As such, FCI  construction projects typically include a UNICOR facility that employs and  provides job skills training to inmates. However, detailed project information is not provided in this status report. Project Delays Contributed to Increased Cost Estimates, and the Imprecise Nature of Estimates Was Not Communicated to Congress and Other Stakeholders

Delays in starting project construction or disruptions in available funding,  which interrupted construction, contributed to increases in cost estimates  due to inflation and to unexpected increases in construction material  costs. Problems with Site Selection and the Availability of Funding Contributed to Project Construction Delays

According to BOP officials, all three projects experienced delays in  beginning construction because of problems associated with selecting and  approving the sites for the prisons as well as with the availability of  funding. When BOP  initially estimated the cost for this project, it expected the contract to be  awarded in fiscal year 2001 and the construction to begin in fiscal year  2002. In September 2007 after it received additional funding, BOP  awarded the contract to complete FCI Mendota. BOP officials told us that they do not plan to request any  more funding for these projects, and that BOP will shift funds within its  Buildings and Facilities Account as necessary to complete them. BOP officials stated that during the  time that these projects were delayed, construction industry costs  increased at a rate greater than inflation. For example, steel prices rose by about 60 percent and oil prices rose by  almost 150 percent between 2003 and 2007—a time between when the  initial cost estimates were prepared and when the projects were ready to  proceed with construction. Cost Estimates Are Imprecise, and Congress and Other Stakeholders Were Not Informed of the Extent to Which They Might Vary

Because BOP estimates its initial project costs and requests funding early  in the planning process, generally before the specific location for the  prison has been selected, actual project costs can be expected to vary  from the initial estimates to some extent. Although BOP, like  other agencies, is not required to communicate the extent to which actual  costs may be expected to vary from its estimates in budget documents or  reports on project status, we have recently identified providing such  information as a best practice. BOP Has Eliminated or Reduced Portions of Two Projects, and Plans to Use Its Construction Management Policies and Procedures to Control Cost and Schedule Changes

BOP eliminated or reduced portions of two projects, but did not clearly  communicate these changes to Congress and other stakeholders. At FCI Mendota, BOP eliminated both the UNICOR  facility and the minimum security Federal Prison Camp. Furthermore, BOP  did not mention that the Federal Prison Camp had been eliminated from  FCI Mendota. These officials believe that using their construction management  policies and procedures will allow them to control cost increases and  schedule delays. BOP officials stated that they have more ability to control costs while the  project is under construction, and that for the FCI Mendota, FCI Berlin,  and FCI McDowell prison projects, they plan to continue to carefully  consider and approve changes after construction has begun to stay within  its budget. The Director of the Federal Bureau of Prisons  provided written comments on this draft. We interviewed BOP construction, budget, and  financial officials in Washington, D.C.
To assess the actions BOP has taken—or plans to take—to control cost  increases and schedule delays on the three current construction projects,  we obtained and analyzed BOP’s construction guidance and BOP’s project  files for FCI Mendota, FCI Berlin, and FCI McDowell. We interviewed BOP construction, budget, and financial  officials in Washington, D.C. We did not evaluate the effectiveness of  BOP’s construction policies and procedures in controlling cost increases  and schedule delays on these projects because although design and  construction contracts were awarded, little construction had been done.
Why GAO Did This Study

The federal Bureau of Prisons (BOP) is responsible for the custody and care of more than 201,000 federal offenders. To provide housing for the federal prison population, BOP manages the construction and maintenance of its prison facilities and oversees contract facilities. GAO was asked to look into recent increases in estimated costs for Federal Correctional Institution (FCI) construction projects located in Mendota, CA; Berlin, NH; and McDowell, WV, which have led to almost $278 million or 62 percent more being provided in funding than initially estimated. This report addresses (1) the reasons for the changes to the estimated costs and (2) the actions BOP has taken--or plans to take--to control future cost increases and delays. GAO reviewed and analyzed BOP's fiscal years 2001 to 2009 budget documents, files for these three projects, and project management guidance. GAO also reviewed government and industry guidance on project management and met with BOP officials.

What GAO Found

For these three projects, delays in starting construction or disruptions in available funding that interrupted construction contributed to increases in cost estimates due to inflation and unexpected increases in construction material costs. According to BOP officials, delays resulted from problems with selecting and approving the sites for the prisons and with the availability of funding. BOP officials stated that they expected costs to increase by the inflation rate during the delay period, but did not anticipate that market forces would cause the construction costs to increase above the inflation rate, as they did. For example, steel prices rose about 60 percent and oil prices rose by almost 170 percent between the time that BOP prepared the initial cost estimates for these projects and when construction was ready to begin. In addition, because BOP estimates initial project costs early in the planning process, generally before an actual prison location is selected, variance from the initial estimates would be expected to some extent, even if the projects are not delayed. BOP, like other agencies, is not required to communicate how much it expects costs may vary from its estimates in its budget documents. Without such information, Congress and other stakeholders do not know the extent to which additional funding may be required to complete the project, even absent any project delays. BOP eliminated or reduced portions of two projects to remain within the amount that was funded and plans to use its construction management policies and procedures to control further cost increases and schedule delays. When awarding the contract for FCI Mendota in 2007, BOP eliminated a UNICOR facility, which would have provided additional employment and job skills training opportunities for inmates, and the minimum-security prison camp. At FCI Berlin, BOP eliminated the UNICOR facility when it awarded the contract in 2007, but subsequently added a smaller UNICOR facility to the project, which will be paid for by UNICOR. Intended to reduce costs, these changes also reduced the functionality of the two prisons, deviating from what BOP planned and requested funding for. In the subsequent budget submission to Congress and other stakeholders, BOP did not clearly communicate these changes, since BOP does not provide such detailed project information. Now that BOP has awarded the construction contracts for the three projects, BOP officials believe that their construction management policies and procedures will allow them to control cost increases and schedule delays. These policies and procedures reflect current government and industry project management practices to monitor and track projects, and to report on their status. Furthermore, BOP officials said that they plan to continue to avoid making changes that would increase construction costs after construction begins. GAO did not evaluate the effectiveness of BOP's construction policies and procedures in controlling cost increases and schedule delays on these projects because while construction contracts were awarded, little construction had been done.