Figure 1 describes the steps in  this process, which starts each fiscal year with VA’s assessment of its  needs, based on gaps in areas such as providing care to veteran  populations and existing facility conditions, and concludes with the  identification of capital projects to propose to Congress in VA’s annual  budget submission and a long-range capital plan that identifies VA’s  capital needs over a 10-year horizon. Alternatively, as part of its  leasing process, VA decides whether to obtain a delegation of authority  from the General Services Administration (GSA) in order to award and  execute certain leases. Leases  executed under GSA’s leasing authority that exceed the prospectus  threshold of $2.85 million require GSA to obtain approval from GSA’s  authorizing committees. According to the Cost Guide’s four characteristics, a reliable cost estimate  is:  comprehensive when it accounts for all possible costs associated with  a project, is structured in sufficient detail to ensure that costs are  neither omitted nor double-counted, and the estimating teams’  composition is commensurate with the assignment; well-documented when supporting documentation is accompanied by  a narrative explaining the process, sources, and methods used to  create the estimate, and contains the underlying data used to develop  the estimate; accurate when it is not overly conservative or too optimistic and is  based on an assessment of the costs most likely to be incurred; and  credible when it has been cross-checked with independent cost  estimates, the level of confidence associated with the point estimate— the best guess at the cost estimate given the underlying data—has  been identified, and a sensitivity analysis has been conducted—that  is, the project has examined the effect of changing one assumption  related to each project activity while holding all other variables  constant in order to identify which variable most affects the cost  estimate. As such, according to VA officials, leasing is often VA’s  preferred alternative for major medical facilities because it can have  shorter project implementation times than if VA were to construct a  government-owned facility and can provide flexibility to relocate in the  future to meet changes in VA’s needs. This can allow VA to relocate to facilities more aligned with changes in  VA’s needs. Further, construction of a federally-owned facility requires a full upfront  funding commitment that can be difficult to attain in the current budgetary  environment. In particular, we found that while VA regularly cited future  “flexibility,” such as ability to move when needs change, as a justification  for the leases included in its annual capital plans, the benefits that VA has  experienced from this flexibility with major medical facility leases are not  presented to VA stakeholders responsible for selecting projects to present  to Congress or to congressional decision makers. We and  OMB have previously identified the importance of assessing the results of  capital decisions and incorporating lessons learned from those  assessments into capital decisions. Without transparency on the actual  benefits VA has experienced from leasing its major medical facilities, VA  and congressional decision makers may lack information to make  informed decisions about the need for 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 facility leases  generally align with 9 of our 12 cost-estimating best practice steps and  recent changes may improve the quality of VA’s cost-estimating process  for these leases. Both of these steps  are in the early stages, and their success will depend on how quickly and  successfully VA implements them. VA Has Made Progress Meeting GSA’s Requirements for Delegated- Leasing Authority

In July 2014, VA started requesting delegations of leasing authority on a  lease-by-lease basis from GSA to pursue its major medical facility and  other leases, and initially experienced challenges meeting GSA’s  conditions in order to receive these delegations of authority. VA has taken  steps to address these challenges, including developing a management  review process for all applications to GSA for delegations of leasing  authority, but it is too early to assess the effectiveness of these steps in  helping VA to pursue all types of major medical facility leases. According  to GSA officials, VA’s applications have not had any significant problems  meeting GSA’s submission requirements since VA implemented the steps  above, and regularly include required documentation, such as  justifications for paying above market lease rates. While VA has made progress meeting GSA’s requirements to receive  delegations of leasing authority, only 6 of VA’s 572 applications for  delegation of leasing authority between July 2014 and January 2016 were  above GSA’s current prospectus threshold of $2.85 million in average  annual rent. According to VA officials, GSA’s prospectus-level projects  can be more difficult to plan as operating leases given their cost and  complexity. In January 2016, VA also issued new guidance for  leased medical facilities emphasizing that these facilities should only  meet minimum VA and federal requirements given that the government  cannot own the leased space at the end of the lease term. In particular, VA’s new design guidance for major  medical facility leases could mitigate design, and thus cost, changes from  those included in proposals to Congress. Further, VA’s decision to  conduct a “lessons learned” study of actual lease costs compared to  estimated costs shows promise for VA to understand the factors that  impact cost variance from proposal estimates. VA concurred with our recommendation and provided technical  clarifications, which we incorporated as appropriate.
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. These facilities can exceed 200,000 square feet; provide services to veterans such as mental health and other clinical care; are generally built by private developers to meet VA and federal design requirements; and have average annual rent rates in excess of $1 million. VA must submit proposals to Congress and receive authorizations for major medical facility leases.
GAO was asked to review VA's leasing program. This report examines: (1) the factors that account for VA's decisions to lease major medical facilities; (2) the extent to which VA's cost-estimating process for leasing these facilities reflects best practices; and (3) steps VA has taken to align its lease process to GSA requirements for delegated leasing authority. GAO analyzed agency documents, VA data on major medical facility leases and lease delegation requests to GSA, compared VA's cost-estimating procedures to best practices in GAO's Cost Guide , and interviewed VA and GSA officials.

What GAO Found

The Department of Veterans Affairs (VA) leases major medical facilities to benefit from shorter time frames to open a facility and to attain flexibility to relocate. These factors may help VA to meet its needs, such as improving facility compliance with standards and increasing veterans' access to care and services. Unlike owned facilities that can be difficult to dispose of, VA must vacate leased facilities at the end of the lease term, which can allow VA to relocate to space better aligned with its needs. Leases executed under a delegation of authority from the General Services Administration (GSA) can be obligated on an annual basis, whereas owned facilities require full upfront funding that can be difficult to obtain. VA cited flexibility to move as a justification in all 51 of its proposals for these leases since 2015. VA does not, however, assess and provide information to decision makers on how it has benefited from this flexibility. Without transparency on these benefits, VA and congressional decision makers may lack information to understand the need for these leases. GAO and the Office of Management and Budget have reported on the importance of assessing the results of capital decisions in making future decisions.
VA's cost-estimating procedures for major medical facility leases 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 their proposals, 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 of project, and thus cost, changes from those included in proposals. 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.
VA has made progress meeting GSA's requirements to obtain needed delegations of authority to pursue VA leases by expanding training, implementing a management review process, and working more closely with GSA. According to GSA, VA's requests for delegation of authority now regularly include required documentation, such as justifications for paying above market lease rates. As a result, VA has received delegations of authority in about 21 days, down from 58 days when VA first started to apply for delegations in July 2014. However, it is too early to assess the effectiveness of these steps with VA's prospectus-level leases, executed under GSA's delegated authority, that exceed $2.85 million in average annual rent. These leases require authorization from GSA's authorizing committees and can be more difficult to align with GSA's requirements.

What GAO Recommends

GAO recommends that VA assess the benefits of major medical facility leasing and use the information in VA's annual capital plans. VA concurred with GAO's recommendation, and GAO incorporated VA's technical comments as appropriate.