As such, according to VA officials,  leasing is often VA’s preferred alternative for major medical facilities  because project implementation times are often shorter than the time for  constructing a federally-owned facility and leasing can provide flexibility to  relocate in the future to meet changes in VA’s needs. This  period provides some of the flexibility that VA values in terms of relocating  to facilities that align with VA’s changing needs. In our issued report, we recommended that the Secretary of Veterans  Affairs annually assess how VA has benefited from flexibilities afforded by  leasing its major medical facilities and use information from these  assessments in its annual capital plans in order to enhance transparency  and allow for more informed decision making related to VA’s major  medical facility leases. VA’s Cost Estimating Process for Major Medical Facility Leases Aligns with Most of Our Best Practice Steps and Recent Changes May Improve VA’s Estimates for These Leases

VA’s cost-estimating procedures for major medical facilities’ leases  generally align with 9 of the 12 best practice steps for cost-estimating that  we have previously identified, and recent changes may improve the  quality of VA’s cost-estimating process for these leases. 1.) For  a cost-estimating process to support the creation of reliable cost  estimates, it should substantially or fully meet each of the four  characteristics in GAO’s Cost Guide—comprehensive, well-documented,  accurate, and credible—based on the extent to which the procedures  incorporate the underlying best practice steps for each characteristic. We found that VA’s use of an escalation rate often did not fully  account for variation in lease costs. For example, actual  first-year lease costs increased about 26 percent over the adjusted  estimate for VA’s San Francisco, California, medical facility’s lease  and decreased about 44 percent for the VA’s Montgomery, Alabama,  facility. The new design  guide and the lessons-learned study are in the early stages, and their  success will depend on how quickly and successfully VA implements  them.
Why GAO Did This Study

VA operates the largest health care network in the United States, with over 2,700 health care sites, including hospitals and outpatient facilities. However, many facilities are outdated, and VA estimates that its capital needs will require up to $63 billion over the next 10 years. In recent years, VA has increasingly leased its facilities, including major medical facilities.
This testimony discusses (1) the factors that account for VA’s decisions to lease major medical facilities and (2) the extent to which VA’s cost-estimating process for leasing these facilities reflects best practices. This testimony is based on GAO’s June 2016 report (GAO-16-619). For that report, GAO analyzed agency documents, VA data on major medical facilities’ leases, compared VA’s cost-estimating procedures to best practices in GAO’s Cost Guide, and interviewed VA officials.

What GAO Found

VA’s cost-estimating procedures for leasing major medical facilities generally align with GAO’s 12 cost-estimating best practice steps and recent changes in VA’s approach may improve the quality of VA’s estimates. GAO’s review of cost data for these leases since 2006 found that actual costs often varied more than 15 percent above or below the estimates included in VA’s proposals for these leases, often due to project design changes. In 2016, VA introduced a design guide for leased medical facilities that delineates VA and federal requirements, such as security and sustainability standards, that may reduce the risk that a project, and its cost, change from what the VA proposed. VA also initiated a lessons-learned effort to evaluate the factors that contribute to differences between actual lease costs and those included in proposals. The success of these steps will depend on how quickly and effectively VA implements them.

What GAO Recommends

In its June 2016 report, GAO recommended that VA assess the benefits of leasing major medical facilities and use the information in VA’s annual capital plans. VA concurred with GAO’s recommendation.