Case Study 19: From VA Construction, GAO-18-479, July 31, 2018

The Veterans Health Administration (VHA) is the largest integrated health care system in the United States, providing care through the Department of Veterans Affairs (VA) to millions of veterans a year at about 1,240 VA medical centers and outpatient clinics throughout the country. The President’s 2019 budget request for VA estimated that VHA would require approximately $57 billion for enhancements, additions, and maintenance of current medical facilities and for bringing new, additional medical facilities into operation. VHA, to address some of these needs, relies on the minor construction program for facility enhancements and additions and the non-recurring maintenance (NRM) program for maintenance projects. These VHA programs manage and fund projects that generally cost $10 million or less. However, in recent years GAO and the VA’s Inspector General had identified weaknesses in these programs. For example, in 2012, GAO recommended that VA improve its budget estimates for the NRM program due to higher than estimated spending on NRM projects—$867 million more than initially anticipated for NRM construction in 2011. VA’s Inspector General also reported on weaknesses in VA’s management of Minor Construction projects in 2012, and NRM projects in 2014.

A reliable cost estimate is critical to the success of any construction program. Such an estimate provides the basis for informed decision making, realistic budget formulation and program resourcing, and accountability for results. For example, VA relies on these estimates to make annual funding decisions for various facilities. Additionally, because these estimates inform VA’s overall annual budget requests, Congress relies on them to make annual appropriations decisions.

The GAO Cost Estimating and Assessment Guide identifies 12 steps that, when incorporated into an agency’s cost-estimating guidance, should result in reliable and valid cost estimates that management can use to make informed decisions. GAO found that VHA’s guidance for medical center engineering staff and contractors on how to prepare cost estimates for minor construction program projects—specifically VHA’s Minor Construction Handbook, VA’s Manual for Preparation of Cost Estimates and Related Documents, and the Veterans Affairs Medical Center Unit Cost Guide By Project Type—did not fully incorporate these 12 steps, raising the possibility of unreliable cost estimates affecting decisions on how many such projects the agency can fund at one time.

For example, according to the Cost Guide, documentation provides total recall of the estimate’s detail so that the estimate can be replicated by someone other than those who prepared it. Documentation also serves as a reference to support future estimates. Documenting the cost estimate makes available a written justification showing how it was developed and aiding in updating it as key assumptions change and more information becomes available. VHA’s guidance required that supporting documents be submitted once a project is approved. However, it did not require all detail to be shown, including parameters, assumptions, descriptions, methods, and the calculations used to develop the estimate. By revising the cost-estimating guidance to address the 12 steps in the GAO Cost Estimating and Assessment Guide, such as considering each project’s scope and complexity, VHA would have greater assurance that its cost estimates for minor construction and NRM projects are reliable.

GAO reported these finding on July 31, 2018 in VA Construction: Management of Minor Construction and Non-Recurring Maintenance Programs Could Be Improved, GAO-18-479.