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. 


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