[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

                               __________

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             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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