VA Construction:

VA Is Working to Improve Initial Project Cost Estimates, but Should Analyze Cost and Schedule Risks

GAO-10-189: Published: Dec 14, 2009. Publicly Released: Dec 14, 2009.

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The Department of Veterans Affairs (VA) operates one of the largest health care systems in the country. As of August 2009, VA's Veterans Health Administration (VHA) had 32 major ongoing construction projects with an estimated total cost of about $6.1 billion and average cost per project of about $191 million. Some of these projects were initiated as part of VA's Capital Asset Realignment for Enhanced Services (CARES) process, which was a comprehensive assessment of VHA's capital asset requirements. In response to a congressional request, GAO (1) described how costs and schedules of current VHA major construction projects have changed, (2) determined the reasons for changes in costs and schedules, and (3) described the actions VA has taken to address cost increases and schedule delays. To do its work, GAO reviewed construction documents, visited three construction sites, and interviewed VA officials.

While about half of the 32 major ongoing construction projects are within their budget, 18 projects have experienced cost increases and 11 have experienced schedule delays since they were first submitted to Congress. Five projects have experienced a cost increase of over 100 percent. For example, the cost of a new medical center in Las Vegas rose from an initial estimate of $286 million to over $600 million, an increase of about 110 percent. Thirteen projects have experienced cost increases of between 1 and 100 percent. In addition, 11 projects have experienced schedule delays, 4 of which are more than 24 months. There are several reasons for construction project cost increases and schedule delays, including VA preparing initial cost estimates that were not thorough, significant changes to project scope after the initial estimate was submitted, and unforeseen events such as an increase in the cost of construction materials. According to VA officials, VA prepared numerous estimates during the CARES process, and some of these estimates used rudimentary estimating techniques such as average cost-per-square-foot and were completed by VA staff that did not have cost estimating expertise. The scope of some projects changed after VA submitted an estimate to Congress, which increased the projects' costs. For example, the scope for the original design for a new medical center in Las Vegas did not fully account for the amount of medical services the center would need to provide. As a result, the original estimate of $286 million rose to over $600 million. VA has taken steps to improve initial construction project cost estimates, but could better assess the risks to costs and schedules. VA plans to prepare more comprehensive estimates after approving projects and before submitting them to Congress. It is not clear how effective this new process will be, but it could improve VA's estimates. While VA contractors follow construction scheduling procedures that generally meet best practices, VA does not conduct cost or schedule risk analyses, which use statistical techniques to predict risks that can lead to cost increases and schedule delays. Thus, VA cannot quantify the largest risks to a project or mitigate those risks. For example, GAO conducted a schedule risk analysis for a medical center in Las Vegas and found that there is a 50 percent chance that the project won't be finished until more than 6 months after its estimated completion date. VA also does not require an integrated master schedule that includes VA and contractor efforts for all project phases, which can be critical to a project's success.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: In 2010, GAO reported that Department of Veterans Affairs (VA) generally follows best practices for construction schedules at the three major medical facility construction sites it visited. However, GAO found that VA lacked an integrated master schedule for these projects--which would integrate both VA and contractor effort for all phases of a project, including all design and construction work--hampered VA's ability to provide accurate information on the schedule for a project. As a result, GAO recommended that the Secretary of Veterans direct the VA Office of Construction and Facilities Management (CFM) to require the use of an integrated master schedule for all major construction projects which would integrate all phases of project design and construction. In March 2012, CFM issued a memorandum requiring the development of a complete integrated master schedule for all projects that obtained initial funding in fiscal years 2011 or 2012. The schedule was to include planning activities for procurement, design, construction, medical equipment procurement and activation. The use of an integrated master schedule could assist VA in monitoring the progress of a major construction project before construction begins and allow VA to increase the accuracy of its schedule estimates

    Recommendation: To provide a realistic estimate of when a construction project may be completed as well as the risks to the project that could be mitigated, we recommend that the Secretary of Veterans Affairs direct CFM to require the use of an integrated master schedule for all major construction projects. This schedule should integrate all phases of project design and construction.

    Agency Affected: Department of Veterans Affairs

  2. Status: Closed - Implemented

    Comments: In 2010, GAO reported that Department of Veterans Affairs (VA) generally follows best practices for construction schedules at the three major medical facility construction sites it visited. However, GAO found that VA did not perform schedule risk analysis and therefore cannot predict a project's completion date with confidence. A schedule risk analysis uses statistical techniques to determine the likelihood of a major construction project being completed on time and to predict risks to that can lead to schedule delays. GAO recommended that the Secretary of Veterans direct the VA Office of Construction and Facilities Management to conduct a schedule risk analysis of construction projects, based on the project's cost, schedule, complexity and other factors. GAO further recommended that the risk analysis should include a determination of the largest risks to the project, a plan for mitigating those risks, and an estimate of when the project will be finished if the risks are not mitigated. In April 2012, VA issued guidance which required the architecture and engineering firm to perform a schedule risk analysis during the design phase of a project and to update the analysis and schedule, including the completion date, at each subsequent phase through construction. The guidance also requires that the analysis identify schedule risk areas and recommend actions to mitigate risk. Conducting a schedule risk analysis will provide VA, Congressional decision makers, and other stakeholders with more precise information about when a project will be completed and the main risks to a project being completed on time.

    Recommendation: To provide a realistic estimate of when a construction project may be completed as well as the risks to the project that could be mitigated, the Secretary of VA should direct CFM to conduct a schedule risk analysis, when appropriate, based on the project's cost, schedule, complexity, or other factors. Such a risk analysis should include a determination of the largest risks to the project, a plan for mitigating those risks, and an estimate of when the project will be finished if the risks are not mitigated.

    Agency Affected: Department of Veterans Affairs

  3. Status: Closed - Implemented

    Comments: In 2010, GAO reported that Department of Veterans Affairs (VA) has taken steps to improve initial construction project cost estimates. GAO visited three major construction sites and found that the cost estimates were generally comprehensive and well documented. However, GAO found that the estimates for two of the projects did not include a cost risk analysis to examine the effect of changing assumptions on the cost estimate. Conducting a cost risk analysis is particularly important because only by quantifying cost risk can management make informed decisions about risk mitigation strategies. Quantifying cost risk also provides a benchmark for measuring future progress. GAO identified best practices for estimating and managing program costs in a cost assessment guide GAO issued in 2009. As a result, GAO recommended that the Secretary of Veterans direct the VA Office of Construction and Facilities Management to conduct a cost risk analysis of major construction projects. In April 2012, VA issued a memorandum requiring cost risk analysis for all projects in the fiscal year 2012 and 2014 budgets. Conducting cost risk analysis will allow VA construction project managers to better identify issues that could lead to cost escalation and improve managers' ability to make informed decisions on how to minimize cost risks.

    Recommendation: To improve estimates of the cost of a major construction project as well as the risks that may influence the cost and how these risks can be mitigated, the Secretary of VA should direct the Office of Construction and Facilities Management (CFM) to conduct a cost risk analysis of major construction projects.

    Agency Affected: Department of Veterans Affairs

 

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