	Project Delays and Cost Increases for Outpatient Leases Mostly Occurred in the Planning Stages Prior to VA Entering into the Lease Agreement

		Project Delays

Our April 2014 report noted that VA has experienced substantial delays in  executing new outpatient-clinic lease projects; nearly all of the delays  occurred in the planning stages prior to entering into a lease agreement  with the developer. Specifically, we found that 39 of the 41 outpatient- clinic projects for which a prospectus was submitted experienced  schedule delays, ranging from 6 months to 13.3 years, with an average  delay of 3.3 years, while 2 projects experienced schedule time decreases. VA provided cost  data for its outpatient-clinic lease projects in January 2014. Such increases in rent have long- term implications for VA,  The causes of the total cost increase can be attributed primarily to  increases in the projects’ awarded first-year rent due to the schedule  delays and changes to the design or scope of a project that we discussed  previously. VA Has Taken Some Actions to Improve Its Leasing-Management Practices for Outpatient Clinics; However, Its Guidance Could Be Improved

Our April 2014 report found that VA has made some progress in  addressing issues with its major medical-facilities leasing program. Specifically, in April 2012, VA formed a high level council, the  Construction Review Council, to oversee the department’s capital asset  program, including leasing. Based on the findings of the council and our  work for the April 2012 report on VA’s major leased outpatient clinics, VA  is planning the following improvements to the major medical-facilities- leasing program: requiring detailed design requirements earlier in the  design process to help avoid the delays, scope changes, and cost  increases. However, these improvements were in the early stages, and  their success will depend on how quickly and effectively VA implements  them. VA issued a guidance memorandum in January 2014  directing that beginning with fiscal year 2016, VA should develop  detailed space and design requirements before submitting the  prospectus to Congress:
Developing a process for handling scope changes. In August 2013,  VA approved a new concept to better address scope changes to both  major construction and congressionally authorized lease projects. According to VA officials, among other improvements, this process  ensures a systematic review of the impact of any ad-hoc changes to  projects in scope, schedule, and cost;
Plans to provide Congress with clearer information on the limitations  associated with costs of proposed projects. VA’s 2014 budget  submission did not clarify that its estimates for future lease projects  included only one year’s rent, which does not reflect the total costs  over the life of the leases, costs that VA states cannot be accurately  determined in early estimates. VA officials clarified this estimate  beginning with VA’s 2015 budget submission. However, we also found that while VA has updated and refined some  guidance for specific aspects of lease projects—including design  guidance for the construction of outpatient clinics—to better support VA’s  leasing staff and prevent project delays, it has not updated its VHA  guidance for clinic leasing (used by staff involved with projects) since  2004. As of November 2013, VHA’s leasing program has a long-term liability of  $5.5 billion, but its guidance on outpatient clinics is a decade old and no  longer relevant. In our April 2014 report, we recommended that the Secretary of Veterans  Affairs update VHA’s guidance for leasing outpatient clinics to better  reflect the roles and responsibilities of all VA staff involved in leasing  projects. In October 2014, VA reported that it had revised its clinic leasing  guidance in response to GAO’s recommendation and that its leasing  authority was now under the General Services Administration (GSA) and  the handbook was undergoing further revisions to incorporate GSA  leasing processes.
Why GAO Did This Study

VA operates one of the nation's largest health-care delivery systems. To help meet the changing medical needs of the veteran population, VA has increasingly leased medical facilities to provide health care to veterans. In April 2014, GAO reported that VHA's leasing program had long-term liability of $5.5 billion and was growing.
This statement discusses VA outpatient clinic lease issues, specifically, (1) the extent to which schedule and costs changed for selected VA outpatient clinics' leased projects since they were first submitted to Congress and factors contributing to the changes and (2) actions VA has taken to improve its leasing practices for outpatient clinics and any opportunities for VA to improve its project management. It is based on GAO's April 2014 report ( GAO-14-300 ) along with selected updates conducted in August and October 2014 to obtain information from VA on actions it has taken to address GAO's prior recommendation. For that report, GAO reviewed all 41 major medical leases that were associated with outpatient clinic projects for which a prospectus had been submitted to Congress, as required by law.

What GAO Found

In its April 2014 report, GAO found that schedules were delayed and costs increased for the majority of the Department of Veterans Affairs' (VA) leased outpatient projects reviewed. As of January 2014, GAO found that 39 of the 41 projects reviewed—with a contract value of about $2.5 billion—experienced schedule delays, ranging from 6 months to 13.3 years, with an average delay of 3.3 years. The large majority of delays occurred prior to entering into a lease agreement, in part due to VA's Veterans Health Administration (VHA): 1) providing project requirements late or changing them or 2) using outdated guidance. Costs also increased for all 31 lease projects for which VA had complete cost data, primarily due to delays and changes to the scope of a project. For example, first-year rents increased a total of $34.5 million—an annual cost which will extend for 20 years (the life of these leases).
GAO's report also found that VA had taken some actions to address problems managing clinic-leased projects. First, it established the Construction Review Council in April 2012 to oversee the department's capital asset programs, including the leasing program. Second, consistent with the council's findings and previous GAO work, VA was planning the following improvements:
Requiring detailed design requirements earlier in the facility-leasing process . VA issued a guidance memorandum in January 2014 directing that beginning with fiscal year 2016, VA should develop detailed space and design requirements before submitting the prospectus to Congress.
Developing a process for handling scope changes. In August 2013, VA approved a new concept to better address scope changes to both major construction and congressionally authorized lease projects. According to VA officials, among other improvements, this process ensures a systematic review of the impact of any ad-hoc changes to projects in scope, schedule, and cost.
Plans to provide Congress with clearer information on the limitations associated with costs of proposed projects. VA's 2014 budget submission did not clarify that its estimates for future lease projects included only one year's rent, which does not reflect the total costs over the life of the leases, costs that VA states cannot be accurately determined in early estimates. VA officials clarified this estimate beginning with VA's 2015 budget submission.
However, these improvements were in the early stages, and their success will depend on how quickly and effectively VA implements them.
Finally, GAO reported that VA was also taking steps to refine and update guidance on some aspects of the leasing process, for example the VA's design guides, but VHA has not updated the overall guidance for clinic leasing (used by staff involved with projects) since 2004. In October 2014, VA reported that it was in the process of revising its clinic leasing guidance in response to GAO's recommendation and that its leasing authority was now under the General Services Administration (GSA) and the handbook was undergoing further revisions to incorporate GSA leasing processes.

What GAO Recommends

In its April 2014 report, GAO recommended that VA update VHA's guidance for the leasing of outpatient clinics. VA concurred with GAO's recommendation and is taking actions to implement the recommendation.