 6,000 owned buildings as well
    as 33,000 acres of land. In addition to our own facilities, VA
    has approximately 2,000 leased facilities totaling 25 million
    square feet.
        VA's portfolio is one of the largest in the Federal
    Government and provides a significant amount of health care to
    veterans in these leased facilities. In our leased facilities,
    we provide primary care, mental health, and specialty services,
    such as ophthalmology, oncology, endocrinology, cardiology,
    pulmonology, podiatry, neurology, just to name a few.
        We also provide pharmacy services, radiology and imaging
    and same-day outpatient surgery in some of our larger clinics.
        Today, I ask for your support to help provide these
    services to our veterans. VA is requesting the committee's
    approval of eight pending leases that represent an additional
    capacity over 1.2 million annual visits to these clinics for
    our veterans. These eight leases are needed to ensure that VA
    has the right sized facilities in place to serve veterans with
    the right services and in the right locations where veterans
    want them.
        Leasing is a critically important tool that allows VA to
    provide services to veterans. Leasing provides flexibility in
    lieu of constructing owned assets to meet veterans needs.
    Leasing enables VA to quickly respond to healthcare advances
    and to adopt important--more importantly, to changing medical
    technology in order to provide state-of-the-art health care to
    veterans. Meeting the ever-changing pace of medical advancement
    is a constant challenge for any medical system, and VA finds
    that leasing versus owning provides one of the most flexible
    approaches to meet that challenge. Leasing also allows us to
    rapidly adjust to current and future demographic shifts in
    changing service demands for our veterans.
        VA clearly doesn't need more owned legacy assets to address
    our outpatient access needs. We have enough of old and obsolete
    facilities, we do not want to add any more to our current
    portfolio.
        For leasing, VA has the ability when these assets become
    unneeded or obsolete or do not meet current medical practices
    to walk away at the end of the lease term. In addition to these
    8 leases we are requesting the committee's action on, VA has 24
    additional medical leases that are pending congressional
    action. These critically needed leases will replace, expand, or
    create new outpatient clinics, research facilities, and provide
    more than 2.7 million more annual healthcare visits for our
    veterans and enhance our research capabilities nationwide.
        As VA works to meet the challenge of addressing these
    changing and ongoing demand of health care, these leases, both
    the eight we mentioned earlier on and the 24, will go a great
    way to help meet these needs.
        As you were aware, VA relies on the authority and has for
    the last 20 years that is delegated from GSA to enter into all
    lease agreements. VA depends on its partnership with GSA to
    obtain individual delegations, to make operating leases
    feasible to provide services. Our agencies have worked to make
    improvements, and the delegation process has evolved over the
    last 2 years.
        I want to thank GSA for their partnership and their help in
    having us move forward with these leases and to provide
    services to our veterans. They have been more than a willing
    partner in this effort.
        VA is also pleased that GAO in its 2016 report recognized
    the important need for medical leasing and the flexibility that
    leasing provides VA. As stated in the report, GAO recognized
    that leasing allows VA to align its infrastructure more easily
    with changing healthcare needs. The report highlights some of
    the improvements VA has made while operating under the GSA
    lease delegation process and suggests other agencies can
    implement other processes.
        VA fully plans to address the GAO recommendations in terms
    of further articulating in our budget submissions to Congress
    via advantages of the flexibility leasing provides, as well as
    addressing some of the technical recommendations involving cost
    estimating.
        We have agreed to do that and are working with the lessons
    learned effort to implement and consult with GAO as we
    implement those recommendations.
        As VA works to move the pending leases forward, VA is open
    to any and all suggestion from the committee or from anyone
    else of how we can improve your process so we can speed the
    delivery of healthcare services to our veterans and their
    families.
        I am here with my colleagues to answer any question that
    you may have or any member of the committee may have. Thank you
    for your time, and we appreciate the committee's support for
    our veterans and their needs.
        Thank you, Mr. Chairman.
        Mr. Barletta. Thank you. Thank you for your testimony.
        Mr. Wisner, you may proceed.
        Mr. Wisner. Yes, sir.
        Good morning, Chairman Barletta, Ranking Member Carson, and
    members of the committee. I am Chris Wisner, the Assistant
    Commissioner for Leasing at the General Services Administration
    Public Buildings Service. I appreciate being invited here today
    to discuss GSA's efforts to provide cost effective and suitable
    leased space for our partner Federal agencies including the
    Department of Veterans Affairs.
        GSA's mission is to provide the best value in real estate
    to the Government and to the American people. GSA currently
    manages an inventory of almost 400 million square feet.
    Approximately half of this is leased space comprising more than
    8,300 active leases across the country. GSA seeks to provide
    space that assists our partner agencies in achieving their
    missions while best serving the public interest. GSA's
    prospectus process starts with requirements development where
    GSA works with customer agencies to define their space needs.
    As part of the administration's goal to maximize the use of
    Federal assets and eliminate unneeded and excess real estate,
    GSA first looks to the existing Federal inventory of owned and
    leased space to meet those needs. If existing space is not
    available, GSA determines whether Federal construction or
    leasing is the appropriate space delivery method. This
    determination balances the mission needs of the customer,
    market parameters, resources constraints, and fiscal
    responsibility to the public.
        If leasing is the chosen alternative, GSA continues to work
    with partner agencies to further define its program
    requirements, which includes a comprehensive housing plan,
    identification of delineated area, and an estimated space
    utilization rate. The prospectus process also requires market
    research to establish rental rates. GSA conducts its
    procurements using prevailing market rates as the benchmark for
    the evaluation of competitive offers to ensure that GSA rates
    are in line with the private sector.
        After we complete this thorough process, GSA submits a
    prospectus and supporting documents for projects that exceed
    $2.85 million.
        In 2014, the VA began relying exclusively on GSA's
    delegated authority to conduct its leasing activities. Some of
    the VA's request for delegated leasing authority are above the
    GSA's prospectus threshold. GSA will submit prospectuses to
    this committee and to the Senate Environment and Public Works
    Committee.
        The initial delegation request from VA required a number of
    revisions to comply with GSA's delegation program requirements
    both in form and substance. As delegation requests above GSA's
    prospectus threshold were not within the normal delegation
    program management, there was no standing GSA process for
    considering such an authorization. GSA and the VA have worked
    together to ensure VA's documents are in line with similar GSA
    prospectus submissions.
        GSA supports VA's mission to provide assistance to veterans
    and their families. From June of 2014 to September of 2016, GSA
    has granted the VA 761 leased delegations, of which 96 percent
    have been granted routinely under GSA's standing delegation
    program. Only 4 percent, or 27 of those delegated leases, have
    exceeded the square foot limitation that requires action by the
    GSA Administrator. Only 6 of those 27 exceed the $2.87 million
    prospectus threshold.
        The Choice Act was enacted in 2014 to provide new
    authorities and funding to continue VA's mission, including
    statutorily authorizing the Secretary of Veterans Affairs to
    lease medical facilities in 18 States and Puerto Rico. Out of
    these 27, there are 8 remaining that are above GSA prospectus
    threshold. The committee's help is needed in providing GSA with
    resolutions for those projects, and we plan to submit this
    package in the upcoming weeks.
        As we move forward in our partnership, VA and GSA are
    working closely to ensure VA projects comply with GSA's
    policies and practices. With VA's expertise, discipline and
    structure can be applied to market rate justification for VA
    prospectuses. Furthermore, as part of strategic planning, VA
    and GSA can identify opportunities for VA to backfill existing
    underutilized and vacant space instead of initiating new leased
    actions.
        Chairman Barletta, Ranking Member Carson, and members of
    the subcommittee, GSA is dedicated to meeting the requirements
    of all of our partner agencies in an efficient, transparent,
    and user-friendly manner. We will continue to support the VA in
    their mission of providing assistance to veterans and their
    families.
        Thank you for the opportunity to testify before you today,
    and I am happy to answer any questions.
        Mr. Barletta. Thank you for your testimony.
        I will now begin the first round of questions limited to 5
    minutes for each Member.
        If there are any additional questions following the first
    round, we will have additional rounds of questions as needed.
        Mr. Sullivan, in September of 2014, this committee approved
    six VA leases, which were above GSA's prospectus threshold.
    What is the status of each of those leased projects, and have
    they all been awarded, and when will they be completed and
    open?
        Mr. Sullivan. Sure. There were six leases that the
    committee approved back in 2014. Five of the six have been
    awarded. The last one is Rochester, New York, which should be
    awarded in the first quarter of 2017, based upon my information
    from the contracting officials.
        The first one Springfield, Missouri, was awarded in
    February 28, 2016, and we expect to have it open in the spring
    of 2018. Butler, Pennsylvania, was awarded in December 2014. We
    expect to accept the building in the summer of 2017. San Jose,
    California, was awarded in September 2015, and we expect
    acceptance in the winter of 2017. South Bend, Indiana, this
    lease was awarded back in July 2015, and we expect to accept
    the building again in the summer of 2017. Mobile, Alabama, was
    awarded on August 18th, 2016.
        I will be happy to provide the committee with all the
    specific dates and milestones for each of these leases.
        Mr. Barletta. Thank you.
        Mr. Sullivan and Mr. Wisner, what steps has VA taken since
    2014 to work with GSA to prepare the additional eight leases
    that are above GSA's prospectus threshold for approval by this
    committee? Where are those leases in the process? And when can
    we expect them to be efficiently submitted? And why have they
    taken so long?
        Mr. Wisner. I will take the first part of that.
        So, sir, we have the full packages from the VA in hand
    currently. They were received in final form July the 26th, I
    believe. We are in the process of processing those and testing
    them for operating leased--the operating leased threshold. I
    expect we will have them through our stakeholders and with
    signature for submission to this committee in coming weeks. I
    would say in 7 to 10 days.
        Mr. Sullivan. Yes, Mr. Chairman. We have worked with GSA
    since that time to establish several efforts to improve the
    product they received from us and the timeliness of the product
    that we provide them. We have set up a central clearing house
    that reviews all the leases that go over to GSA. We set up a
    peer review to make sure that the products are of top-notch
    quality that go over to GSA. And I think that's been
    demonstrated in the quick turnaround time that we have an
    average of 20- to 25-day turnaround time for leases that don't
    require external approval.
        We have also set up tracking systems so in VA we know where
    every single lease is, both our leases that are in the
    procurement chain that GSA sees but also all of our existing
    leases. So for the first time, we have a complete inventory of
    all leases in process that are executed, all leases that are
    operating, and all leases that are in the procurement process,
    as well as all leases pending congressional action.
        We have also set up an integrated budget tool for the first
    time in 2017, and it will be reflected in our 2018 estimates to
    Congress where we allocate the funds and track the funds based
    upon the schedules of our 1,200 leases of when we will need the
    money, and what year we will need the money, and whether we
    need capital money or we need the FTE associated with it.
        So we have a really, I think, a good handle on what our
    requirements are and what--importantly, what is the liability
    of those requirements as we go out in time. Because as we have
    seen, as many of the members that are on the Veterans' Affairs
    Committee have seen, an influx of significant workload. We have
    put our leases in place and have predicted what the liability
    of those leases will be in 2017, 2018, 2019, 2020. We do it out
    5 years now, so that is a big improvement that we started to
    address the leasing.
        We have also set up internal training sessions. As you
    imagine, VA is a very complex organization, spread across the
    country. And many of our small leasing below $1 million is done
    in the fields, so it is important for us to train and provide
    expertise, and GSA has helped us do that to those people who
    are actually executing the leases.
        So I think we have taken a lot of steps. It is not perfect
    by any means. And as we go through the various budget estimates
    that come out each year, we get a little bit better a little
    refiner and we integrate our data and provide a better estimate
    to Congress of our liabilities.
        Mr. Barletta. Why do you think they have taken so long?
        Mr. Sullivan. On the eight that are coming up to the
    committee now? Two reasons, really. When we submitted the last
    batch, we took the ones based upon the priority of where they
    were in development, how complicated they were. And the ones
    that we knew were closest to award, we submitted to the
    committee in the first six.
        The last eight are probably the more complex, larger leases
    where we had to do the market research, the planning for the
    space requirements and the design requirements for those
    leases, so those took a little bit more time. So it was more of
    a priority of what we could get through and what we were ready
    to present. We did not want to present the committee with an
    incomplete package.
        Mr. Barletta. How much of the delay is due to structuring
    the leases to score as operating leases as opposed to capital
    leases?
        Mr. Wisner. So I don't believe that there is any delay in
    the structure between a capital and operating lease. There is
    full commitment from GSA and from VA that we will not bring
    forward anything that has the potential to become a capital
    lease. That was part of the controls that were put in place in
    2014. I don't think that there is an adjustment that is made at
    all. When there is the risk of a capital lease, we stop that
    prior to any award. So there are several checkpoints along the
    way, and ultimately, if we started to go down the path or VA
    started to go down the path of coming close to a capital lease,
    I think we will probably pause and take a look at that. But
    right now I don't see any delay when we are--we have enough
    discipline in our program that we do not move even close to
    anything above an operating lease into the world of capital.
        Mr. Barletta. Thank you.
        The Chair recognizes Ranking Member Carson.
        Mr. Carson. Thank you, Chairman Barletta.
        Ms. Shea, in your testimony, you indicated that the VA has
    not provided Congress with information that backs up their
    conclusion that its choice to have lease--to lease these
    facilities, which is more expensive than construction is
    justified. What metrics do you think would be helpful for the
    VA to consider, ma'am, convincingly to make their case to
    Congress that leasing provides the flexibility that they
    repeatedly claim?
        Ms. Shea. Well, what we looked at in our report was the
    process that VA goes through to decide if it should lease. We
    looked at 51 leases that were proposed to see whether leasing
    was the right approach. And in all 51 of those leases that we
    reviewed, they indicated that they required the flexibilities
    that come with leasing. And sometimes this could even be when
    the choice to lease was more than the choice to own or
    construct. This goes back to one of the reasons we made the
    recommendation that VA does need to provide information on how
    it has used these flexibilities.
        For example, with the requirement that leasing has for the
    VA to vacate after 20 years, are they--when they need to find a
    new leased space--still leasing in the same area: are they
    really having to move because the patient demographic has
    changed; or are the seismic security and other standards really
    not that different from when the lease ended?
        So there are a lot of things that, on its face, seem like
    the flexibility is useful for VA, but they aren't collecting
    any of the information to demonstrate how it has used that
    flexibility. Did they move? Did the patient demographic change?
    Did the seismic and Federal security standards change? Did they
    record that? Did they then show how they benefited from that
    flexibility, and that they need that moving forward?
        And so we made that recommendation to VA, and they have
    agreed to do that and include that information in its
    prospectuses going forward.
        Mr. Carson. Yes, ma'am. Thank you.
        Mr. Sullivan, what are the cost controls as the VA puts
    together a program of requirements for a leased facility? Do
    costs ever cause the VA to not lease or build a clinic because
    it is simply too expensive?
        Mr. Sullivan. VA develops a rigorous business case for each
    of its leased actions. And in that, the business cases flow up
    from the clinicians in the field who actually are delivering
    care to the veterans. And we look at them to, first, look at
    whether they need a capital asset in the first place. They look
    at other alternatives before they look at leasing to see if
    that is more cost effective or more appropriate to do, and then
    they look at build, and then they look at lease.
        In terms of the cost analysis, we look at what the industry
    standards are. We look at what indices are showing of what
    leases should cost adjusting them for some of the Federal
    standards to ensure that we are submitting reasonable costs to
    the Congress when we submit these proposals. And then when our
    contracting folks execute it, they have to ensure that the
    cost, the rental rates, we are paying for these leases are
    reasonable.
        One thing I would say on cost, Mr. Carson----
        Mr. Carson. Sure.
        Mr. Sullivan [continuing]. Is when you look at the real
    estate costs of providing care to veterans, we did a little
    analysis a few weeks ago. And looked at what we see in the
    lifecycle of a lease. When you look at a lease when you are
    providing care for veterans, the real estate costs of a lease
    are less than 9 or 10 percent of what the cost it is to provide
    care for veterans. When you really look at it, the real cost of
    deciding to put a clinic in, it is the docs; it is the nurses,
    it is the schedulers, it is all of those people that are there,
    and the real estate costs are really the small amount.
        So when we look at the consideration, we have always put
    with the question by people, you know, you could have a real
    estate solution that is 25 miles down the road that is $3
    cheaper a square foot. But if the veterans, where they are,
    where they live are 25 miles away, our alternative has always
    been to put the clinic where the veterans are, closer to them,
    even if there is a cost difference. We look at in the life of
    the lease, it is more important to provide the right services
    where the veterans are rather than to get, say, a primo real
    estate deal 45 miles away. And we have had where people have
    come in and said, hey, we could save you $10 a square foot if
    you move 60 miles down the road. I guess you could, but the
    people wouldn't have access to it.
        The same thing in metropolitan areas. People are saying,
    well, if you can move one, you know, the other side of New York
    City, I could get you $3 off. Well, if the veterans are in
    Manhattan, you are going to put it all the way out in Queens,
    people in the area, that is a 2-hour commute difference. That
    is a huge impact on veterans. We look at the costs that way as
    well. Thank you.
        Mr. Carson. Now that we are out of time, thank you for the
    very deep explanation.
        Sorry, Mr. Wisner, I won't get to you. But nice haircut. My
    kind of guy.
        Mr. Wisner. I try.
        Mr. Carson. I yield back, Mr. Chairman.
        Mr. Barletta. The Chair recognizes Mr. Meadows for 5
    minutes.
        Mr. Meadows. Thank you, Mr. Chairman. Thank you for your
    leadership.
        Thank you each of you for being here.
        So, Mr. Sullivan, let me come to you, because I guess I am
    a little confused when Ms. Shea says that the flexibility is a
    big issue for you signing up for leases. And yet, you have not,
    to date, provided that kind of information.
        Mr. Sullivan. I think we are talking a little bit of
    different levels of information. In the prospectuses that we
    send to Congress, we articulate why we wanted to use leasing,
    and we articulate the flexibility that----
        Mr. Meadows. And why do you want to use leasing? Because
    most of the build to suit, I understand as a private sector
    guy, why you want to do that, you write off the expenses and so
    forth. But from a public sector standpoint, if you are doing
    build to suit, how in the world is that generally--because
    normally, a lessor is going to write off the cost over a 20-
    year lease of the entire cost in case you don't re-up, how is
    that a benefit?
        Mr. Sullivan. To us, it is a big benefit. When we look at
    what we--when we provide outpatient services in a leased
    facility over--most of our leases are 15 to 20 years. If you
    look at the changes in medical technology, 20 years ago where
    you are, you know, standard practice now is, for example, to
    have a CAT scan, to have an MRI scan, to have some oncology
    services----
        Mr. Meadows. No. I get all that. I guess what I am saying
    is if the cost of the lease covers the entire cost of
    construction that you are paying for, and yet, you don't have
    an asset at the end--it is kind of like a car lease. If you are
    paying the entire--if the residual value is zero at the end of
    the car lease and you don't own it, what is the benefit from a
    public sector standpoint?
        Mr. Sullivan. From a public sector standpoint is that we
    don't have an obsolete, outdated facility at the end of 20
    years that we have to go back in and retrofit if we owned it.
    And we have, unfortunately, many of those facilities in VA, and
    we don't want to add more to that stock.
        Mr. Meadows. Apparently, we are missing at each other.
        If you are covering 100 percent of your cost in the lease,
    100 percent----
        Mr. Sullivan. Correct.
        Mr. Meadows [continuing]. All right? Even if it is
    outdated, it becomes an asset that GSA has, and you can start
    over again.
        I was in the real estate business. I know it extremely
    well. So I guess what I am saying is are you leasing at less
    than the full cost of the build to suit? I mean, is there a
    residual value there?
        Mr. Sullivan. There is--depending upon the transaction,
    there can be a residual value. But at this point, if we were to
    build instead of lease and we--from the beginning, we would
    need to have all of that money upfront. So right now, in a big
    lease, say of 200,000 square feet, we are paying, say, $3
    million a year in rent, or $4 million, depending on the market,
    where it is. We would need to have $35 million----
        Mr. Meadows. You are saying because we are not allocating
    it upfront, you are actually using a lessor to do it over a 20-
    year period?
        Mr. Sullivan. In your example, yes.
        Mr. Meadows. OK. All right. So what analysis have you had
    from veterans in terms of location? What matrix do you use?
        Mr. Sullivan. We have a detailed healthcare planning model
    that goes all the way down to the zip code.
        Mr. Meadows. Who gives you input for that?
        Mr. Sullivan. It comes from external contractors that take
    census data, utilization data.
        Mr. Meadows. How many veterans do you talk to when you do
    that?
        Mr. Sullivan. I don't actually do that. We get that from an
    office of healthcare----
        Mr. Meadows. How many veterans do they talk to? Because
    here is what happens is, is a lot of times we make decisions on
    locations, and it is based on a perception. But sometimes we
    don't actually get the input from those who are going to use
    the facility. Do you not see a problem with that?
        Mr. Sullivan. I believe there are two things I was saying.
    We get overall projections of what the need is in the catchment
    area for a clinic; i.e., based upon census data, veteran pop in
    the future, and expected utilization. We then go down to the
    clinicians at the local level. Those clinicians at the local
    establish what is known as the delineated service area for that
    procurement. They determine, based upon their knowledge of the
    local market, the local preferences of veterans, and local
    clinical availability of resources where the type, delineated
    service area would be for where they believe those veterans
    will come for services. That is going to be different based
    upon each and every market. So they reach down. And they are
    the ones who establish the delineated service areas.
        Now, our folks here in Washington cannot, you know, come up
    with a delineated service area, because they know what the
    local market is and what the local----
        Mr. Meadows. I agree. And so what you are saying, it is
    going to be made at the local level not in Washington, DC?
        Mr. Sullivan. Yes. Correct.
        Mr. Meadows. So let me finish in the 23 seconds we have
    left.
        Let me ask you. As we start to look at these allocations,
    how many times out of the 700 and some odd times that Mr.
    Wisner had mentioned that has been delegated to you, how many
    times have you actually left a location and gone to a new
    location because of the flexibility that Ms. Shea talked about?
        Mr. Sullivan. I would have to get for you, but I would say
    numerous places that we have move----
        Mr. Meadows. Could you get the number to the subcommittee
    on that?
        Mr. Sullivan. Sure. It would take a little bit of data, but
    we could get that to you.

            [The requested information can be found in Mr. Sullivan's
            response to Mr. Meadows's question number 4 on page 49.]

        Mr. Meadows. Thank you. I yield back.
        Mr. Barletta. And that is why we have to reform our
    disposal rules, and we have that in our bill. And the second
    thing is we also in our bill have a discounted purchase option
    which would allow you to buy, so I think they are very good
    points by Mr. Meadows.
        The Chair now recognizes Ms. Brownley for 5 minutes.
        Ms. Brownley. Thank you, Mr. Chairman. I appreciate it.
    Thank you. And thank you, Ranking Member Carson, for allowing
    me to participate in this morning's hearing.
        As the ranking member of the House Committee on Veterans'
    Affairs Subcommittee on Health, I have been working for several
    years now to address problems in the VA's construction and
    leasing program. As we all know, changes in CBO's scoring have
    made it incredibly difficult for the VA Committee to authorize
    new facilities. This is not only frustrating to me as a Member
    of Congress, but it is having a very negative impact on
    veterans who are underserved.
        This is not just about better access, but it is truly a
    clarion call for equitable access for all of our veterans. I
    have brought a list today that I would love to share with the
    committee of 24 leases still caught in limbo for fiscal year
    2015 and fiscal year 2017. These are 24 communities in 15
    different States all across the country where veterans are
    underserved and where veterans sorely need better access to
    health care and are not receiving it. I am frustrated that
    Congress has not yet resolved this issue that has dragged on
    for several years now, an issue I think is a moral imperative
    and unquestionably an equity issue.
        I have introduced legislation to permanently fix this
    problem and to harmonize the VA leasing process with the GSA
    leasing process. This small procedure will make a big
    difference in the lives of veterans who are waiting for and
    rightfully deserve better access to care.
        That brings me to my first question. Last year, the VA
    Committee held a hearing on my bill, the Build a Better VA Act.
    At the time, VA was not prepared to answer specific questions
    regarding the administration's position on the bill. My bill
    has been endorsed by several VSO's and the Commission on Care
    has identified this as an area that needs to be addressed by
    the VA.
        So, Mr. Sullivan, has the VA now had time to review my
    bill, and does the VA support this approach? And if you don't,
    what is the VA's proposed long-term solution to addressing this
    ongoing problem that we have with authorizing the facilities?
        Mr. Sullivan. The VA does support your bill, and we support
    your efforts to look at the streamlining of the authorization
    process that is outlined in your bill.
        Ms. Brownley. Terrific. That is very good news. Thank you
    for that.
        Ms. Shea, I appreciate the work that GAO has done to ensure
    that the American taxpayers are getting a good value for their
    dollar. I share the views of my colleagues that cost
    effectiveness is an important tool for measuring value.
    However, I also believe that when it comes to veterans' health
    care timely access--timely access to high-quality care should
    be our absolute highest priority.
        So, Ms. Shea, did the GAO analyze the length of time that
    it would take to build new VA healthcare facilities from the
    ground up versus the amount of time it would take to build out
    a leased facility?
        Ms. Shea. We didn't look at the time to build or lease in
    this report, but we did look at the time to deliver a facility
    through leasing in the 2014 report. And we found that there are
    still delays in that process, but most of those delays were in
    the upfront side before they were delivered, and the delays
    were on average 3.3 years. And we don't have comparisons to VA
    construction, but based on some of the other construction work
    that we have done, there are generally longer delays for
    construction.
        Ms. Brownley. Thank you.
        You know, I certainly think timeliness is--you know, is
    critically important in terms of--with the goal, the sole goal
    of quality health care and access to that health care for our
    veterans. So, you know, I understand some of the issues that
    have been discussed here, but I also believe that getting a
    leased facility to our veterans as quickly as we possibly can,
    assuming that it is cost effective, is critically, critically
    important.
        And finally, Mr. Sullivan, from the perspective of the VA,
    can you just describe, again--I know you have already said some
    of this already, but what advantages does leasing have over
    construction? You have talked about flexibility and timeliness.
    And do you believe, still, that the option allows the delivery
    of health care to happen more swiftly?
        Mr. Sullivan. Yes. We believe leasing we can deliver there
    quicker. We can put an asset in place quicker--sorry.
        We believe that leasing provides a more expeditious way to
    provide healthcare services to veterans. We believe leasing is
    the right thing to do in terms of allowing us to change the
    types of services we need if we--at the end of the lease or if
    we have a shorter term lease. We believe technology is the big
    driver in health care. And for us to be able to have a 20-year
    old facility that took 2 years to plan, so 22 years out, that
    that technology is going to change, especially in the area of
    radiology, imaging, oncology, and those areas. It is night and
    day what it was 20 years ago, and we need to be able to have
    those facilities that have that up-to-date technology.
        There are challenges with the leasing process, I don't
    doubt that at all. But we believe that flexibility and also the
    flexibility if we have a new cadre of veterans that come in
    that demand new services that we don't know about today,
    leasing will allow us to shift, to provide those services where
    they are. And especially as we deal with some of the younger
    veterans coming into--from the Persian Gulf wars and more
    recently that their need for services are different and they
    want them in a different time in a different place than people
    who are from the World War II Vietnam era. So we need to
    balance that as we go forward, and we think leasing provides us
    flexibility.
        There is a need for owned assets. I am not saying there
    isn't. But in the outpatient arena where access is key, we
    believe that that is important.
        Ms. Brownley. Thank you, Mr. Chairman, for allowing me to
    be here and allowing me to go over my time. I yield back.
        Mr. Barletta. Thank you for coming.
        The Chair now recognizes Mr. Costello for 5 minutes.
        Mr. Costello. Thank you, Mr. Chairman.
        Before I got here, I used to be a real estate lawyer, and I
    used to negotiate leases. And it was not necessarily a fun
    endeavor, but I did learn that it is very value added. And I do
    think that the questions today are largely oriented towards
    improving the efficacy of the leasing process, and that is what
    we want to see. We just don't want to see us paying more money
    than we should pay in a lease. And I think we also want a
    cleaner analysis on, to Mr. Meadows's point, the valuation
    between an outright purchase and--or build to suit versus a 20-
    year lease.
        And in looking, Ms. Shea, at your analysis here, it strikes
    me that the issue that the VA is deficient in, relative to this
    analysis, comes under the credible characteristic and, most
    specifically, the conduct risk and uncertainty analysis.
        And I find that to be consistent with the conclusion
    without analysis criticism that we say, oh, it provides more
    flexibility and so, therefore, we should do it. I happen to
    think that it, in a lot of instances, leasing a medical
    facility probably is the more prudent cost, because unlike a
    lot of other real estate assets and office building, certainly
    raw ground, with a medical facility, there is a functional
    obsolescence after 20 years. And that you do run into negative
    equity much quicker. I mean, in my home township, we have an
    old mental health facility that, you know, 20 years later it
    was still there, and it was negative $8 million on an
    appraisal.
        So for Mr. Sullivan, what I would like to hear from you is
    what do you intend to do to address the shoring up the risk and
    uncertainty analysis, which I think will go a long way toward
    addressing Ms. Shea's report where the VA is deficient? The
    other question that I would have for you, Mr. Sullivan, is
    contained on page 10 of Ms. Shea's report which references the
    fact that the VA plans to conduct a, quote, ``lessons-learned
    study that could further improve how VA estimates its costs.''
        And the final point I would make, and then I will turn it
    over to all of you, is those of us who serve on the VA
    Committee, and I think even beyond that, the delivery model for
    caring for veterans is changing very rapidly, telehealth. We
    have a facility in my district where a lot more is done that
    way. And we look at the way e-health is able to provide
    services. It just doesn't require as much physical space. And
    some of it is space that once built can remain flex space.
        So I would ask for your take on that. And I think that that
    is part of the risk that I mentioned.
        And in the final question I have for you, Mr. Sullivan--I
    am sort of doing it all at once is, the report that McKinsey
    issued in 2015 found that for larger built-to-suit medical
    facilities, VA rents were 40 to 50 percent higher than private
    sector benchmarks. I think that that brings back into the fold
    of Mr. Meadows's point on, well, why don't we just do a build--
    I mean, why not build to suit and own it if you are going to be
    paying 40 to 50 percent higher? It is one thing if at the end
    of 15 or 20 years, it's like, OK. We paid for it, and now we
    are at zero and we have a facility, and maybe it is worth
    something, maybe it is not. It is a whole other thing when you
    are paying 40 to 50 percent over and above.
        Then the final point, I am not so keen on--I mean, we have
    enough examples on the VA Committee where VA construction
    projects end up a whole heck a lot higher than they should,
    which I think, points again, to leasing versus building. If it
    is a 50-50 proposition, I think I would probably lean towards
    the leasing.
        I have said a lot. I turn it over to you for your comments
    on my comments.
        Mr. Sullivan. Sure. I will try and take them as I jotted
    them down here. In terms of the cost lessons learned that GAO
    recommended, what I believe that lessons learn is going to do
    is, right now we treat each procurement, it goes through a
    process. We do a fair and reasonable assessment before we
    award. What we have from that result is we have individual
    instances of costs. And I think what GAO is saying from a
    portfolio perspective to take all of those costs as you get
    them, roll them back into your estimating model.
        Right now, it may or may not be done. It is not required,
    so we have agreed comprehensively to do that. That data is
    there. It is just a matter of us going forward and pulling it
    forward.
        The same thing on the risk in terms of whether we really
    move out of these facilities or we really will use them. The
    data is there in the decentralized environment. And we defer to
    the locals. When we submit the budget, we can easily pull that
    data, and we will do if for the committee that shows where we
    have moved, whether we have upgraded the facility, or whether
    we have stayed in place.
        So I think the data is there for that, and that will really
    inform, you know, how much risk are we really avoiding by doing
    this.
        I think everyone just intuitively and all the clinicians
    intuitively live in these facilities day to day, and they know
    there is no way that they should stay in that facility, not
    only due to the changes in care, but the security, the
    setbacks, and all of those things. We take them from their gut,
    but we need to get the data to make it clear to everybody that
    that is and that is fair, and we will do that as soon as we
    can. We have it, just a matter of aligning it.
        In terms of the McKinsey report, we will have to get you
    more specifics on that. I believe some of the comparison made
    in the McKinsey report was made to private sector healthcare
    facilities that do not have some of the Federal requirements
    that we have to handle. But we can get that for you. We are
    familiar with it. It is a pretty thorough report, and we are
    happy to provide you and the committee with that.
        Mr. Costello. And that would be providing veterans care.
        Mr. Sullivan. Right.
        Mr. Costello. There could be some good explanations. I am
    just looking for that.
        Mr. Sullivan. Right. Because there is a big difference. Our
    clinics and one of the things we talk about a lot is when you
    compare an MBO medical office building to a VA clinic, they are
    very different. And a lot of the benchmarking people use
    against us are medical offices buildings and----
        Mr. Costello. I understand.
        Mr. Sullivan [continuing]. Apple to orange. But we are
    happy to provide that to you. Thank you.
        Mr. Costello. Thank you.
        Mr. Barletta. The Chair now recognizes Mr. Rouzer for 5
    minutes.
        Mr. Rouzer. Thank you very much, Mr. Chairman.
        And I want to follow up on my colleague, Representative
    Costello's questions and your answer there.
        I have a specific case, in Wilmington, North Carolina,
    where we have our Wilmington VA clinic, basically, a brand new
    building. There is a lot of concern among constituents and my
    veterans in particular, about the--what they feel is an
    outrageous figure that we are paying for that space, roughly to
    the tune of $300,000 a month.
        Now, I heard your answer there at the very end to
    Representative Costello where you are saying--when you compare
    the prime medical space elsewhere, it is not necessarily apples
    to apples, perhaps apples to oranges. But when you consider the
    fact that it is $300,000 a month, and the vast majority of my
    constituents, they are probably thinking in terms of a 30-year
    mortgage, and that is far and above the average 30-year
    mortgage in my district. So there are a lot of questions about,
    you know, how do we negotiate these leases, and are we just
    absolutely being raked over the coals with this?
        So if you can elaborate more on how you go through what
    that process actually is.
        And I am curious where GSA fits into this. Who actually
    negotiates the lease? Is it GSA and with--in consultation with
    the VA, or is it the VA with advice from GSA? If you can
    explain how that works, I would be interested.
        Mr. Wisner. So I will take the first question--or the last
    question first.
        Mr. Rouzer. Sure.
        Mr. Wisner. GSA provides advice to VA. VA has their own
    lease contracting officers who are trained to use the GSA
    program, GSA forms, and the Government leasing process. So they
    follow the FAR, the follow the GSEM; they follow all the rules
    and regulations there are related to GSA. Part of this
    relationship is if you use GSA's delegated leasing authority,
    you follow GSA's policies and practices.
        I must say that the program has improved significantly with
    VA in the past 2 years. The centralization that Jim has been
    speaking about on bringing the decisionmaking to a central
    point and having prioritization and decisions made through that
    has been extremely helpful, and I think there is more that you
    will see in the near future.
        So VA does their own negotiations. We oversee through a
    delegation of authority, and then we do pre-award checks to
    make sure they are not capital leases. We also do post-award
    checks to ensure that they followed all the rules and
    regulations, and then we do clean up actions afterwards if
    necessary.
        Mr. Sullivan. I can tell you have we have an entire
    organization that, as Mr. Wisner referenced, is our contracting
    elements that actually contract and do all of the solicitation,
    the evaluation, and the selection of the winning proposers on
    these. I know generally that they validate with benchmarks and
    appraisals the rates that they pay. I am not that familiar with
    that case. I would be happy to get you the information or
    whatever way you want. I would be happy to sit down with you
    and go through that so you can understand what the process was
    in that particular case.
        Mr. Rouzer. Well, I would very much like to get that
    presented to the committee because that is a big question mark
    in the minds of many of my constituents when they look at that
    figure.
        One thing, if you can expound on this a little bit, you
    mentioned that you use prevailing market rates as you try to
    negotiate these leases, but yet if you have a medical clinic
    and you have no comparable, per se, facility to measure
    against, how do those two mesh? I am not sure I follow that.
        Mr. Wisner. So this is one of the most challenging things
    that we have had to work with and are trying to understand more
    of. GSA typically acquires general office space. The VA works
    through a market analysis and then does a type of buildup to
    get to a cost of what their hospital should be. There are lots
    of questions back and forth between our program. We are trying
    to understand more about how the VA establishes those costs,
    and I know the VA internally is working on cost estimating and
    improving the mechanism by which they do these cost estimates.
        We have access to many databases, RF means, et cetera,
    where we can look and validate on what the VA has. I think that
    there is still room for improvement on this market rate
    question, but what we have before us today is by far an
    improvement over where we were 2 years ago.
        Mr. Rouzer. My time is expired. Thank you, Mr. Chair.
        Mr. Barletta. Thank you. The Chair now recognizes Mr.
    Massie, for 5 minutes.
        Mr. Massie. Thank you, Mr. Chairman. Last week Chairman
    Mica had a good hearing about property and assets and how
    difficult it is for us to dispose of them or turn them over
    back to the private sector, so I can definitely see the
    benefits of leasing, but I left that hearing with a question
    and I still have that question in this hearing--it seems to be
    coming up--which is how good is our database of properties,
    leased and owned? Because some of the questions we are asking
    today we could answer ourselves if we could get on a computer
    and just query the database. We wouldn't even have to show up
    to get some of these apples and oranges questions answered. We
    could go into that database.
        Mr. Sullivan, let me ask you first. How close are we to
    having a full database of all the properties that, for
    instance, congressional staff could look at?
        Mr. Sullivan. I think there are two levels of data, as I
    understand it. There is the Federal real property database that
    is run by an outlet, and it is a little bit out of Mr. Wisner's
    area, but GSA runs, which includes all Federal assets across
    all agencies. I believe most of what is in there is civilian-
    based data for civilian agencies, and I believe that
    information has been and can be released to committees and
    other people with interest. I am sure that we could find out
    what the status with that is.
        In addition to that, we have kind of a subsidiary database,
    if you will, that has a little bit more granularity so we know
    where all of our assets are, all of our leases are, so between
    the two of those, I am sure we could provide any information
    that you would want.
        Mr. Massie. My next question on this topic is to Ms. Shea
    and Mr. Wisner. You deal with property across various
    Departments, not just the VA, is that correct, that is in your
    jobs?
        Mr. Wisner. Yes, across the Federal Government.
        Mr. Massie. So my question to both of you then--so I assume
    you do as well, based on your title, Ms. Shea--how does the VA
    database compare, because I am sure the DOD has maybe a
    different type of database, and I am sure there are certain
    Departments that maybe keep more information about let's say
    the constraints on the property if it ever were to be released
    to the public or something like that.
        But how does the data on the buildings that we have within
    the VA, leased and owned, compare to the data in other
    Departments? Are they doing a better job or worse job?
        Mr. Wisner. Yeah. So I have not looked at the database that
    the VA has internally. I mainly work with the FRPP, which is
    the Federal Real Property Profile database. I believe that the
    majority of the property that VA controls is fed into the FRPP,
    so it would be difficult for me to comment on something that I
    haven't seen yet on the VA database.
        Mr. Massie. Ms. Shea.
        Ms. Shea. Right. And that is a bit outside of the scope of
    this review, but we have in our other work for real property
    used the FRPP and looked at that extensively. And perhaps at
    the hearing that you are referring to, my colleague Mr. Wise
    mentioned that there are fewer than half of the Federal
    properties that are in that database because if you have
    independent leasing authority, you won't be in that database.
    So VA is in that database, but we didn't look to see how its
    own internal database for properties compares to the FRPP.
        Mr. Massie. It just strikes me that if the data was out
    there, you would almost sort of have crowd sourcing monitoring
    and reporting of this that it would just happen, and you would
    have realtors combing through that database, looking for, OK,
    in 3 years, this property is coming up and the Government is
    going to want to dispose of it. I think it would be handy to
    have the lease information in that database, particularly if
    the bill we are talking about here is going to allow sort of a
    purchase agreement at the end. That way we do want to compare
    apples to oranges when we look at should we buy that property
    at the end of the lease. So we want to have a comparable
    database for the lease stuff, wouldn't you think, Ms. Shea?
        Ms. Shea. I think GAO is always in favor of having
    centralized data that we can look at, so yes.
        Mr. Massie. All right. I am in favor of that, too, and I
    yield back my remaining 30 seconds.
        Mr. Barletta. Thank you. I am going to start a second
    round. I just have one or two more questions.
        Ms. Shea, the GAO noted that the VA has made progress in
    meeting GSA's requirements. Can you highlight key challenges
    that there may be?
        Ms. Shea. When VA first started going to GSA for delegated
    leasing authority, they had a bit of a learning curve. And
    since that time, they have done three key things, including, as
    Mr. Sullivan mentioned, a management review process so that
    every single one of the proposals--before it gets put into the
    database--gets reviewed to make sure they have got all the
    right documentation. They also ensure that all of their
    contracting officers received this training that they needed to
    understand GSA's requirements and to make sure that they had
    all the documentation at the ready.
        And lastly, according to both GSA and VA, there is a lot
    greater coordination among the two, and there are, for example,
    weekly meetings to discuss the issues. I guess the issue for us
    is that they have implemented this process, and that is all a
    very good thing. But that is mostly for the lower, the non-
    prospectus-level leases. They have applied that to those. It
    may be harder to make sure that the prospectus level leases are
    in alignment with GSA's requirements. And so it is something
    that they are just going to have to test and see how well it
    works and continue to monitor those new practices and make sure
    that they are working for the larger leases as they move
    forward.
        Mr. Barletta. Mr. Sullivan, in your analysis as to whether
    to lease or own a medical facility, how does the VA take into
    consideration existing space that may be available?
        Mr. Sullivan. When we do a procurement for a replacement
    lease or an expansion, and many of our leases not only replace
    what is there, but they expand it, we look first to see if
    there is an existing asset somewhere that we can do. We also
    check with GSA. As Mr. Wisner said, we are just as happy if we
    can find a Federal building that has space that is located
    where veterans are, to us it doesn't--unless there is some
    special need in that clinic that can't fit within a Federal
    building--or a lease that GSA has that has come free because
    another tenant doesn't want it, if there is someone who can use
    it, we are more than happy to take that.
        So we look at existing first because it is going to be
    usually in a lot of cases if the bare requirements for our
    lease don't have a lot of specialties in it, we could move in a
    lot quicker, which means that we can provide services quicker,
    and that is what we want to do. So we use that as our first
    look in the procurement process and in the process of
    delegation to GSA. When we don't find ones there, we do go out,
    and they end up going through the procurement process.
        Mr. Wisner. Sir, we have several examples where this
    methodology has worked. We have had a number of vacant spaces
    where we have aligned with the VA. They have been able to move
    into the space in a more quick fashion. These are the smaller
    C-box, and I call them retail spaces so obviously not large
    prospectus-level leases that you would see, but in the
    operations we have seen quite a few number of leases where we
    have been able to backfill.
        Mr. Sullivan. It should be noted all of our nonmedical
    leasing, I mean, we do not portray to have significant
    expertise in nonmedical leases. So all of our nonmedical
    leases, whether they are for cemeteries, veteran benefits, or
    overhead leases, are all done by GSA, as they should be.
        Mr. Barletta. Thank you. I have no further questions.
    Ranking Member Carson.
        Mr. Carson. Mr. Wisner, in January of 2016, the VA issued a
    new standard design that covers the different types of
    facilities that the VA procures. The GAO indicated that design
    changes are the main drivers of increases of costs for a
    facility. The committee previously tackled the issue of
    courthouses spiraling out of control with increases related to
    deviations from the design guide for courthouses. What are
    appropriate reasons for the VA to deviate from the design guide
    that they have completed, and would you recommend that our
    committee resolutions require congressional notification if the
    VA departs from the design guide at all?
        Mr. Wisner. This is probably a two-person question, but I
    will start off. As I understand it, the VA has established some
    standard types of hospital and delivery mechanisms which can be
    categorized, and I just call them like the big three, the types
    of hospitals or types of locations that they need to acquire.
    That will help a lot in the world of standardization. I don't
    know necessarily if we need to go to the level of notification
    to Congress if they deviate. You might look at it from a
    standpoint of risk. How much have you deviated, and how much of
    a notification do we require around that? But I think the
    standardization is going to go a long way.
        Many of our customer agencies--I am working with the United
    States Coast Guard right now--are moving toward standard
    platforms of what we will acquire other than individual one-
    offs across the portfolio. So standardization is, I think,
    something that we should push more, and we should look for that
    discipline across the entire portfolio.
        Mr. Sullivan. I agree with Mr. Wisner. We are doing three
    types of standardization. At the lowest level we are doing
    something called patient-aligned care teams where we set up
    modules where we predesign what services will be provided and
    create standardized areas where outpatient services are
    provided, and we set them up in teams. So you can get one
    module, two modules, six modules. You build on it.
        The second thing we are doing is we are doing a prototype
    what we are calling, what Mr. Wisner referred to, we have a
    small, medium, and large prototype for outpatient clinics
    trying to standardize that process. And then the third effort,
    which is less mature than those two, is we are looking at all
    of our contract documents and all of our contract standards
    that we have out there for building and designing and trying to
    reduce and make them, to the extent we can, more aligned with
    what private sector practices are in the healthcare practice,
    which is an ongoing effort, and we do have a lot to go on that
    effort, but we believe that is what we need to do to bring us
    more in align and lower cost. And we are pushing forward to do
    that, probably on new leases in the coming years, to look at
    standardizing that more to make it easier for the private
    sector to come in. Thank you.
        Mr. Carson. Thank you. I yield back, Mr. Chairman.
        Mr. Barletta. Thank you. The Chair recognizes Mr. Rouzer.
        Mr. Rouzer. Thank you very much. You may have answered this
    when I had to step out, but I am just curious. What is the
    percentage of those facilities that are leased versus owned at
    the VA, security slip that is overall?
        Mr. Sullivan. We have about 25 million square feet leased
    and about 158 million owned, and the lease has significantly
    increased while the owned has held steady, or we are trying to
    move it down.
        Mr. Rouzer. Got you. At what point in time did you change
    your focus to leasing versus owning?
        Mr. Sullivan. I don't know if we completely changed our
    focus, but if we look back about 5 years ago, we had a major
    change in the way we provided health care, maybe a little bit
    longer, but we shifted more to the outpatient area. That is
    when the leases, say, 10 years ago started to take off because
    we wanted to move it to the outpatient setting, closer to where
    veterans are, not in the hospital. So we kind of have focusing
    on us a perfect storm that VA is coming through.
        We have a whole series of leases that started 10 or 15
    years ago that are all becoming mature, and we need to move
    out. At the same time, as everyone in our world knows, we have
    been hit with an unprecedented workload increase, which require
    new clinics because we don't have the capacity. So you have the
    expiring old ones and the new ones and then updating all of the
    new ones for technology and security and safety, so we kind of
    have this large cloud that is coming at us, and that is what we
    are trying to work through.
        Mr. Rouzer. Got you. Going back in my memory bank, and this
    goes back to when this issue at VA clinic in Wilmington came to
    light, and we were paying roughly $300,000 a month. I remember
    being told by somebody somewhere--the specifics I don't recall
    precisely--but basically that they did not look at prevailing
    market rate. They looked at other comparable VA facilities or
    other Government-owned facilities elsewhere in the country. And
    so initially when I was listening to you, I was trying to
    reconcile that with the comment about you do look at market
    rate.
        And then, of course, in response to Representative
    Costello's question, market rate really doesn't apply if you
    don't have a commensurate, you know, facility in the area. So I
    am kind of going back in my mind on this, and I am thinking to
    myself, OK, maybe what I was told originally actually is
    accurate, that they don't look at prevailing rate, or they
    didn't look at the prevailing rate in the Wilmington area and
    looked at other VA facilities elsewhere.
        I am just curious. This facility is roughly 85,000 square
    feet from what I understand. So basically we are paying $3.50
    or so per square foot. This pretty much has all the services
    that can be provided at a VA facility. Do you know off the top
    of your head how that compares with another facility elsewhere
    in the country?
        Mr. Sullivan. Earlier, I don't know the particulars of that
    transaction. I will be happy to get it for you. I know as a
    matter of policy we try and use benchmarking from existing
    prevailing rates somewhere else with a like facility.
        Mr. Rouzer. Now when you say somewhere else with a like
    facility, where is somewhere else?
        Mr. Sullivan. Well, in a reasonable area. The contracting
    officer decides within a reasonable area, is there a comp that
    is there. And in some cases, as I referenced earlier, there are
    no comps. I mean, we have places where we put a clinic; there
    is no healthcare comp anywhere near it. So then they look to
    see is there an office comp that you can build up off of, and
    in some cases there might be an office comp and there may not,
    and they may have to go further away. So it is really market
    driven.
        So I don't think there is inconsistency in the answer
    because in some cases we have straight comps; you can use them.
    Others you have an office comp that you build up, and others
    you will have to go further away. But I don't know the
    particulars in that case, and we will just have to get it to
    you.
        Mr. Rouzer. Well I have to say for the record it is been
    very, very difficult for my office to get any transparency at
    all with the VA on this in terms of comparable rates and how
    this was negotiated, and I would very much appreciate if you
    all can provide some transparency there, because there are a
    lot of folks in my district, and rightly so, including myself,
    that would like to know.
        Mr. Sullivan. I will take it back to the contracting folks
    and get them in contact with your office.
        Mr. Rouzer. Thank you very much. I yield back.
        Mr. Barletta. Thank you. I would like to thank you all for
    your testimony today. Your comments have been helpful in
    today's discussion.
        If there are no further questions, I would ask unanimous
    consent that the record of today's hearing remain open until
    such time as our witnesses have provided answers to any
    questions that may be submitted to them in writing and
    unanimous consent that the record remain open for 15 days for
    any additional comments and information submitted by Members or
    witnesses to be included in the record of today's hearing.
    Without objection, so ordered.
        I would like to thank our witnesses again for your
    testimony today. If no other Members have anything to add, this
    subcommittee stands adjourned.
        [Whereupon, at 11:49 a.m., the subcommittee was adjourned.]
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