    FDA Laboratories: Magnitude of Benefits Associated With Consolidation Is
    Questionable (Letter Report, 03/19/96, GAO/HEHS-96-30).

    Pursuant to a congressional request, GAO reviewed the Food and Drug
    Administration's (FDA) plan to consolidate its Office of Regulatory
    Affairs' (ORA) 18 field laboratories for product testing, focusing on:
    (1) the validity of projected cost savings and operational efficiencies;
    and (2) site selection criteria.

    GAO found that: (1) the 20-year consolidation plan, known as ORA 21,
    proposes to create 5 mega-laboratories and 4 special-purpose
    laboratories; (2) ORA based its plan on the belief that its current
    facilities are old, need costly repairs, and do not meet the needs for
    conducting regulatory science in the future; (3) ORA may have overstated
    the consolidation plan's projected cost savings because ORA made several
    assumptions about replacement costs, construction costs, and space and
    staffing requirements; (4) the plan's claims for achieving greater
    operational efficiencies are also questionable, and ORA did not
    substantiate claims regarding obsolete equipment, supervisor/analyst
    ratios, laboratory efficiency, and staff relocation; and (5) ORA
    conducted limited analysis of the relative efficiency of proposed
    laboratory sites and based its site selections on areas where it
    believed that it would receive congressional funding approval.

    --------------------------- Indexing Terms -----------------------------

     REPORTNUM:  HEHS-96-30
         TITLE:  FDA Laboratories: Magnitude of Benefits Associated With
                 Consolidation Is Questionable
          DATE:  03/19/96
       SUBJECT:  Laboratories
                 Test facilities
                 Site selection
                 Cost effectiveness analysis
                 Federal facility relocation
                 Obsolete facilities
                 Food and drug law
                 Federal agency reorganization
                 Product safety

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    Cover
    ================================================================ COVER

    Report to Congressional Requesters

    March 1996

    FDA LABORATORIES - MAGNITUDE OF
    BENEFITS ASSOCIATED WITH
    CONSOLIDATION IS QUESTIONABLE

    GAO/HEHS-96-30

    Consolidation Benefits Questionable

    (108222)

    Abbreviations
    =============================================================== ABBREV

      FDA - Food and Drug Administration
      GSA - General Services Administration
      HHS - Department of Health and Human Services
      NCTR - National Center for Toxicological Research
      ORA - Office of Regulatory Affairs
      WAAG - Working Analysts' Advisory Group

    Letter
    =============================================================== LETTER

    B-270022

    March 19, 1996

    The Honorable Paul Sarbanes
    United States Senate

    The Honorable John J.  LaFalce
    The Honorable Bill Paxon
    The Honorable Jack Quinn
    House of Representatives

    To protect consumers from unsafe, ineffective, and mislabeled
    products, the Food and Drug Administration's (FDA) Office of
    Regulatory Affairs (ORA) tests thousands of products annually in its
    laboratories for possible violations of federal laws.  The operating
    costs for ORA's 18 field laboratories in fiscal year 1995 were about
    $17 million.

    Because ORA officials believe that many of the office's laboratory
    facilities are old, need costly repairs, and do not meet the needs
    for conducting regulatory science in the future, ORA developed a
    20-year plan to consolidate its field laboratories.  As illustrated
    in table 1, the plan calls for closing several laboratories and
    building new ones, resulting in five "mega-labs" and four
    special-purpose labs.

                                    Table 1

                     FDA's Current and Proposed Laboratory
                                   Structure

    Multipurpose labs                   Multipurpose mega-labs
    ----------------------------------  ----------------------------------
    Atlanta, Ga.                        Atlanta, Ga. (expansion of current
                                        facility)

    Baltimore, Md.                      Jefferson, Ark. (new facility)

    Buffalo, N.Y.                       New York, N.Y. (new facility)

    Chicago, Ill.                       Seattle, Wash.

    Dallas, Tex.                        Special-purpose Labs

    Denver, Colo.                       Cincinnati, Ohio

    Detroit, Mich.                      Philadelphia, Pa.

    Kansas City, Mo.                    San Juan, P.R.

    Minneapolis, Minn.                  Winchester, Mass.

    New York, N.Y.

    New Orleans, La.

    Los Angeles, Cal.

    San Francisco, Cal.

    Seattle, Wash.

    Multi-and special-purpose labs\a

    Cincinnati, Ohio

    Philadelphia, Pa.

    San Juan, P.R.

    Winchester, Mass.
    ----------------------------------------------------------------------
    \a These labs have a specialty focus such as forensic chemistry in
    addition to multipurpose functions.

    On the basis of your concerns, we reviewed ORA's consolidation plan,
    focusing on (1) projected cost savings, (2) projected operational
    efficiencies, and (3) site selection criteria.  To complete our work,
    we reviewed agency procedures and data on the consolidation plan,
    analyzed the assumptions in the plan, and discussed the plan with key
    officials at FDA headquarters and selected field locations.  See
    appendix I for more details on our work scope and methodology.

       RESULTS IN BRIEF
    ------------------------------------------------------------ Letter :1

    While FDA's decision to consolidate its 18 laboratories and create 5
    multipurpose mega-labs and 4 special-purpose labs could yield
    efficiencies, we found that the documentation and estimates of the
    benefits resulting from consolidation are questionable.

    ORA projected that its 20-year consolidation plan would result in
    cost savings of about $91 million over the life of the plan.  More
    specifically, ORA's cost estimates projected that the consolidation
    plan would cost $950 million over 20 years--about a 10-percent
    savings over the alternative of replacing existing labs.  However,
    ORA made certain assumptions that may have inflated the replacement
    option cost.  Moreover, current FDA workload data, which are the only
    efficiency measures presented by ORA, indicate that medium-sized labs
    (about 50 analysts per lab) are more efficient and effective than
    existing larger labs (about 100 analysts per lab).

    In selecting sites for its mega-labs, ORA did little analysis of the
    relative efficiency of alternative sites.  For example, ORA placed
    less emphasis on such factors as proximity to ports of entry and
    quantity of nearby food and other relevant businesses for its site
    selections.  Instead, ORA's site selection decisions were based
    mainly on where it thought it would receive congressional funding
    approval.

       BACKGROUND
    ------------------------------------------------------------ Letter :2

    ORA, under the direction of the Associate Commissioner for Regulatory
    Affairs, is responsible for carrying out FDA's mission to ensure that
    foods, cosmetics, and medical products are safe, effective, and
    properly promoted and labeled.\1 ORA provides a central point to
    which headquarters officials can turn for field support services.  It
    also exercises direct line authority over field operations, which are
    generally divided into four branches:  investigations, laboratory,
    compliance, and administrative management.  Product sampling and
    analyses are conducted primarily in the field by ORA's 21 district
    offices.  Each office is headed by a district director responsible
    for operations.

    ORA's laboratories play a major role in protecting consumers from
    unsafe, ineffective, and mislabeled products.  They provide a
    scientific base to support ORA enforcement and regulatory activity.
    The laboratories test thousands of product samples annually for
    possible violations of federal laws.

    --------------------
    \1 FDA derives its authority from the Federal Food, Drug, and
    Cosmetic Act of 1938, as amended (21 U.S.C.  301).

          CURRENT STRUCTURE INCLUDES
          18 LABORATORIES
    ---------------------------------------------------------- Letter :2.1

    ORA operates 18 field laboratories nationwide, including 1 in Puerto
    Rico, which FDA either owns or leases from the commercial sector or
    from the General Services Administration (GSA).  (See fig.  1.)

    (See figure in printed edition.)Figure 1:  Current FDA Field
    Laboratory Locations

    The laboratories, which are collocated with district offices, provide
    two program functions:  (1) surveillance and compliance and (2)
    research.  Surveillance and compliance functions are conducted by
    investigators and laboratory analysts who inspect and investigate
    domestic establishments and imports; sample, collect, and analyze
    products; monitor compliance with existing regulations; initiate
    legal actions when health hazards are detected; and respond to
    crises, such as consumer tampering.  Enforcement decisions are
    supported by research activities, such as identifying potential
    health hazards and developing efficient and effective laboratory
    testing methods.

    ORA spends about $17 million per year, excluding salaries, to operate
    its laboratories.  The field locations employ about 650 operating
    personnel--which include chemists, microbiologists, entomologists,
    research analysts, engineers, and physicists--and about 275 support
    personnel.

          ORA'S RESTRUCTURING
          PLAN--ORA 21
    ---------------------------------------------------------- Letter :2.2

    ORA refers to the plan for the proposed laboratory structure as ORA
    21.  According to ORA management, the plan is designed to be a
    flexible blueprint for the future, allowing for changes to be made as
    necessary, with a 20-year implementation period extending to the year
    2014.

    The laboratory structure under the plan includes the following:

      five mega-labs located in New York City, New York; Atlanta,
         Georgia; Los Angeles, California; Seattle, Washington; and
         Jefferson, Arkansas, which will be expected to perform all
         laboratory functions; and

      four special-purpose laboratories located in Winchester,
         Massachusetts (radionuclide analysis and engineering center);
         Cincinnati, Ohio (forensic chemistry center); Philadelphia,
         Pennsylvania (drug analysis center); and San Juan, Puerto Rico
         (drug analysis center).

    Table 2 shows the expected laboratory closures and their scheduled
    closing dates.

                                    Table 2

                     Expected Laboratory Closures and Dates

                                                                   Closing
    Laboratories                                                      date
    ------------------------------------------------------------  --------
    Buffalo                                                           1997
    Chicago                                                           1997
    New Orleans                                                       1998
    Baltimore                                                         1999
    Dallas                                                            2000
    Detroit                                                           2000
    Minneapolis                                                       2000
    Denver                                                            2010
    Kansas City                                                       2014
    San Francisco                                                     2014
    ----------------------------------------------------------------------

          HISTORY AND RATIONALE FOR
          CONSOLIDATION
    ---------------------------------------------------------- Letter :2.3

    ORA was led to consider laboratory alternatives when it decided that
    many of its once state-of-the-art field laboratories built in the
    1960s had become obsolete.  Over the years, FDA management has
    considered several options for replacing these facilities, from
    one-for-one replacement to consolidation.

    In a 1986 consolidation plan, FDA proposed closing five laboratories
    to reduce the total capacity of its field laboratory system by about
    one-third.\2 In the early 1990s, ORA considered one-for-one
    replacement of these labs.  For example, in 1991 and 1992, ORA had
    planned to construct new labs in New York and Baltimore,
    respectively.  However, changes to the government's policy in 1992
    precluded FDA from using GSA's federal building fund to acquire new
    construction projects.  This caused ORA to reconsider its overall
    restructuring strategy.  Accordingly, when ORA senior staff met in
    January 1993, they decided to examine how to most effectively and
    efficiently meet ORA's laboratory needs for the 21st century.

    To accomplish this, ORA established the Working Analysts' Advisory
    Group (WAAG) in the summer of 1993 and the Laboratory Directors'
    Steering Committee in the fall of 1993.  The members of these groups
    included laboratory analysts and directors, a field science adviser,
    and a representative of FDA's Division of Field Science.  Also,
    during a strategic planning meeting in October 1993, the Associate
    Commissioner for Regulatory Affairs requested that the Regional Food
    and Drug Director for the Pacific Region develop an options paper to
    change ORA's field organizational alignment, including the laboratory
    structure, by the year 2004.

    To evaluate the current field laboratory structure and to suggest
    modifications to it, the two committees assessed many issues,
    including positive and negative aspects of the current laboratories
    and other factors relevant to the selection of laboratory locations.

    The two groups presented their recommendations to ORA senior staff.
    WAAG recommended that the 18 laboratories remain open and receive
    adequate funding support, while the Laboratory Directors' Steering
    Committee recommended that the 18 laboratories be reduced to 13.  The
    committee noted, however, that it had recommended closing some
    laboratories because the field structure was overwhelmed with work
    due to overall staff attrition.  According to one committee member,
    if FDA had adequately staffed each laboratory, the committee would
    not have recommended certain ones for closure.

    In December 1993, the Director for the Pacific Region issued the
    options paper, "Reorganizations of ORA for the 21st Century." The
    paper presented five options for restructuring the field
    laboratories.  The options ranged from maintaining the status quo to
    restructuring using various consolidation options.  The
    recommendations made by WAAG and the Steering Committee were
    incorporated into the paper's options and presented to ORA senior
    management before an ORA senior staff meeting in January 1994.

    Participants in the ORA senior staff meeting discussed and reviewed
    each option and reached a consensus to consolidate the laboratories
    by creating five multipurpose mega-labs and four special-purpose
    labs.  (See fig.  2.)

    (See figure in printed edition.)Figure 2:  Proposed FDA Field
    Laboratory Locations

    --------------------
    \2 GAO was asked to review FDA's 1986 proposal.  GAO issued its
    report, Food and Drug Administration:  Insufficient Planning for
    Field Laboratory Consolidation Decisions (GAO/HRD-88-21, Dec.  4,
    1987), in 1987, concluding that FDA's criteria were limited and did
    not adequately address whether FDA could meet its current and future
    laboratory needs if the five laboratories were closed or whether
    cost-effective alternatives to closure were available to reduce its
    capacity.

       PROJECTED COST SAVINGS MAY BE
       OVERSTATED
    ------------------------------------------------------------ Letter :3

    ORA's analysis showed that its consolidation option saved money
    compared with continuing with the present structure by replacing labs
    when current leases expire.  However, we found that ORA made
    assumptions that may have inflated the projected costs of replacing
    several laboratories.

          CONSOLIDATION VERSUS
          ONE-FOR-ONE REPLACEMENT
    ---------------------------------------------------------- Letter :3.1

    ORA compared the costs of two options--consolidating laboratories as
    proposed (ORA 21) and replacing all laboratories as their leases
    expire.  The replacement option assumes using leased property; the
    consolidation plan envisions that three of the mega-lab facilities
    (in Los Angeles, Seattle, and Jefferson, Arkansas) would be
    government owned.  The costs estimated for consolidating versus
    replacing all the laboratories were about $950 million and $1.041
    billion, respectively.  Using these figures, ORA projected that the
    savings from its consolidation plan would be about $91 millon over a
    20-year period.

    ORA's assumption that it would have to lease space to replace
    existing laboratories was based on the federal budgetary process.
    Under budget score-keeping rules, outlays are generally scored on a
    cash basis when they occur.  Therefore, the full construction cost
    must be appropriated in 1 year, and FDA believed that it could not
    compete for such funds given HHS' budget constraints.  As we have
    pointed out previously, the federal government has often entered into
    leases to satisfy long-term space needs even though GSA analyses have
    showed leases to be more costly in the long run than ownership.\3

    --------------------
    \3 (Budget Issues:  Budget Scorekeeping for Acquisition of Federal
    Buildings (GAO/T-AIMD-94-189, Sept.  20, 1994).

          SPACE AND STAFFING
          REQUIREMENTS FOR REPLACING
          LABS MAY BE OVERSTATED
    ---------------------------------------------------------- Letter :3.2

    Under its most recently revised replacement analysis (July 1995), ORA
    appears to have overstated the space requirement for some
    laboratories and the staff requirements for two proposed
    laboratories.  Such overstatements would increase the cost estimate
    for replacing laboratories and, thus, increase the comparative
    estimated savings from consolidation.

    For the new facilities, ORA estimated laboratory space per analyst at
    650 square feet and office space per nonanalyst at 230 square feet.
    (According to a GSA official, GSA considers occupied office space of
    about 153 square feet to be standard, but no standard exists for
    laboratory space.) ORA's consolidated space estimates, however,
    exceed all of ORA's existing laboratories' space amounts.  For
    example, ORA's three newest laboratories--in Kansas City, San
    Francisco, and Seattle--currently operate with much less laboratory
    space per analyst.  According to regional officials and laboratory
    analysts, the San Francisco facility, with 369 square feet per
    analyst, is state-of-the-art, and the Kansas City and Seattle
    laboratories, with 411 and 344 square feet per analyst, respectively,
    were similarly characterized in a 1994 FDA Division of Field Science
    report.

    Also, the Atlanta laboratory, a multipurpose lab, currently has
    33,654 square feet of laboratory, light industrial, and general
    storage space and 92 analysts on board with a capacity for 100.  ORA
    had originally planned to expand this laboratory by 20,000 additional
    square feet for 60 additional analysts or about 333 square feet per
    analyst.  However, after we questioned this estimate, ORA revised it,
    increasing it to 39,000 square feet (650 square feet per 60
    additional analysts).  Even using ORA's revised estimate of 39,000
    square feet, the Atlanta laboratory would have only about 450 square
    feet per analyst for its expected total capacity after expansion.

    If the cost estimates for to-be-leased space were based more on the
    amount of space in ORA's newer laboratories, the estimated costs of
    replacing laboratories would be significantly less than ORA has
    projected.  Even if the estimates were based on the projected space
    for the Atlanta mega-lab after expansion, they would be about $2.2
    million less per year than ORA has calculated.  ORA feels justified
    in basing space requirements on 650 square feet per analyst and
    supplied us with a September 12, 1995, outside consultant's analysis
    performed after completion of our audit work.  Although the
    consultant supported ORA's space requirement, this amount of space is
    nevertheless significantly greater than that being proposed for
    mega-labs in Atlanta and Seattle.  Furthermore, ORA could not explain
    how and why existing space requirements in its newest laboratories
    (in San Francisco and Kansas) and in its proposed Atlanta and Seattle
    mega-labs are inadequate.

    ORA also overestimated the staffing requirements for new laboratories
    in New York and Los Angeles under its replacement option.  Instead of
    basing its estimates on the current staff size of these two
    laboratories--115 and 48, respectively--FDA used the mega-lab staff
    size of 189 analysts for New York and 75 analysts for Los Angeles.
    Thus, ORA came up with the same costs for the New York and Los
    Angeles facilities under both its replacement and consolidation
    options.  Because the facilities' costs under the replacement option
    were not estimated on the basis of a smaller staff size, the
    resulting cost estimate for replacing the laboratories is overstated
    by about $2.5 million annually.

       OPERATIONAL EFFICIENCY GAINS
       FROM CONSOLIDATION ARE
       QUESTIONABLE
    ------------------------------------------------------------ Letter :4

    ORA believes that its consolidation plan would achieve certain
    benefits and efficiencies.  Although we recognize that almost any
    restructuring could have some positive impact on operations, existing
    ORA evidence appears to contradict its claims that mega-labs will
    improve operations, supervisory/
    analyst ratios, and utilization of laboratory equipment.  ORA's
    claims that its equipment and labs are obsolete are also
    questionable.

    The operational efficiencies that ORA expects to gain through its
    consolidation plan include

      achieving a critical mass (50 or more analysts) in each lab,

      decreasing the number of mid-level managers,

      redeploying some supervisory staff to operations,

      decreasing support work required of operational staff,

      increasing efficient use of equipment, and

      being able to do shift work.

          EFFICIENCY OF MEDIUM-SIZED
          LABS VERSUS LARGE LABS
    ---------------------------------------------------------- Letter :4.1

    FDA believes that efficiency involves many factors in addition to
    timeliness, such as overall costs per operations, staff, equipment,
    expertise available and utilized, accomplishments/outcomes from each
    sample tested, and customer service/responsiveness.  However, FDA
    provided us evaluations of its laboratories based only on the factor
    of timeliness.

    Current FDA timeliness statistics do not show that large laboratories
    are more efficient.  In fact, FDA's fiscal year 1994 Sample Timeframe
    Report (which depicts each laboratory's timeliness in conducting
    analyses) showed that six out of seven medium-sized laboratories (33
    to 50 analysts) were more timely than the two largest labs (New York
    and Atlanta).  ORA officials in headquarters and in the field could
    not provide any explanation to contradict the data showing that its
    medium-sized laboratories were more timely or otherwise more
    efficient.  In fact, WAAG and most ORA staff in the field that we
    spoke with stated that on the basis of their work experience an ideal
    laboratory size for efficiency is about 50 analysts.  The Lab
    Directors' Steering Committee report also stated that a lab size of
    50 to 75 analysts is ideal.

          SUPERVISORY/ANALYST RATIO IN
          LARGER LABS NOT BETTER THAN
          IN MOST OTHER LABS
    ---------------------------------------------------------- Letter :4.2

    ORA's claim that larger labs would improve the supervisory/analyst
    ratio is also unsubstantiated.  Data show that the
    supervisory/analyst ratio in ORA's two largest labs (in New York and
    Atlanta) with 115 and 92 analysts, respectively, is not better than
    in most of the other labs.  For example, for at least the last 2
    years, the labs in Atlanta and New York have generally had
    supervisory ratios of 1 to 7 and 1 to 8, respectively.  Only the lab
    in Chicago (with a ratio of 1 to 6) has had a worse supervisory ratio
    than the labs in New York and Atlanta.

          CLAIMS OF OBSOLETE EQUIPMENT
          AND FACILITIES QUESTIONABLE
    ---------------------------------------------------------- Letter :4.3

    In August 1994, the FDA Commissioner stated that many labs had
    obsolete physical plants and analytical tools.  Our work, however,
    raises questions about FDA's assessment.  For example, the older labs
    (about 30 years old), referred to as "Rayfield buildings," are all
    similarly designed, brick facilities that appear to be structurally
    sound.  The Atlanta laboratory site, in fact, includes a 1960
    Rayfield building and an addition that was built in 1985.  ORA wants
    to expand this site into a mega-lab.

    WAAG also performed an evaluation of the existing labs.  It concluded
    that the Rayfield buildings (in Atlanta, Baltimore, Buffalo,
    Cincinnati, Dallas, Detroit, and Minneapolis) generally are in good
    shape; however, some need renovation and/or additional space.  With
    the expenditure of some funds for these purposes, these laboratories
    could be expected to continue to serve for approximately another 10
    years.  Most of the older facilities and some of the more modern
    facilities have three main problems:  (1) insufficient or inoperative
    heating, ventilation, and air conditioning systems; (2) inoperable or
    insufficient exhaust hood capacity; and (3) insufficient space for
    employees or instrumentation.

    WAAG provided the following possible solutions for the three
    problems.  It suggested that (1) insufficient or inoperative heating,
    ventilation, and air conditioning systems be corrected by installing
    booster fans and remotely controlled baffles in existing air systems;
    (2) inoperable or insufficient hood capacity may be solved by using
    smaller tabletop exhaust systems, good housekeeping practices, and
    modified hoods to accept moveable lab benches so that heavy or
    complicated equipment set-ups in the hoods may be removed when not in
    use; and (3) additional space for analysts and instrumentation may be
    found if labs implemented good housekeeping practices.  In commenting
    on a draft of this report, HHS argued against using what it considers
    a stop-gap measure to continue occupation in current facilities for a
    few more years.

    Beyond the condition of the labs, the consensus of the analysts we
    spoke with is that present equipment is generally state-of-the-art.
    Analysts at several sites we visited told us that they do not know of
    more current equipment that is needed in their laboratories.  FDA, on
    the other hand, commented that a large percentage of field laboratory
    equipment is scheduled for replacement on the basis of purchase dates
    in accordance with the widely recognized Department of Veterans
    Affairs schedule of scientific equipment life expectancy.  However,
    FDA has not demonstrated that its laboratories lack state-of-the-art
    equipment given its current facility capability.  Furthermore, ORA
    provided us no support for how equipment needs would differ in the
    future.

    One benefit of consolidation asserted by ORA was more intensive use
    of laboratory equipment.  However, ORA did not provide evidence to
    refute assertions by analysts that cross-utilization of equipment is
    not always a viable option because instruments must be specially
    calibrated for particular samples.

          CLOSURES MAY ADVERSELY
          AFFECT FDA'S ANALYTICAL
          STAFF
    ---------------------------------------------------------- Letter :4.4

    In addition to possibly overestimating the cost savings and
    efficiencies to be realized by consolidation, ORA may have
    underestimated this option's adverse impact on laboratory efficiency.
    For example, some analysts in the field believe that consolidation
    would result in a significant loss of experienced analysts.

    Although ORA estimated that 75 percent of the analytical staff in
    labs scheduled for closure would relocate to other FDA facilities, it
    did not perform any analysis to support this estimate.  We questioned
    this figure in a 1987 report\4

    when ORA previously used it in a proposed laboratory consolidation
    effort.  ORA said that it used the relocation rate of 75 percent
    because it did not want to appear to understate the relocation costs.
    If a large percentage of analysts would not relocate, ORA's
    operations could be adversely affected until new analysts are
    trained.

    --------------------
    \4 Food and Drug Administration (GAO/HRD-88-21, Dec.  4, 1987).

       SITE SELECTIONS NOT BASED ON
       RECOGNIZED CRITERIA
    ------------------------------------------------------------ Letter :5

    To guide ORA in its site selection process, WAAG--at management's
    request--developed and prioritized a set of criteria for
    consideration, recognizing that meeting each criterion might be
    impossible.  In addition, ORA management developed its own criteria.
    However, ORA appears to have based site selection mainly on the
    availability of construction funds or congressional indications that
    such funds would be available for specific sites.

    WAAG's criteria included quality-of-life issues, such as
    transportation, housing, population density, crime, and the merit of
    area schools; and construction feasibility issues, such as costs and
    available land for building new or expanding existing facilities.
    WAAG's criteria also included projected workload distribution and the
    existing infrastructure to support the laboratories, such as
    commercial labs, workforce demographics, local universities, FDA
    investigation branches, and other government agencies.

    ORA management considered these criteria but developed a somewhat
    narrower set of criteria, which included geographic dispersion (two
    laboratories on each coast and one centrally located), quantity of
    commercial establishments in the area, major shipping ports of entry,
    and availability of FDA-owned land.

    We found, however, that the proposed mega-lab sites in New York, Los
    Angeles, and Jefferson do not meet many of the criteria established
    by WAAG and ORA.  For example, the Jefferson site lacks such factors
    as proximity to ports of entry and quantity of nearby food and other
    relevant businesses.  Instead, ORA appears to have placed more
    emphasis on the availability of funding in selecting the site
    locations.  For the Los Angeles and Jefferson sites, the Congress has
    provided funds for architectural and engineering design work, with
    the expectation that subsequent construction funds would become
    available.  Congressional action authorized construction funds to
    build a laboratory at the New York site, which committed FDA to this
    location.  (See app.  II.)

       CONCLUSIONS
    ------------------------------------------------------------ Letter :6

    ORA believes laboratory consolidation is necessary to meet its
    pressing need to streamline and improve operations.  Although
    consolidation may achieve efficiencies, the evidence ORA provided to
    us appears to have overstated the magnitude of the future benefits.
    For example, ORA may have overestimated its costs for replacing
    several labs.  Also, ORA overestimated the staffing requirements for
    new laboratories in New York and Los Angeles under its replacement
    option.  Such inflated replacement cost figures raise questions about
    ORA's estimated cost savings from ORA 21.  Further, ORA's existing
    evidence appears to contradict its claims that the mega-labs will
    improve operational efficiencies.

    These and other issues raised in this report suggest that FDA should
    revisit its plan to consolidate its regulatory laboratories.

       RECOMMENDATION
    ------------------------------------------------------------ Letter :7

    We recommend that the Commissioner of FDA review the restructuring
    plan to determine whether ORA adequately weighed the benefits of
    consolidation relative to other alternatives.

       AGENCY COMMENTS
    ------------------------------------------------------------ Letter :8

    HHS commented that it shared our interest in having accurate and
    appropriate information upon which to base critical decisions about
    current and future laboratory facility needs.  However, HHS believes
    that any further analysis would not satisfy the basic and compelling
    need to reduce operations costs where possible.  Thus, the Department
    disagreed with our report.  Specifically, it believes that (1) ORA's
    cost estimates (based on a space requirement of 650 square feet per
    analyst) are appropriate, (2) consolidation will result in efficient
    ORA operations, (3) the site selection for its mega-labs was based on
    reasonable criteria, and (4) its current equipment and facilities are
    obsolete.

    We found that ORA (1) has not demonstrated why existing space
    requirements in its newest facilities (which are significantly less
    than 650 square feet per analyst) are inadequate; (2) does not have
    adequate measurable data to support its claim that consolidation
    would achieve certain benefits and efficiencies; (3) appears to have
    based site selection mainly on the availability of construction funds
    or congressional indications that such funds would be available; and
    (4) has not demonstrated that its laboratories lack state-of-the-art
    equipment because of its current facility capability or that its
    schedule to replace equipment would differ if ORA consolidated its
    labs.  We are not questioning whether consolidation should occur but
    are reporting that documentation of the bases for ORA's decisions is
    lacking.

    We have incorporated the agency's specific comments in this report
    where appropriate.  A copy of the agency's full response and our
    rebuttal appear in appendix II.

    ---------------------------------------------------------- Letter :8.1

    We are sending copies of this report to interested congressional
    committees, the Secretary of Health and Human Services, the
    Commissioner of FDA, and other interested parties.

    This report was prepared by Barry Tice, Assistant Director; Robert
    Wychulis; and Cameo Zola.  Please call Mr.  Tice at (202) 512-4552 if
    you or your staff have any questions about this report.

    Sarah F.  Jaggar
    Director
    Health Financing and
     Public Health Issues

    SCOPE AND METHODOLOGY
    =========================================================== Appendix I

    We performed our work at FDA headquarters in Rockville, Maryland, and
    visited FDA laboratories in Buffalo, Baltimore, and San Francisco.
    We also reviewed videotapes of the Los Angeles, Seattle, Dallas, and
    New Orleans laboratories.  We reviewed agency procedures and data
    governing its plan to restructure field laboratory facilities.
    During our review, ORA provided us three different cost savings
    estimates.  The initial cost estimate was dated December 22, 1994,
    followed by revised estimates on May 26 and July 5, 1995.  The cost
    data were presented for two restructuring options:  (1) consolidating
    from 18 to 9 laboratories and (2) replacing every lab when current
    leases expire.

    We discussed ORA's plan with key ORA officials in headquarters and at
    the sites we visited.  In addition, we discussed selected data with
    GSA headquarters and field representatives.  During our visits to the
    three field laboratories, we held group meetings with analysts and
    inspection/
    compliance personnel.  Also, we met with import brokers in Baltimore
    and Tampa.

    We conducted our work between October 1994 and November 1995 in
    accordance with generally accepted government auditing standards.

    (See figure in printed edition.)APPENDIX II
    COMMENTS FROM THE DEPARTMENT OF
    HEALTH AND HUMAN SERVICES AND OUR
    EVALUATION
    =========================================================== Appendix I

    supplementing those in the report text appear at the end of this
    appendix.

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    The following are GAO's comments on the Department of Health and
    Human Services' letter dated November 7, 1995.

       GAO COMMENTS
    --------------------------------------------------------- Appendix I:1

    1.  Contrary to the agency's comments, our report recognizes FDA's
    past efforts to consolidate its field laboratories.  In addition, we
    also note that in our 1987 report we criticized FDA's 1986
    consolidation plan because its criteria were limited and did not
    adequately address whether FDA could meet its current and future
    laboratory needs.  More importantly, our current report does not
    dispute FDA's decision to consolidate, but questions the magnitude of
    benefits FDA associates with its planned consolidation.

    2.  We disagree with the agency that we placed undue reliance on the
    WAAG or the Laboratory Directors' Steering Committee reports.  These
    were the only groups chartered by ORA to evaluate the current field
    laboratory structure and to suggest modifications.  ORA's management
    also provided the groups' reports to us in support of its plan.

    On many occasions, we sought additional input from ORA regarding its
    needs assessment for its field laboratories.  We asked for any
    long-range or strategic plan that described FDA's workload
    expectations, including such data as future staffing needs, trends in
    compliance/inspection activities, shifts in port utilization, and
    possible changes in laboratory work resulting from new mandates.  ORA
    provided no such data to us.  Instead, ORA officials continuously
    told us that ORA's future laboratory plans were based on the current
    analyst workforce and an estimated 25-percent increase for expansion.

    3.  Although the agency takes exception to our interpretation of its
    laboratory space projections, we still believe that they may be
    overstated.  On June 5, 1995, ORA had reported to us that it had
    completed and submitted to GSA a proposal to modify the Atlanta
    laboratory for an additional 20,000 square feet.  As we stated in
    this report, ORA provided revised cost estimates in July 1995 for
    several of its laboratories, including changing the requirements for
    expanding the Atlanta lab to 39,000 square feet.  Even with the
    larger space estimate for Atlanta, the overall space in Atlanta at
    full capacity would only be about 450 square feet per analyst,
    significantly less than 650 square feet as stated above.

    4.  We have acknowledged in our report ORA's September 12, 1995,
    consultant's report.  Our concern with the requirement of 650 square
    feet per analyst is, however, that it significantly exceeds the
    amount of space being proposed for mega-labs in Atlanta and Seattle
    and relatively new laboratory space occupied in San Francisco (1994)
    and Kansas City (1991).  ORA has not provided us any explanation of
    why existing space in its newest facilities (San Francisco and Kansas
    City) and its proposed mega-labs in Atlanta and Seattle is
    inadequate.

    According to data that ORA provided to us, the Kansas City, Seattle,
    and San Francisco laboratories have an analyst capacity of 60, 65,
    and 70, respectively.  Using the laboratory square footage figures in
    the table in HHS' letter, the square footage per analyst is
    significantly less than that stated by FDA when considering the
    capacity for which these laboratories were built.  For example, the
    San Francisco laboratory, FDA's newest lab, has only 369 square feet
    per analyst.

    5.  We have noted in our report that ORA's latest attempt (July 1995)
    at estimating lease costs for several of its laboratories was
    methodologically better than its previous two efforts.  However, two
    issues we raised--(1) whether using a space requirement of 650 square
    feet per analyst is excessive and (2) ORA's overestimating the size
    of the New York and Los Angeles laboratories under its replacement
    option--continue to raise questions about ORA's projected 20-year
    savings.

    As we demonstrated in this report, if ORA used a square footage per
    analyst requirement based on its proposed Atlanta laboratory
    (including using ORA's highest expansion figure), the cost for
    replacing six laboratories may be overstated by about $2.2 million
    per year.  In addition, by overestimating the size of the Los Angeles
    and New York laboratories in its replacement costs, ORA may have
    overestimated the cost of these facilities by about $2.5 million
    annually.

    6.  We recognize FDA's concern about successfully competing for funds
    within the Department and have expanded FDA's concerns and views
    about this issue in the final report.  We revised the report also to
    acknowledge the constraints of the budgetary process.

    7.  After considering the agency's comments, we deleted our
    discussion in the final report on renovation and its implications for
    offsetting any savings FDA sees from its laboratory consolidation
    plan.

    8.  We believe that losing as many as 40 percent of ORA's analysts is
    a significant factor that could adversely affect operations.  This is
    especially true if many analysts leave at the same time, which is
    usually the case when sites close.  ORA's effectiveness could be
    weakened as a result until new analysts are trained.

    9.  We agree that efficiencies can be measured by many factors in
    addition to timeliness.  However, as we point out in our report, FDA
    provided us evaluations of its laboratories based only on the factor
    of timeliness.

    10.  We were asked to look at the analysis FDA had to support its
    mega-lab site selections.  FDA provided us with documentation for
    obtaining such planned operational efficiencies.  We expected that
    such documentation would include analyses and projections of current
    and future workload/resource needs.  Throughout our review, ORA never
    provided us any data suggesting that it lacked needed analysts of any
    type in any of its laboratories.  Nor did ORA provide any analysis
    showing problems with its ability to analyze certain samples.  In
    addition, during our review and discussions with headquarters and
    field officials, ORA never provided any explanation to contradict the
    data showing that medium-sized laboratories were more timely or
    otherwise more efficient.

    11.  Although consolidation may make implementation of the team
    concept more difficult, we recognize FDA's commitment to making it
    work and have deleted the reference to the team concept in the final
    report.

    12.  On page 8 of its comments, the Department states that about 40
    percent of FDA's analysts are eligible for retirement and probably
    many of them will retire rather than move.  As stated earlier, we
    believe that many analysts leaving at the same time could adversely
    affect operations at least in the short term.

    13.  Our report clearly points out that WAAG had developed
    comprehensive criteria to guide ORA in selecting possible sites for
    laboratory location and that ORA's management developed a somewhat
    narrower set of criteria.

    WAAG's criteria for site selection included, in addition to
    quality-of-life issues, all the issues included in ORA's management's
    criteria.  HHS' comments expand the set of criteria that ORA
    previously provided us.  HHS has maintained that ORA considered
    WAAG's criteria along with the listed criteria in its comments.
    However, no evidence exists on how ORA considered any set of
    criteria.  ORA appears to have based site selection mainly on the
    availability of construction funds or congressional indications that
    such funds would be available for specific sites.

    14.  We were only pointing out one element of WAAG's comprehensive
    criteria.  We were not implying that FDA managers were not concerned
    with staff recruiting and retention.

    15.  The documentation provided to us by FDA dealt with its schedule
    to replace equipment.  This action may occur whether ORA consolidates
    its labs or not.  As we discuss in this report, we recognize that
    certain equipment will need to be replaced.  However, FDA has not
    demonstrated that its laboratories lack state-of-the-art equipment
    because of its current laboratory facility capability.  Furthermore,
    ORA provided us no evidence to show how these equipment needs would
    differ in the future.  In addition, because overall staffing is not
    expected to decline as a result of ORA's consolidation plan and ORA
    has not demonstrated whether or how economies of scale can be
    realized with equipment usage, we question how consolidation would
    improve equipment resources.

    16.  While we recognize that some of ORA's laboratories have certain
    deficiencies, this does not mean that the laboratories are
    structurally unsound.  Thus, we do not believe this to be
    contradictory.

    17.  We changed this reference to the Atlanta facility to reflect the
    clarification of dates noted.

    18.  We deleted this reference in the final report due to its
    anecdotal nature.

    19.  We have recognized the agency's concerns in the final report.

    20.  Since we did not review the laboratory consolidation efforts of
    the Environmental Protection Agency, we cannot comment on the
    relevance of MITRE's analyses to FDA's consolidation plans.
    Furthermore, we are not asserting that FDA should not consolidate its
    laboratories.  Rather we question whether FDA has adequately weighed
    the benefits of consolidation relative to other alternatives.  We
    have revised our recommendation in the final report to better reflect
    this concern.

    21.  HHS has maintained that ORA considered WAAG's criteria along
    with the listed criteria provided in its comments.  However, no
    evidence exists on how ORA considered any set of criteria.  ORA
    appears to have based site selection mainly on the availability of
    construction funds or congressional indications that such funds would
    be available for specific sites.

    22.  Our work does not suggest one laboratory field structure or
    alternative to be better than that proposed by FDA.  It does point
    out, however, that FDA may have overstated the projected monetary and
    efficiency gains of its proposed laboratory consolidations.

    RATIONALES FOR PROPOSED NEW
    LABORATORIES IN NEW YORK,
    CALIFORNIA, AND ARKANSAS
    ========================================================= Appendix III

    In the last few years, FDA has selected Queens, New York; Jefferson,
    Arkansas; and Los Angeles, California as sites for new laboratories.
    This appendix gives an overview of the rationales for those site
    selections.

       SELECTION OF THE QUEENS, NEW
       YORK, SITE MADE BY THE CONGRESS
    ------------------------------------------------------- Appendix III:1

    FDA's current New York lab is located in a 75-year-old GSA-owned
    warehouse building in Brooklyn.  FDA moved its laboratory into the
    facility in 1964 when space was renovated on the seventh floor to
    provide 37,000 square feet of laboratory space.  Because of the
    structure and age of the facility, GSA has decided not to support any
    major renovations to the building to improve the quality of the
    laboratory.

    To replace the aging New York facility, a site was selected in
    Queens, New York, in 1991 before the ORA 21 plan.  ORA officials told
    us that FDA had no choice in selecting this site because the House
    Committee on Public Works and Transportation and the Senate Committee
    on Environment and Public Works passed resolutions that authorized
    leasing funds for the Queens site facility at $7.875 million for a
    period of 20 years.  ORA officials told us that FDA was
    congressionally mandated to use this site; thus, no other site was
    considered with the advent of ORA 21.

    ORA did not pursue other alternatives to replace its Brooklyn
    facility and may not be able to objectively justify the new location.
    One ORA headquarters official told us that the Queens site is not the
    best choice for a mega-lab on the East Coast.  Similar views were
    expressed in a May 1994 report by the Committee on Appropriations'
    surveys and investigations staff, which stated, "Other plans in
    process may also be ill-advised such as the acquisition of a new
    facility in Queens, New York, for regulatory analysis...."

    This planned facility is by far the most expensive of the five
    proposed mega-labs with an estimated leasing cost for 1999 through
    2014 of over $200 million.

       RATIONALE FOR A NEW MEGA-LAB IN
       JEFFERSON, ARKANSAS,
       QUESTIONABLE
    ------------------------------------------------------- Appendix III:2

    Construction of a facility in Jefferson, Arkansas, is scheduled for
    completion in 1999 at a cost of about $38 million.  In fiscal year
    1994, $2.5 million was approved for an architectural and engineering
    design for the Jefferson facility.

    The number of analysts expected for the site is between 140 and 150.
    According to ORA officials, the primary reason for selecting the
    Jefferson site is because FDA owns land at its National Center for
    Toxicological Research (NCTR).  FDA would then own the newly
    constructed facility permanently.

    It appears, however, that FDA was influenced by other factors.  For
    example, a December 1993 ORA options paper stated,

    "Within the State of Arkansas there has been almost continuous,
    high-level political activity to build up NCTR and it's [sic]
    environs to stimulate the State's economy.  A set of unique events
    has moved that effort to a higher plane.

    This presents FDA with what is probably a one time opportunity to
    make a significant expansion in our use of the remnants of the
    initial structures.  Given this set of circumstances, the
    Commissioner asked Deputy Commissioner for Operations and the
    Associate Commissioner for Regulatory Affairs, if ORA wanted to (be a
    player) in the efforts to identify new, and maybe better, things we
    could do there.  They answered yes, as a matter of principle, without
    having developed a clear picture as to what that would be."

    The justification for the proposed mega-lab in Jefferson does not
    meet even ORA's limited criteria.  Jefferson is clearly not a port of
    entry into the country, nor is it an area that has a large number of
    commercial industries.  Also, the largest nearby city--Little Rock
    (about 50 miles away)--is not among the top cities for air traffic,
    which makes the Jefferson site less accessible for the shipment of
    samples.

    Several WAAG members and other ORA staff told us that they strongly
    opposed the selection of this site.  WAAG's analysis concluded, "An
    ORA regulatory facility at NCTR would not adequately meet the
    criteria for an effective field laboratory that services the public
    on a day-to-day basis." Several analysts told us that they have
    several concerns about the Jefferson site, such as accessibility to a
    major airport, the availability of good schools and universities, and
    recruitment and retention of qualified analysts.  Staff also
    questioned the logic of building a new laboratory in Jefferson when
    an existing facility in Kansas City, Missouri, a bordering state, was
    just built in 1992 and has a capacity for 60 analysts.

       RATIONALE FOR THE LOS ANGELES
       SITE QUESTIONABLE
    ------------------------------------------------------- Appendix III:3

    The Los Angeles laboratory is crowded, with little room for
    instrumentation or people.  Also, the lab is located in a relatively
    unsafe area with limited parking.  FDA is currently investing about
    $1 million to renovate the facility, including converting office
    space to additional laboratory space.

    ORA plans to construct its new mega-lab at the University of
    California in the Irvine area, where it has purchased land.  The
    construction costs are estimated at about $40 million, and the
    facility is expected to accommodate up to about 75 analysts with an
    expansion potential to 125 analysts.  FDA was appropriated $10
    million for purchasing the land and for architectural and engineering
    design work.

    Officials at another ORA lab in California--the San Francisco lab--
    told us that while a lab may be justified in the Los Angeles area
    because of the large number of imports and commercial industries, San
    Francisco should have been considered as a mega-lab alternative.  The
    lab, occupied in 1994, accommodates 50 analysts and has a capacity
    for 70 analysts.  The state-of-the-art facility is located in
    Alameda, California, and is one of several office complexes in a
    pleasant area with plenty of free parking.  According to ORA's San
    Francisco staff person responsible for overseeing the San Francisco
    site renovation, an identical adjacent unoccupied office building
    could be converted to a laboratory for about $10 to $15 million.
    This is considerably less then the estimated $40 million in
    construction costs for a new Los Angeles facility.

    ORA officials told us that San Francisco was not considered as a site
    for a mega-lab and, as part of ORA 21, would be closed in 2014.  The
    only explanation provided was that funds were made available for Los
    Angeles from the Congress for the land and architectural and
    engineering design work.

    *** End of document. ***