VA seeks Army Corps of Engineers’ help after construction failures

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Five years ago, the Department of Veterans Affairs started to build a new state- of- the-art hospital in Denver. It was supposed to cost $604 million and be finished by 2014.

Today, it’s somewhere between 40 percent and 62 percent complete — no one can say for sure — and the current cost estimate, $1.1 billion, is almost certain to keep rising.

VA now says it’s dismayed by what happened in Denver and vows to avoid a repeat performance in its construction projects. Last month, after losing a legal dispute with the project’s prime contractor, it handed off the Colorado effort’s contracting and management responsibilities to the Army Corps of Engineers after having dismissed its own project executive and contract manager.

And on Monday, the agency convened an administrative investigation board to gather evidence against any employees that might be to blame. On the same day, VA asked the Army Corps to conduct a complete examination of its major construction programs across the country.

Sloan Gibson, VA’s deputy secretary, said his department is doing a lot of soul searching about its ability to handle massive and complicated construction projects on its own.

VA, he said, may well be leaning on the Army Corps — which has built a dozen hospitals in the last decade — much more heavily over the long term.

“Turning everything over to the Corps would be a very big decision,” he told the House Veterans Affairs Committee Wednesday, and it’s a decision VA hasn’t yet made as of yet.

“But I think some of the work that the Corps is doing for us right now to review Denver and our other major construction activity will inform that process,” Gibson said. “What we’re after, quite simply, is doing the right thing for veterans and being a good steward of taxpayer dollars. Those are really the only two parameters. If a more expansive role for the Corps is the best route to get there, then we’re all for it. And frankly, I would be surprised if we don’t find ourselves working more closely with the Corps in the future.”

Gibson, who joined the department last May — long after most of the Denver decisions were made — apologized for the mismanagement of the project, called it an embarrassment to the department, and vowed that VA will do whatever it takes to make sure similar mistakes aren’t repeated.

New rules for costs analysis

He also said it’s easy to see how the project went off the rails: VA went out to bid on the project on terms that dictated a firm price to be agreed to at the beginning of the contract. At that time, less than a third of the hospital’s design was completed.

VA pressed forward anyway by drawing up an ill-informed cost estimate, used that figure to ask for funding from Congress, and then awarded a contract to a vendor — Kiewit-Turner — in 2010. “We also did not have in place a clear structure to affect a process to manage changes,” Gibson said. “We didn’t benefit from rigorous constructability reviews. And perhaps most fundamentally, our choice, timing, and management of the contract vehicle resulted in a design that was never reconciled with the firm target price in the construction contract. While we work to complete the project without further delay and deliver the best value we can, we have an obligation to ensure that this never happens again. That means learning all we can from past mistakes and putting in place corrective actions to improve future performance.”

Gibson said many of those institutional deficiencies were fixed even before he joined the department, while also acknowledging that they should have been implemented many years earlier.

Today, he said, VA mandates that its projects be 35 percent through the design process before the department makes any assertions about how much they will cost, contracts with outside experts to double-check its construction designs at several phases, and builds in multiple levels of review designed to verify that its cost and schedule estimates are within the realm of the possible.

But many members of Congress say they have already lost faith in VA’s ability to manage major construction projects. The Veterans Affairs Committee and the Government Accountability Office worried as early as 2012 that the Denver project was in trouble, and on Wednesday, members criticized VA for failing to admit problems until the department was forced to do so by an adverse administrative ruling.

“Subject matter expertise on very sophisticated construction projects like this does not reside in the VA.,” said Rep Ryan Costello,” (R-Pa.) “Maybe you just don’t want to be in the business of building hospitals. Maybe that’s something that’s better outsourced, because some of the additional cost of this project was actually a function of not just mismanagement, but not managing it at all. That’s what’s caused further delays and further expense.”

The “integrated design and construct” procedure VA used to award the Denver project was something it had never tried before, and the federal Civilian Contract Review Board ruled last month that VA used it improperly.

Final cost unknown

In a case brought by Kiewit-Turner, the panel found that VA had breached its contract with the company by failing to deliver a design that the company could actually build for the price VA had agreed to pay.

The board noted that despite repeated warnings from the company that the agency’s shifting design decisions would push construction costs well beyond the price they’d agreed to, VA contracting officials insisted that they would not budge from the original $604 million figure.

In the end, the panel found that Kiewit-Turner would be fully within its rights to stop work on the project. The firm did just that. After having spent $20 million of its own money to keep working in Denver in hopes that it would eventually be made whole, Kiewit-Turner walked away from the construction site in early December. Work has since resumed under an interim contract VA put in place after reallocating $70 million from other construction priorities.

In the meantime, the Army Corps is working with Kiewit-Turner to draw up a new contract to finish the job. Witnesses at Wednesday’s hearing said it was impossible to estimate a final cost for the project until those negotiations are finished, and a date for completion also is difficult to nail down.

The best estimate, according to VA, is sometime in 2017. But the Denver project has already burned through almost all of the money Congress has authorized. If it is to go forward, lawmakers will first have to agree to obligate more funding into what several of them have already criticized as a “money pit.”

In the near term, Gibson said, the spending cap for the hospital will need to be raised to $1.1 billion, and VA also will need special reprogramming authority from Congress sometime between now and June so that the department can fulfill its interim agreement with Kiewit-Turner.

Additionally, VA will ask for extra funding to replace the dollars it’s taken from other projects in order to get the Denver project operational once again. Gibson said Thursday that the entire episode is embarrassing for VA. But both his agency and the Army Corps of Engineers say it’s inadvisable at this stage for the government and its contractor to simply cut their losses and start again.

The best course of action, they said, was to press forward as expeditiously as possible with the hospital’s construction, despite the project’s troubled history. Even putting the construction site into a short-term mothball status would only add to the costs the government has already incurred, said Lloyd Caldwell, the Army Corps of Engineers’ director of military programs.

“It would cause a worse situation, because you have to take certain actions to close up a project, so you’re using funds that otherwise would be used for construction just to ensure that you’re not creating a hazard for the public and that the parts of the facility that’s already built doesn’t degrade,” he said. “There are some caretaker requirements associated with that, and then to restart construction would create additional cost as well.”

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