[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
CONSTRUCTION CONUNDRUMS: A REVIEW OF
CONTINUED DELAYS AND COST OVERRUNS AT
THE REPLACEMENT AURORA, COLORADO,
VAMC
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS
OF THE
COMMITTEE ON VETERANS' AFFAIRS
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
__________
TUESDAY, APRIL 22, 2014
__________
Serial No. 113-65
__________
Printed for the use of the Committee on Veterans' Affairs
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Available via the World Wide Web: http://www.fdsys.gov
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COMMITTEE ON VETERANS' AFFAIRS
JEFF MILLER, Florida, Chairman
DOUG LAMBORN, Colorado MICHAEL H. MICHAUD, Maine, Ranking
GUS M. BILIRAKIS, Florida, Vice- Minority Member
Chairman CORRINE BROWN, Florida
DAVID P. ROE, Tennessee MARK TAKANO, California
BILL FLORES, Texas JULIA BROWNLEY, California
JEFF DENHAM, California DINA TITUS, Nevada
JON RUNYAN, New Jersey ANN KIRKPATRICK, Arizona
DAN BENISHEK, Michigan RAUL RUIZ, California
TIM HUELSKAMP, Kansas GLORIA NEGRETE McLEOD, California
MIKE COFFMAN, Colorado ANN M. KUSTER, New Hampshire
BRAD R. WENSTRUP, Ohio BETO O'ROURKE, Texas
PAUL COOK, California TIMOTHY J. WALZ, Minnesota
JACKIE WALORSKI, Indiana
DAVID JOLLY, Florida
Jon Towers, Staff Director
Nancy Dolan, Democratic Staff Director
SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATION
MIKE COFFMAN, Colorado, Chairman
DOUG LAMBORN, Colorado ANN KIRKPATRICK, Arizona, Ranking
DAVID P. ROE, Tennessee Member
TIM HUELSKAMP, Kansas MARK TAKANO, California
DAN BENISHEK, Michigan ANN M. KUSTER, New Hampshire
JACKIE WALORSKI, Indiana BETO O'ROURKE, Texas
TIMOTHY J. WALZ, Minnesota
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public
hearing records of the Committee on Veterans' Affairs are also
published in electronic form. The printed hearing record remains the
official version. Because electronic submissions are used to prepare
both printed and electronic versions of the hearing record, the process
of converting between various electronic formats may introduce
unintentional errors or omissions. Such occurrences are inherent in the
current publication process and should diminish as the process is
further refined.
C O N T E N T S
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Tuesday, April 22, 2014
Page
Construction Conundrums: A Review of Continued Delays and Cost
Overruns at the Replacement Aurora, Colorado, VAMC............. 1
OPENING STATEMENTS
Hon. Mike Coffman, Chairman, Subcommittee of O&I................. 1
Hon. Ann Kirkpatrick, Ranking Member............................. 2
Hon. Jeff Miller, Chairman, of Veterans' Affair Committee........ 3
WITNESSES
Ms. Lorelei St. James, Director, Physical Infrastructure Issues,
U.S. GAO....................................................... 5
Prepared Statement........................................... 41
Mr. Kirk Rosa, State Commander, Department of Colorado, Veterans
of Foreign Wars................................................ 6
Prepared Statement........................................... 53
Mr. Ralph Bozella, Chairman, Veterans Affairs & Rehabilitation
Commission, The American Legion................................ 8
Mr. Dave Davia Executive Vice President & CEO, Colorado
Association of Mechanical and Plumbing Contractors............. 10
Prepared Statement........................................... 55
Mr. Micheal Gifford, MPA, IOM, President, Associated General
Contractors of Colorado........................................ 12
Prepared Statement........................................... 61
Glenn Haggstrom, Principal Executive Director, Office of
Acquisition Logistics, and Construction U.S. Department of
Veterans Affairs............................................... 22
Prepared Statement........................................... 65
Accompanied by:
Ms. Stella S. Fiotes, Executive Director, Office of
Construction and Facilities Management, Office of
Acquisition, Logistics and Construction, Department
of Veterans Affairs
And
Mr. Richard L. Bond, Associate Executive Director, Office
of Operations, Office of Construction and Facilities
Management, Office of Acquisition, Logistics and
Construction, Department of Veterans Affairs
MATERIALS SUBMITTED FOR THE RECORD
Statement From: Hon. Ed Perlmutter............................... 67
Statement From: Senator Michael Bennett.......................... 68
Statement From: Senator Mark Udall............................... 68
Questions for the Record From: Hon. Mike Coffman................. 70
CONSTRUCTION CONUNDRUMS: A REVIEW OF CONTINUED DELAYS AND COST OVERRUNS
AT THE REPLACEMENT AURORA, COLORADO, VAMC
----------
Tuesday, April 22, 2014
U.S. House of Representatives,
Committee on Veterans' Affairs,
Subcommittee on Oversight and Investigations,
Washington, D.C.
The subcommittee met, pursuant to notice, at 9:03 a.m., at
Old Supreme Court Chambers, State Capitol Building, 200 East
Colfax Avenue, Room 200, Denver, Colorado, Hon. Mike Coffman
[chairman of the subcommittee] presiding.
Present: Representatives Coffman, Miller, Lamborn, and
Kirkpatrick.
Also Present: Representative Gardner.
OPENING STATEMENT OF CHAIRMAN MIKE COFFMAN
Mr. Coffman. Good morning. This hearing will come to order.
I want to welcome everyone to today's hearing, entitled,
``Construction Conundrums: A Review of Continued Delays and
Cost Overruns at the Replacement Aurora, Colorado, VAMC,'' or
Veterans Administration Medical Center.
I would also like to ask unanimous consent that several of
our Colorado colleagues be allowed to join us here on the dais
to address issues very specific to their constituents.
Hearing no objection, so ordered.
I would also like to welcome House Veterans' Affairs
Committee Chairman Jeff Miller from the State of Florida, who
will be participating in today's discussions.
Thank you, Chairman Miller.
This hearing will address continued problems occurring in
the construction of the Replacement Aurora, Colorado, VA
Medical Center that have caused construction to become delayed
by over 1 year and over budget by more than $470 million,
according to GAO.
Further, it will address how VA's handling of the project
has resulted in several lawsuits due to its failure to pay
contractors.
The hearing will also support current legislation that, if
enacted, will help get the Aurora facility and other delayed
facilities operational as close to the initial completion date
as possible.
The Aurora project contract required the VA to deliver a
design to be built for $582.8 million. VA contracted with
Kiewit-Turner to be prime contractor for the project.
In November 2011, the parties agreed to a firm target price
of $604 million. According to a VA fact sheet issued in
February 2014, VA estimates the cost of the facility to now be
$800 million. Unfortunately, based on competitive subcontractor
and supplier bids acknowledged by VA, the real estimated cost
of this project exceeds $1 billion.
Many of the problems with the Aurora construction stem from
faulty designs.
First, VA did not even hire a contractor until after its
initial designs were made. Since the contractor was not
involved in the initial design and was forced to formulate its
bid based on a design that was not finalized, the project
required changes that led to extensive delays and cost
increases. Even when VA delivered their final designs 8 months
late, internal emails from VA engineers show that the designs
were not even complete.
The design issues also necessitated hundreds of change
orders to get the project back on track. VA currently has more
than 380 unresolved final change order requests worth over $350
million. Additional emails from VA show that change orders have
sat on a desk in VA for between 1.5 to 2 years before any
action was taken on them.
Once acted upon, only one person was assigned to assess the
change orders, which considering how the backlog has almost
reached 400, one person cannot be able to timely handle these
requests.
VA's refusal to issue final decisions on change orders,
inability to produce designs that could be built within budget,
and failure to pay contractors for work completed, has led to
16 lawsuits currently pending before the U.S. Civilian Board of
Contract Appeals.
Notably, the contractors who are parties to these suits
have offered to mediate these claims with VA, but VA has
declined to do so.
Considering these extensive problems with VA that are in no
way limited to this one major construction project, recently,
I, along with Ranking Member Kirkpatrick, introduced
legislation that would require VA to engage the Army Corps of
Engineers to act as a special project manager to help the
numerous delayed and over budget VA major construction projects
get completed closer to their initial cost and completion
goals.
With that, I now recognize Ranking Member Kirkpatrick from
the State of Arizona for an opening statement.
OPENING STATMENT OF ANN KIRKPATRICK, RANKING MEMBER
Ms. Kirkpatrick. Thank you, Mr. Chairman.
Good morning and thank you all for being here today in
support of this very important issue that we will be
discussing. I want to thank all of the veterans here today for
their service to our country.
Discussions for replacing the Denver facility began 15
years ago. With the congressional authorization in 2004,
veterans in Denver and the surrounding area were able to
finally point to a future date for when this new facility would
be open.
After 9/11, and with the wars in Afghanistan and Iraq
stretching to the ends of 2014, the need for this replacement
facility was considerably magnified, and everyone recognized
something needed to be done.
Today's hearing is the fourth in 2 years that the House
Committee on Veterans' Affairs, to include this subcommittee,
has held to review the VA's construction policies and
procedures. Valuable lessons have been learned from our
investigations of several VA construction projects throughout
the country. Now is the time to use these lessons and move this
project forward.
We all know that due to the ongoing litigation between the
VA and Kiewit-Turner, this project is stalled until the
Civilian Board of Contract Appeals issues its decision later
this year. In the interim, there is still a great deal of
planning and work needed to ensure this hospital will be ready
to open its doors to veterans next year when the construction
is complete.
When this dispute is resolved, I hope we will not linger on
past actions or place blame, but instead get all hands on deck
to complete this facility and serve the veterans who need it.
Our remaining troops in Afghanistan will return home at the
end of this year. We have aging veterans who fought in World
War II, Korea, and Vietnam. They all deserve access to world-
class health care throughout the VA.
The VA and Congress must work together to ensure that the
Veterans Health Administration and its hospitals and medical
facilities are fully equipped, staffed, and ready to provide
nothing less than the best health care to the men and women who
have given so much for our country.
I am sure we would all agree that it is our obligation as a
grateful Nation to do what needs to be done so that veterans'
sacrifice and service will never be forgotten.
I look forward to the testimony today.
And with that, Mr. Chairman, I yield back the balance of my
time.
Mr. Coffman. Thank you, Ranking Member Kirkpatrick.
I now recognize Veterans' Affairs Committee Chairman Jeff
Miller for his opening statement.
OPENING STATEMENT OF HON. JEFF MILLER
The Chairman. I thank the chairman, Mr. Coffman, and the
ranking member, Ms. Kirkpatrick, for inviting me here today to
discuss this important issue, important not only to the State
of Colorado and the veterans who will be served in this new
facility, but all across the country.
This project and VA major construction, in general, have
been important issues for our committee for some time, as the
committee members well know, especially considering the
problems here, as well as in Las Vegas, New Orleans, and
Orlando.
The 2013 GAO report that addressed VA construction found
these four facilities, on average, to be delayed by 35 months--
not days, but months--and over budget by an average of $144
million. Now considering this report was from a year ago, and
based on the evidence that we are going to see today, I am
confident that these numbers are now much higher.
During the briefings from Glenn Haggstrom, principal
executive director of VA's Office of Acquisition, Logistics,
and Construction, I was assured that everything was fine. I was
assured that these projects are well under control.
Stella Fiotes, executive director of VA's Office of
Construction and Facilities Management, who is here today, as
is Mr. Haggstrom, recently defended VA's major construction in
this subcommittee's March 25 legislative hearing, where when
questioned regarding the VA's belief of whether construction at
the Vegas replacement facility was delivered on time and on
budget, Ms. Fiotes responded: Yes, based on the way that we
account for time and budget.
Notably, GAO substantiated Las Vegas was delayed by 74
months and over budget by $288 million.
Now the Aurora project represents everything that is
questionable about how VA accounts for its construction
projects. They initially, as you have already said, Mr.
Chairman, asked for $800 million in appropriations to fund this
project. They contracted with Kiewit-Turner to build the
project for $604 million. Estimates now indicate that the
Aurora construction will cost more than $1 billion, but VA
maintains that it will only cost the $800 million that was
originally appropriated.
And with that, I find it relatively disingenuous that VA
claims to have not exceeded its budget because it asked for
$800 million, when in fact it agreed to provide a design for
nearly $200 million less than that amount.
That way of thinking provides no incentive to save the
taxpayers money while providing every incentive to fix numbers
to suit their specific interests.
This issue is made clear through a VA internal email that
is going to be discussed today in which a senior resident
engineer described how, between the spring of 2011 and the
spring of 2012, the contracting officer of the project actually
instructed employees to do nothing to answer proposed change
orders so as not to affect the firm fixed-price.
The only way the committee is privy to this information is
because VA is currently a party to 16 lawsuits for issues
regarding, for example, failure to pay contractors, and this
email was produced as part of the discovery.
The budgetary overruns, the equally questionable production
delays occurring in Aurora are representative of the lack of
transparency and accountability that currently plague the
Department of Veterans Affairs.
The systematic issues that arise in VA major construction
lead me to believe that VA is ill-equipped to handle them
without outside guidance. And the Aurora construction is a
perfect example of this.
I look forward to hearing from all the witnesses who are
going to be here today to testify. And with that, I yield back,
Mr. Chairman.
Mr. Coffman. Thank you.
I ask all members waive their opening remarks, as per this
committee's customs.
With that, I invite the first panel to the witness table.
On this panel, we will hear from Ms. Lorelei St. James,
director of physical infrastructure issues for the Government
Accountability Office. Also on this panel will be Mr. Kirk
Rosa, State commander of the Department of Colorado Veterans of
Foreign Wars; Mr. Ralph Bozella, chairman of the Veterans
Affairs and Rehabilitation Commission of the American Legion;
Mr. Dave Davia, Executive Vice President and CEO of the
Colorado Association of Mechanical and Plumbing Contractors;
and Mr. Michael Gifford, president of the Associated General
Contractors of Colorado.
Each of your complete written statements will be made part
of the hearing record.
Ms. St. James, you are now recognized for 5 minutes.
STATEMENT OF LORELEI ST. JAMES
Ms. St. James. Thank you, Chairman Coffman, Chairman
Miller, Ranking Member Kirkpatrick, and other members. I am
pleased to be here today to discuss VA's construction of the
Denver medical facility. My testimony today is based on our
2013 report that reviewed VA's overall construction management
of its major medical facilities and includes our findings
concerning the Denver facility.
In our report, we reviewed VA facilities over $10 million,
including Denver, and we were concerned by the amount of time
and the amount of cost increase from the time the project was
initially designed and presented to Congress to the time it was
expected to be completed.
In Denver, we reported that cost increased 144 percent over
the initial cost and that the estimated time to complete would
span more than a decade. VA has stated the medical center is
expected to be completed in 2015, but recently reported issues
between the contractor and VA could very well impact this
delivery date.
In Denver, one of the reasons costs and time to complete
increased was because VA changed from developing a shared
facility to a standalone facility. In 1999, VA and the
University of Colorado Hospital began discussing the
possibility of a shared facility. However, in 2004, 5 years
later, VA decided against this because of concerns over
governance of a shared facility and space limitations.
In 2005, VA selected an A&E firm for a standalone project,
but the firm's efforts were suspended in 2006 until VA acquired
another site at the former Army base adjacent to the university
medical center.
Design restarted in 2007 after land acquisition proceedings
began, but the A&E firm's design were again suspended in
January 2009 when VA reduced the project scope because of the
lack of funding.
By this time, cost had increased by approximately $470
million and completion was delayed 14 months.
Unanticipated problems also impacted estimates in Denver.
In pre-existing buildings, asbestos and faulty electrical
systems needed to be addressed. And they also discovered and
removed a buried swimming pool, and found a mineral-laden
underground spring that forced them to continually treat and
pump the water from the site.
We also found that VA changed the project delivery method,
which may have contributed to delays. VA officials stated that
Denver was initiated as a design-bid-build project and later
switched to an integrated design and construction method after
the project had already begun.
The intent of the IDC method is to involve both the
contractor and the A&E firm early in the process to ensure
well-coordinated efforts in designing a project. However, VA
did not hire the contractor for Denver until after the initial
designs were completed.
Lastly, I want to mention the issues we found in VA's
overall construction management that contributed to delays and
cost increases, including here in Denver.
We found VA lacked clear guidance on the use of medical
planners for large projects; did not have clear guidance on the
roles and responsibilities of VA staff working with the A&E
firm or the contractor; and had a slow, cumbersome change order
process with some change orders taking weeks or even months to
process.
We made recommendations to address these problems and VA
has taken action. These include ensuring the use of a medical
planner in Denver, and other appropriate locations; clarifying
roles and responsibilities; and streamlining its change order
process to include establishing time goals for processing them.
While we have not evaluated how these actions have impacted
the Denver facility since our report was published, we are
hopeful that these actions will improve the delivery of the
Denver facility, as well as other medical facilities that VA is
developing.
Mr. Chairman, this concludes my statement. I am happy to
answer any questions you have.
[The prepared statement of Lorelei St. James appears in the
Appendix]
Mr. Coffman. Thank you, Ms. St. James.
Mr. Rosa, you are now recognized for 5 minutes.
STATEMENT OF KIRK ROSA
Mr. Rosa. Thank you, Congressman Coffman. On behalf of the
nearly two million men and women of the Veterans of Foreign
Wars of the United States, our Auxiliary, and specifically the
nearly 19,000 VFW members here in the State of Colorado, I
would like to thank you for the opportunity to testify
regarding the continued construction delays and cost overruns
of the Aurora VA Medical Center replacement project.
The current VA Medical Center in Denver was built in 1948,
and has outlived any reasonable lifecycle expectations. Over
the past 66 years, health care technologies have improved and
patient demands have changed, but our medical center has not
kept pace.
Discussions for replacing the facility began in 1997, and
in 2004, the Capital Asset Realignment for Enhanced Services,
or CARES, put the Denver VA Medical Center as one of three
facilities most in need of replacement.
Now on its fourth VA Secretary, the Denver VA Medical
Center replacement project, in my opinion, is still a couple
years away from its projected completion date of 2015. That is
only provided there are no more delays.
Veterans in Colorado have waited long enough and deserve
better. That is why I am pleased to say that VFW proudly
supports Congressman Coffman's bill, H.R. 3593. While this
legislation will likely not have an immediate impact, it will
benefit my fellow veterans.
The perception of total lack of accountability and
leadership within the construction division of the Department
of Veterans Affairs in dealing with the new Denver VA hospital
is completely out of control.
A few examples are as follows. These are emails that were
sent on various dates, the first one dated May 22, 2012. Both
are with the Construction and Facilities Management.
Item number one states that it is obvious that JVT, which
my understanding is they are architects, overdesigned the whole
project and missed critical details.
Item two on that email, site investigation was very poor.
We had survey problems, interior dimension problems for the
CVS, many other problems with other dimensions and unforeseen
conditions.
Number four, design full of mistakes.
Number five, 95 percent design is not even an 80 percent
design that adds costs down the line and prevents us from
controlling costs.
Item number seven on that one, JVT tried to dictate all
processes. It needed to be controlled by the R.E. office.
Number eight, JVT doesn't understand construction. K.T. was
brought in late and had less contribution to the construction
process.
And the one that really gets us veterans upset, number nine
on that email states design is based on appearance instead of
functionality.
This email is listed as exhibit number 74. It also talks
about JVT having a bad attitude toward Kiewit-Turner and about
them insulting Kiewit-Turner in public.
Exhibit number 79 from the same individual of the
Construction and Facilities Management on December 18, 2012,
gives examples of problems that were not dealt with in a timely
manner.
One is the pond, the groundwater problem they had. There
was an issue with that.
Exhibit 81 is really interesting. This email, one statement
in the fourth paragraph: Trial and error method for $600
million-plus project. We must be joking.
Another statement on the email: Well, the taste of a dish
that is prepared by several chefs normally tastes terrible.
And: Do I sound like a bitter old man now? Have a nice
holiday.
That is unacceptable.
A couple questions that I would like to get answered: At
what point during all this do we finally say enough is enough,
and we get the contractors paid and get the job done? Our
veterans deserve it.
Why is it that we can approve funding for foreign
countries, billions of dollars, millions of dollars, in a very
short time, yet we seem to be unwilling or unable to get a team
in place that is held accountable, has the authority to approve
changes, and get the funding, and get this done?
The one question, who is the hospital being built for? Is
it for the veterans? Or in military terms, is it a dog and pony
show for other people?
And my last question, why is it that it seems to be,
especially the last couple years, every time we veterans turn
around, we veterans are in the news? People want to take away
medical care or our earned benefits. Now it appears that the
new VA Medical Center cannot even get done.
So again, the veterans are thrown to the back of the bus.
The hardships that veterans in Colorado have incurred due
to the lack of an adequate VA Medical Center is wrong. The VA
staff, both medical and administrative, are good people. They
want to help the veterans. It is wrong to allow the VA staff to
have to work in an outdated facility.
Our veterans have earned the right to have timely access to
comprehensive medical care in a facility that has all the
resources necessary to provide the best care available.
The United States military was sent in harm's way numerous
times over many years. We did the job that was asked of us. Now
we ask the Congress to do their job and get this job done.
Thank you.
[The prepared statement of Kirk Rosa appears in the
Appendix]
Mr. Coffman. Thank you, Mr. Rosa. Thank you for your
service to our country.
Mr. Bozella, you are now recognized for 5 minutes.
STATEMENT OF RALPH BOZELLA
Mr. Bozella. Thank you, Mr. Chairman, Ranking Member
Kirkpatrick, Chairman Miller, and members. On behalf of the
National Commander of the American Legion, Dan Dillinger, and
the 2.4 million members, I just want to say thank you to this
committee for the scrutiny you are applying to sorting out this
unfortunate and really unnecessary mess with VA construction
projects.
As you have heard, this is one problem in Colorado, but it
is more than that. Here in Colorado, we have waited for this
hospital since the late 1990s. We have seen three previous VA
Secretaries promise and fail to deliver. And under this current
administration, we have been waiting for a half decade since
ground was broken on this hospital in August 2009.
I have been tracking the problems of our hospital in
Colorado for quite some time now. I get to act in another
capacity with the American Legion as the chairman of the
American Legion's Veterans Affairs and Rehabilitation
Commission. I am active participant of our System Worth Saving
Task Force, and this task force has been in existence for over
a decade now, and this is the largest third-party evaluation
system for VA's health care.
I have made seven visits across the country in this cycle
thus far, and I have been able to see that VA has some
problems, lots of problems, with accountability and
transparency, largely communication issues. And these issues
are hurting veterans' ability to access their health care.
There appear to be systemic problems with how the VA
manages their large construction projects, if we look at the
big four.
Here in Colorado, as you have heard, we are overdue and
over budget. We have hundreds of millions of dollars locked up,
and we feel like we are not getting anywhere. In Orlando, they
are hundreds of millions of dollars over budget and miss
deadline after deadline. The same applies to New Orleans. In
Las Vegas, they opened the hospital, but they immediately
needed millions of dollars in expansion because they couldn't
meet the basic needs of a proper ramp for ambulances to drop
off patients at the emergency room.
The GAO report referenced earlier here shows that these
four projects were, on the average, 35 months over schedule,
and that is an average. The average cost overrun, we have it as
$366 million. And frankly, this is unacceptable and
unconscionable.
Other agencies and private sector organizations continue to
build hospitals right here in the Denver, Colorado, region and
across the Nation. Yet the VA replacement hospital on the
Fitzsimons campus continues to stagnate.
On behalf of all the veterans in the Western region, the
American Legion calls for VA to complete this project, so
veterans will no longer be required to use inadequate and
substandard facilities.
The American people want a first-rate health care system
for our veterans. You look at the internal planning process for
the SCIP program, and you will see that VA is trying to meet
the needs of an expanding population.
But the mismanagement is killing these projects, and nobody
seems to be held accountable.
It is the same problem we have seen across the country. VA
health care is a great health care system for veterans when
they can access it. Between the ability to share information,
the networking, and high-quality care, VA has some state-of-
the-art medical options for our veterans, but veterans can't
get that state-of-the-art health care if they can't get into a
facility.
VA needs to take a long, hard look at how they are managing
their construction projects, because the results are across-
the-board unacceptable.
You have to put every option to fix all of these problems
on the table. Steps need to be taken to ensure that future VA
hospitals are planned, designed, and built within a
transparent, accountable system that puts its veterans first.
You have four projects in the four States, and who knows
how many more are needed as the VA expands to meet the future
needs of the 21st century veterans.
Falling behind schedule is becoming the standard practice
at VA, but you have to really think about what that means.
Behind schedule means veterans have to drive farther and wait
longer, and delay critical care until their facility can open.
Behind schedule means pushing veterans out into the private
sector where it is harder for their primary care providers to
track the effects of specialty care because the private sector
lacks the VA's VistA system of electronic health records.
Behind schedule means that the veterans of Colorado and the
veterans of America are not getting the health care that they
need.
The American Legion thanks this committee for the close
attention to the problems of the veterans of Colorado and the
rest of America. We want you to know that the American Legion
is working diligently and tirelessly to keep the focus on this
issue so we can get the positive and necessary changes from VA
to make sure that America's veterans, those who gave 100
percent for the defense of this Nation, do not have to face
these problems in the future. After all, America's veterans
deserve better.
Thank you, sir.
Mr. Coffman. Thank you, Mr. Bozella. And thank you also for
your service to our country.
Mr. Davia, you are now recognized for 5 minutes.
STATEMENT OF DAVE DAVIA
Mr. Davia. Thank you, Chairman Coffman, and members of the
committee. Thank you for the invitation to participate in
today's hearing and for your continued stewardship on behalf of
our veterans. My name is Dave Davia and I am the executive vice
president and CEO for the Mechanical Contractors Association of
Colorado, or something I will refer to as MCA of Colorado.
We propose to this committee a more in-depth and technical
analysis of the VA's construction program and a prime and
subcontractor selection reform process be considered, which we
contend will improve budget and schedule performance.
The MCA of Colorado is a trade association affiliated with
the Colorado Association of Mechanical and Plumbing
Contractors. There, we operate four different and unique trade
associations that represent the heating, air-conditioning,
refrigeration, plumbing, piping, and mechanical service
industry here in Colorado. We represent hundreds of contractor
members. In 2014, we are celebrating our 125th year of
existence.
The MCA of Colorado is a chapter of the Mechanical
Contractors Association of America that serves the unique needs
of more than 2,500 member firms across the country and in
Canada.
In 2013, MCAA will also celebrate its 125th year in
existence, and our other national organization, the Plumbing-
Heating-Cooling Contractors National Association, is 132 years
old this year as well.
Our contracting firms operate in both public and private
sectors, and in direct Federal construction projects like the
VA hospital.
As you are aware, Colorado is home to many Federal
installations, like NCAR, UCAR, NOAA, JILA, NIST, and many
others. We also have six, or a half-dozen, military
installations here in Colorado, all of which our members work
on, those bases.
So it is fair to say that we operate both as first-tier
prime contractors or subcontractors to general contractors, and
you will hear from my colleague Michael Gifford here in just a
moment.
By virtue of our view of direct Federal procurement issues
that the VA and other civilian and defense agencies operate, it
is fair to say we have a nonpartisan and single-industry biased
market perspective, so our comments are offered in that manner.
Specialty contractor firms comprise about 64 percent of the
industry, according to the Bureau of Labor Statistics, from an
employment perspective. And in the mechanical, electrical, and
plumbing sector, we account for more than 30 percent of the
overall project spend.
In balance and fairness, Congressman Coffman, our first
request of this committee is to take the views of performing
subcontractors in proper balance with the views of
nonperforming prime contractors that may be offered.
Too often, direct Federal procurement policy forums
outweigh the views of the prime contractors as compared to the
subcontractors, and I am hopefully going to offer our comments
and considerations here today to enlighten you in that regard.
It is our sincere request that we can count on this
committee's continued leadership, and the subcontracting
committee in the House Small Business Committee, to correct a
longstanding and harmful bias we believe stems from greater
political weight in policy forums.
The MCA of Colorado supports the mission of the Department
of Veterans Affairs. And in fact, many of our company
principles and the people we employ are veterans themselves.
We support the Helmets to Hardhats program. We also have an
innovative program called the Veterans in Piping program--the
third installation of its kind is housed at Fort Carson in
Congressman Lamborn's district--where we take discharging
veterans, give them 16-week welding training experience, and
place them in direct entry into our apprentice programs, and
help them, our returning veterans, directly make their way into
employment, which you all know can be problematic at times.
The VA is a very large client of ours. We do work here in
Denver, southern Colorado and western Colorado, in all the
facilities, both in construction and in service. With those
overlapping and intersecting public interests, we offer the
following comments as constructive suggestions for improvements
of the VA program.
The MCA of Colorado is well aware of the GAO's report that
Ms. St. James referenced earlier. This report documents some
significant problems with some VA facilities, primarily those
in Denver, Orlando, New Orleans, and Las Vegas.
Many of the problems the GAO highlights stem from issues
with acquisition planning, major equipment purchasing,
conflicting roles, duties of the VA construction contract
administration staffing, and consequent delays and cost
overruns because of the volumes and delays in change order
processing. This report also catalogs a significant number of
recent past VA facility projects that were completed more
successfully.
In perspective, this GAO report is one in a rather long
line of analysis of problems in project acquisition and
planning, going back many years to the 1980s.
In the interest of time and the fact that my comments are
running a little over, I will skip right to what we would like
to ask this committee to consider. A written version of my
comments are available.
We would ask, in conclusion, that this committee would
position in favor of amending 3593 to include the terms of the
Quality Construction Act of 2013, H.R. 1942, which we believe
has some fair and balanced contracting reform suggestions for
this committee's consideration.
Thank you, Mr. Chairman, for the opportunity to testify on
these important issues today. I am sorry for cutting my
comments short and for extending my time. Thank you.
[The prepared statement of Dave Davia Appears in the
Appendix]
Mr. Coffman. Thank you, Mr. Davia
Mr. Gifford, you are now recognized for 5 minutes.
STATEMENT OF MICHAEL GIFFORD
Mr. Gifford. Chairman Coffman, and committee members, thank
you for inviting AGC Colorado to testify today. My name is
Michael Gifford, and I am president and CEO of AGC. AGC has 400
member firms who are the State's leading general contractors,
specialty contractors, and supplier firms in the State.
AGC and the construction industry have a deep commitment to
veterans. Some AGC members are veteran-owned. AGC members also
contract with veteran-owned firms. AGC and the construction
industry also have a deep respect for the mission of the VA.
A number of the members of AGC are performing construction
work for the VA on the Aurora project, so AGC has an interest
in the success of the project and its impact on industry
members. AGC would like to make the following observations
based on conversations with contractors on the project.
The project design and schedule were not complete when the
general contractor and subcontractors were directed to proceed
and/or submit bids. Design changes occurred after this point.
Schedules were delayed and lengthened.
These changes in design and schedule caused many
contractors on the project to incur additional costs.
The system to deal with changes in design and the resulting
increase in cost and schedule is a change order, which is the
modification of a contract to incorporate a change in design,
schedule, scope, or key terms. Changes are being ordered, but
the formal change order paperwork is not being approved quickly
enough, or, in some cases, at all.
The result is that businesses are paying for increased
labor and/or materials costs, without compensation, and some
are even at risk of failure, if this situation continues. This
is a cash flow crisis for businesses on the project.
The April 2013 GAO report on the VA found many of the same
issues on multiple large VA projects.
AGC works with a number of State and local agencies that do
commercial construction, including hospitals, using the CMGC
and design-build delivery models. We do not receive the same
level of reports of problems with changes of schedule and/or
change orders.
But change orders do happen. Therefore, AGC developed a way
in Colorado to deal with those cases where change orders arise
and there is a delay in payment. My written comments talk more
about that.
Our request for action: While the VA may feel that they are
making progress on the findings in the 2013 GAO report and
earlier reports, the pace of improvement is not fast enough to
help the contractors on the Aurora project.
The cash flow crisis is not fair to business, nor is it
proper public policy. Some of these contractors have to wait a
year or more for compensation on change orders, and the dollar
amounts are in the millions of dollars.
AGC Colorado is in support of H.R. 3593, the VA
Construction Assistance Act of 2013, because it would allow the
Army Corps of Engineers, an experienced construction management
agency, to make an independent assessment of the effective
design changes to cost and schedule. Then the change order and
cash flow problems reported by our members can be addressed.
I would like to emphasize that time is of the essence.
In conclusion, AGC Colorado would like to reiterate its
commitment to veterans and veteran-owned businesses, and thank
you for this opportunity to provide views of the Colorado
construction industry on this important matter.
[The prepared statement of Michael Gifford appears in the
Appendix]
Mr. Coffman. Thank you, Mr. Gifford.
Ms. St. James, even though your report was issued about a
year ago, do you think the estimated Denver facility completion
date could be or will be extended?
Ms. St. James. In our opinion, based upon the work that we
did, it could very well be extended. Their change order process
seems continually to be overwhelmed. And with the disagreements
now between VA and the contractor and the lawsuits, and
required time for that, it is very likely that it could be
extended.
Mr. Coffman. Ms. St. James, in your 2013 report, you
mentioned that you talked to the architect, engineer, the
contractor, and VA officials working on the project. What did
they say were the problems, if you could summarize them?
Ms. St. James. I think what continually rose to the top was
the change order process.
Once you get behind the eight ball with change orders
coming in, and depending upon what the change order is, it can
have a cascading effect down the road. One change order is not
always equal to another. And once you get behind that eight
ball, it just slows down and makes it hard then for the project
to continue, for subcontractors to be paid, and for it to get
more toward a final completion date.
Mr. Coffman. Do you think in any way that the slowness of
the change order process is calculated to mask the true cost of
the project?
Ms. St. James. I couldn't say that for a fact. I do know
that VA had not constructed facilities of this size in about
13, 14 years prior to undertaking these large projects. And I
just don't think they were organized and have the resources,
which they came out and admitted in their own internal report.
They didn't have the right resources to really undertake
projects of this size. Simply, I don't think, based on our
work, that they were ready.
Mr. Coffman. Mr. Rosa, in your testimony, you explain the
importance of having the architect and engineer work together
early on in the design process. Please explain how VA's failure
to have JVT, which is architect and engineer, and K.T. work
together on designing this facility could have caused delays or
extra cost.
Mr. Rosa. Congressman, I honestly think that had they got
the construction company involved in the early design phases,
not only would it have been much better for the VA as far as
money goes, but the delays would have been much less than what
they are right now.
You have a design architect company that, from everything I
have read and the research I have done, is not familiar with a
project of this size, to do what we are trying to do. You have
a company, a construction company, that is, and they should
have been working together from day 1, not from 8, 9 months
down the road. Now we are going to get them together. It is not
right.
Mr. Coffman. Any further comments, Mr. Bozella?
Mr. Bozella. It seems, as Commander Rosa is saying here,
Mr. Chairman, that at the beginning, that the design-build
process that was used here by the VA on a major project of this
size, I don't believe that they have used that process in the
past to this level. So they didn't hit the ground running
because of it. There were problems right from the beginning.
And there was no communication. There was very little
communication at first. There wasn't a contractor at first. And
then once they had the contractor, there was very little
communication, at least what we could see at meetings, meetings
that I attended, between the contractor and the VA.
Mr. Coffman. Mr. Gifford, how does VA's handling of change
orders and project management, in general, on the Aurora
project compare with other Federal agencies you and AGC have
worked with?
Mr. Gifford. Chairman Coffman, members of the committee,
this is a higher amount than normal for other Federal agencies,
or, I might add, State agencies and local agencies that we work
with.
The change orders and specifically in two areas, the
changing of the schedule, because time is money, and the change
of the design and having to incorporate that in, both of those
are more than our experience with other Federal agencies, and
we have a number of those projects here in the State.
And then also, the same thing with some State agencies,
including the building of hospitals and other highly technical,
scientific type buildings on university campuses as well.
So our experience is, in a number of those cases, that
design-build or CMGC is used as the delivery method versus the
old low-bid or design-bid-build method. And so I don't think it
is necessarily the fault of the delivery method. But the
earlier comments about having the contractor come in earlier in
the process, I believe, are very valid. That is one of the key
things in design-build or CMGC, is that you get the prime
contractor and the rest of the team, including the mechanical
contractors, on board early, so that you can have the benefit
of that experience during the design process.
Mr. Coffman. Mr. Davia, do you have any further comment on
that?
Mr. Davia. No, I would just echo what Mr. Gifford has said,
in so far as to say design-build is becoming more prevalent in
our industry, especially on larger and more complex projects
that require coordination of what could be upward of 20 to 30
different subcontractors, from a scheduling perspective and
from a timing perspective, given the facility and the space
requirements or confinements that exist on this particular
installation.
Mr. Coffman. Thank you.
I would just make the announcement right now that I would
like, when the panel is done, for them to remain. We are going
to do a second round of questions after the VA testifies, for
this panel.
Ms. Kirkpatrick.
Ms. Kirkpatrick. Thank you, Mr. Chairman.
Mr. Davia. I understand that there have been difficulties
with payments to the subcontractors on the job. One particular
instance involved problems establishing and enforcing correct
labor rates for certain trades.
How are these issues normally avoided? And what failed in
this instance?
Mr. Davia. Ms. Kirkpatrick, I am not clear what
subcontractor you might be referencing, so I am going to make
some assumptions in my remarks back to you.
But in a typical project such as this, they will look to
the Federal Davis-Bacon wage rate for the prevailing wage for
the area in which the project is located. That is a point-in-
time measurement of what the wage rates are at that point in
time.
Now for that population of individuals that may be
operating under a collective bargaining agreement, there may be
scheduled increases that may be at play over the lifetime of a
project of this size.
For the open shop, or merit contractors, keeping labor in
place over a 3 or 4 year period and continuity is really,
really important. So you as a contractor have to give some
credence to, and understanding of, price increases from a labor
perspective. And those are usually submitted on the front end
with the contractor's bid.
This was a design-bid-build practice that was offered. We
heard Ms. St. James reference that kind of design-build process
later on. But by that time, it is kind of too late. And I don't
mean to be glib about that. I just mean to say, if we are
having pricing constraints part way through a project because
of design, those really don't factor in the needs for labor
increases to keep the job productive and people on the site.
I am not sure if that fully answered your question.
Ms. Kirkpatrick. Thank you.
Mr. Gifford, I think everyone here would like to see this
project move forward and be completed as quickly as possible.
The backlog on change orders is a problem. And I would just
like to know your suggestion on how we clear up that backlog,
move this project forward, based on your experience with other
Federal contracting.
Mr. Gifford. Chairman Coffman and Representative
Kirkpatrick, the stark reality is that the budget is going to
have to be adjusted and the change orders are going to have to
be processed in a more timely fashion, if you want to complete
the project on time.
The current process is not working, and it is going to take
that stark recognition to get that done. Otherwise, if that is
not done, many of these issues are going to be going to some
other--it is going to continue to slow, and they are going to
go to some other type of process, like a claim process or
something else that is going to drag out over a number of
years. And it may end up costing the same amount of money but
through a very painful process for everyone involved.
Ms. Kirkpatrick. Do you believe, if the Army Corps of
Engineers took over management of this project, they would be
able to solve that claims backlog and move the project forward?
Mr. Gifford. Chairman Coffman and Representative
Kirkpatrick, they would be able to solve the process part of
it, but they would need an additional budget from the
appropriate authority to then actually pay those change orders
as well. So that would be something that I think would be out
of their control. It would be in the control of Congress.
Ms. Kirkpatrick. That leads me to my next question to Mr.
Rosa.
You called on Congress to do whatever is necessary to
complete that project. I just wonder if you would give us a
little more detail about what that means.
Do you think that there should be a specific appropriation
request that is passed out of Congress that includes adequate
funding to complete this project? I would just like to know
your thoughts about that.
Mr. Rosa. I think what it is going to take is for Congress
to take a look at what is needed right now, money-wise. We know
we are over budget already. At what point are we going to come
to an agreement to say, ``Okay, this is the bottom line. This
is what has to be appropriated to build this hospital.''
And if we get the construction folks together, get the
architects together, get the VA together, and get a team in
here, whether it is Army Corps of Engineers, the VA team,
whatever, and tell them, ``This is what we are going to
approve. You are going to be held accountable for this amount.
Now get this damn thing built.'' That is what it is going to
take.
Ms. Kirkpatrick. Thank you all very much for your testimony
today. And I yield back the balance of my time.
Mr. Coffman. Mr. Lamborn.
Mr. Lamborn. Thank you, Mr. Chairman, and thank you for
your leadership on this issue. Over the last years, you have
been really following this closely, and I compliment you for
your dedication on making sure the right thing is done for our
veterans.
There are major problems that the VA must address. The cost
to taxpayers because of cost overruns is a big concern. But
even more critical to me is the possible loss to veterans of
critical health care access because of schedule delays.
So Ms. St. James and Mr. Bozella and Mr. Rosa, does the
Government Accountability Office believe that the schedule
delay at the Denver facility could result in a veteran in my
district in southern Colorado being denied access to a
procedure that is not available elsewhere in the region during
the meantime?
Ms. St. James. I couldn't really answer that for sure. What
we do know is that the major hospitals will sometimes tailor
what is needed in the area, based upon VA's health care
projections.
And in managing the money, if it is truly going to be over
$1 billion versus $800 million, and if VA is expected to manage
that $800 million, but it is really going to cost more, then
what VA has to do is to reduce what it is going to offer. And
that is the part I am not sure what they are working on to
reduce and change some of the designs that could perhaps result
in something not being offered.
Mr. Lamborn. Would you be able to give me more information
on that later?
Ms. St. James. Sure.
Mr. Lamborn. Thank you.
Mr. Bozella and Mr. Rosa.
Mr. Bozella. Congressman Lamborn and Mr. Chairman, the
System Worth Saving Task Force has one more site visit this
year, and it is going to be in Denver, May 12, 13, 14. At the
end of that visit, we will have a much better idea regarding
access to Denver facilities, scheduling, the problems that the
construction might have.
As you know, as you well know, the new facility in Colorado
Springs is nearing completion. I think that is going to improve
access for certain day surgeries and the clinic procedures
there in Colorado Springs.
There are certain things that they can't schedule in Denver
right now. And if they can't schedule them, they are fee-based
out to the private providers, which are some of the remarks
that I made. And we do have concerns anytime a veteran is not
seen in veteran-centric care offered by VA.
There are problems with the private sector. For one thing,
the private sector providers really don't know how to treat the
whole veteran, people who are coming there with PTSD issues,
perhaps TBI issues, hearing loss, a variety of things where the
VA is honed in in their treatment to the whole veteran.
Then the other piece is the inability to share the
electronic health record.
So if their care is fee-based out, then there is a problem
with that. I know we will share our report with you at the end
of the Denver visit mid-May. So then we will have a better idea
of what that access is.
Mr. Lamborn. I would like to work with you on that visit,
to make sure it is as successful as possible.
Mr. Bozella. You will have an invitation.
Mr. Lamborn. Okay, thank you.
Mr. Rosa, especially because you know the Colorado
landscape very well.
Mr. Rosa. Well, what I would like to say is that Mr.
Bozella said it very well. For me to sit here and say yes to
that would be wrong.
For the most part, a lot of my members who go to the VA
Medical Center, they talk about that they get the best care
available to them right now. Whether they have been turned away
or not, I can't tell you.
I can tell you of two instances I know for a fact--both of
these are very good friends of mine who went to the VA Medical
Center, and with what was done to them there, they went back a
couple weeks later and they were sent out to a civilian
hospital to get it corrected.
As far as what actually happened, I would rather not talk
about it, but the one gentleman's name is Terry Lyons. He is
our post commander. He almost lost his leg.
Do I think it is because of the doctors or anything there?
I think it is more that it is an outdated facility that doesn't
have the capability to handle the load that is coming down the
pike. That is what I think is the problem.
Mr. Lamborn. All right, thank you all for your testimony.
Mr. Coffman. Thank you, Mr. Lamborn.
Chairman Miller.
The Chairman. Thank you, Mr. Chairman.
Ms. St. James, if you would, what was the biggest issue
with VA that you saw as you were going through the review
process that is preventing them from being able to get the job
done?
Ms. St. James. Well, there have been a couple topics that
have been mentioned here. The change in the type of contract,
the change order process.
But when I stand back and look at it, it really does not
matter what kind of delivery vehicle you have. It really comes
down to leadership in the VA and to preserving and working
toward a good relationship with the A&E firm, as well as with
the contractor.
When those types of things break down, then you will see
those problems being reflected in a process, and specifically
in the change order process.
And again, VA, I think it was overwhelmed to build these
large facilities and not having the resources to really do it
in a way that could have been better.
The Chairman. And when you say resources, do you mean
financial resources or personnel resources or experience
resources?
Ms. St. James. I would think all the above, particularly I
think noted was that they didn't have the people with the right
background to know how to go about starting projects of this
size.
And again, they recognized it in their internal review, but
that was back in 2012. So I think it is time that they either
get the resources and ask Congress for what it is they need,
rather than having the hospitals that are taking longer to
complete.
The Chairman. And this is a good segue over to Mr. Rosa.
The Congress has given VA every dollar that they have asked
for, for any project, for any facility. They have given them
every personnel who they have asked for, every piece of
equipment that they have asked for.
And so I would like to kind of modify your statement just a
little, where you said that Congress should do their job and
finish the facility. It is VA's job to finish the facility.
They are the contracting agency.
We gave them every dollar that they asked for. In fact,
they have the money right now to pay the people who have done
the work.
And so I think it is very hard, from an oversight
standpoint for our committee, the biggest stick we have is the
power of the purse. The only thing we can do is either give
money or take money away. We are not going to take any money
away.
Our job is to make sure that we fulfill the needs of the
Department of Veterans Affairs. So I would just ask that we put
a little bit of pressure on the VA, because, again, if we give
them $1 billion tomorrow, if they choose not to give it to the
contractor, not to approve the change orders, it doesn't change
where we are today.
And we are going to have an opportunity, because of your
testimony and some of the questions that have been asked, to
ask VA, ``Why are we in this mess?'' You know, the interesting
thing to me is this is not just in Colorado. It is in Orlando.
And the VA cannot be spending $1 billion for facilities
that probably should have cost $600 million. That is not
appropriate use of funds that should be going to veterans'
health care, not for sticks and bricks, not for mistakes that
are being made in the early stage.
So your comments are well-spoken and well-taken, and rest
assured that the committee will continue to keep the pressure
on, as you would like, on the VA.
What I would like to ask Mr. Davia about are change orders,
and I know they are not all the same. But how long should it
take for a change order to be either approved or denied?
Mr. Davia. I would respond to that, Mr. Miller, with what
would be considered in a traditional sense, when you start
stacking a building, and when you start adding a lot more
zeroes to the project, the procedural process for which a
change order gets processed is quite long.
So I would tell you that as a comparative, we, the
construction industry, work with the City and County of Denver.
The City and County of Denver reportedly had some issues in
processing construction change orders and a whole lot of other
things.
And we came to a point where we found there was a 21 step
process that was linear, and we helped them reengineer their
process to a two-step process, which is at the same time, in
parallel, to expedite that.
The result of that is that we were seeing processing of
change orders go from weeks, months, and considerably longer
periods of time, to 30 to 45 days.
An optimal change order would get processed very, very
quickly. If it is a matter of changing the color of the wall,
that is pretty simple. If it is a matter of delivering a
different environment for respiratory issues, and you require a
whole lot different equipment, that could take longer periods
of time because you need lead time to get the equipment in
place and get it engineered and get, structurally, it be able
to be set.
So I would tell you, from my perspective, 30 to 45 days is,
at the outset, the longest. But I have known owners who have
taken the serious nature of their projects like Denver and put
them into a parallel process to expedite that kind of approval
process.
The Chairman. Thank you very much.
My time since has expired, but let me say thank you to each
of you for being here, for being willing to testify.
Commander, thank you for your service.
Mr. Bozella, thank you as well.
We are honored to have you here today testifying before the
committee.
I look forward to a second round of questions, Mr.
Chairman.
Mr. Coffman. Thank you, Mr. Chairman.
Mr. Gardner.
Mr. Gardner. Thank you, Mr. Chairman, for holding this
hearing today.
Thank you, Chairman Miller, for being here today to address
this important issue, what should rightfully be an incredible
pride of the Rocky Mountain State, a new VA hospital to serve
the needs of our veterans. And hopefully, we can get through
this and make that happen, and make sure that it does, indeed,
become the pride that we know it will be.
I am struck by, Mr. Bozella, I think you had said that we
have watched other facilities, other hospitals, being built in
Colorado. You can go, during the time it has taken to build
this project, to move forward, to be completed, to be on a path
to completion. I think if you look at Poudre, if you look at
Banner, if you look at Sky Ridge, we have seen major, major
investments that have been completed, that are well on their
way to be completed. And yet, we wait, as the VA works through
significant challenges here.
And so I want to thank you for your diligence, for your
time in being here today, but also your commitment to seeing
this through, because as Chairman Miller mentioned, for every
$1 million that we are over project costs, for every $100
million that we are over, whether it is Florida, Colorado, or
Nevada, how many veterans have gone unserved, and many needs
have gone unmet, many promises have been unfulfilled, because
that money is being used somewhere else when it could go
directly to meet the promises that we have made and need to
keep.
Mr. Davia, just a couple questions for you. In your
testimony, you explain your support for the Common Sense
Construction Contracting Act of 2014, which would ban and
address the use of reverse auctions for direct Federal
construction prime contractor selection.
Can you talk a little bit about that, and the basis of that
statement?
Mr. Davia. Sure. Chairman Coffman, Congressman Gardner,
thank you for the question.
The act that we referenced with respect to reverse
auctions, we believe that it is a procurement process that is a
race to the bottom, and it is not in the best interest of the
Federal Government. It is not a good policy to, as I start
with, let's just say $1 million, and the clock starts ticking,
and it is going to stop ticking at some point in time. And
every moment that goes by, there is an opportunity to lower the
number.
And our profit margins, on a national basis, are 2 percent
to 3 percent. So when we are talking about dropping hundreds of
thousands of dollars, it is a process that we believe is
fraught with difficulty, at best.
And the other piece of that piece of legislation is what we
call bid listing. It is a practice that existed well into the
1980s, and for some reason in the Reagan administration, it was
changed.
It is simple in that it requires the prime contractor,
whether that be us or the general contractor, to say, ``Here
are my subcontractors,'' at the time of submittal. And that
says, ``This is my team.''
So we have talked a lot about design-build. Now there are
ways to switch out people on the team, but what the practice
is, the same $1 million example, if I feel like I need to make
up numbers somewhere else, then we start bid shopping, or bid
peddling is what it is also known as. And we believe that those
two pieces that exist in kind of Federal procurement could
possibly lead to examples of what we are seeing today.
And so those are those two pieces of legislation. I am
happy to answer more questions or give you more details.
Mr. Gardner. In your testimony, you spoke about this a
little bit in your opening statement. In your testimony, you
spoke of the need to improve project planning and acquisition
within the VA. Could you further elaborate on some of those
things you may not have had time to get to during your
statement, ways, improvements, that you would suggest the VA
undertake to improve its major construction?
Mr. Davia. I would. The most simple of which is Congressman
Coffman's proposal to remove the oversight of construction from
where it sits today and move it into the Army Corps of
Engineers. The Army Corps of Engineers is a pretty decorated
project management delivery mechanism.
We understand it as contractors. We know the process. It
seems to be fairer and consistent and transparent. And we would
support the moving of that piece of legislation forward.
Mr. Gardner. Thank you, Mr. Davia.
And, Mr. Rosa, what do you believe are the causes for the
incredible delay and cost overruns that have occurred during
the Aurora VA Medical Center construction project?
Mr. Rosa. Congressman Gardner, from the research I have
been doing, and all I did was go online, and I got into this
one office. I brought supporting documents with me.
But when I sit there and I look at stuff that went on back
in 2009, 2010, that shows before we even started building this
thing that there were already going to be cost overruns, that
the Construction and Facility Management folks from the VA
already knew it then.
And now we are sitting here trying to determine what caused
it, but yet they knew it then.
You hit groundwater, when the construction folks knew they
were going to hit it, but the VA wants to say no. And what
happens? They hit it.
That is just the tip of the iceberg.
That is where your cost overruns come from, people not
paying attention, people not being accountable, people not
doing what they are supposed to be doing and doing it the right
way. There is a scope of work out there, and this is where you
go back to the design folks, the construction folks, getting
them all together in the beginning to try to eliminate these
cost overruns, and build it for what it was bid for.
Mr. Gardner. Mr. Chairman, my time is expired. I yield
back.
Mr. Coffman. Our thanks to the panel. You are now excused.
But please, if you could just wait in the area, that will be
the last panel. You will come up, after VA, if there are any
additional questions by the members.
I now invite the second panel to the witness table. On our
second panel, we will hear from Mr. Glenn Haggstrom, principal
executive director of the Office of Acquisition, Logistics, and
Construction for the Department of Veterans Affairs. He is
accompanied by Ms. Stella Fiotes, executive director.
Mr. Haggstrom, your complete written statement will be made
part of the hearing record, and you are now recognized for 5
minutes.
STATEMENT OF GLENN HAGGSTROM
Mr. Haggstrom. Thank you, Mr. Chairman. Good morning, Mr.
Chairman, Ranking Member Kirkpatrick, and other members of the
subcommittee. Thank you for the opportunity to update the
committee on the construction of the Denver replacement medical
center.
Joining me today is Ms. Stella Fiotes, executive director
of the Office of Construction and Facilities Management.
In the past 2 years, VA has undertaken a comprehensive
review of our entire major construction program and has
numerous actions to strengthen and improve our ability to
deliver major facilities for our veterans. With the
implementation, acceptance, and closure of the recommendations
in the April 2013 Government Accountability Office report, and
from the VA Construction Review Council, VA has changed the way
it conducts its construction business.
With regard to the Denver project, VA and our prime
contractor on this project, Kiewit-Turner Joint Venture, or
K.T. is how I refer to them, is committed to successfully
delivering the replacement facility.
In achieving this, there are three key milestones that set
the stage for where we are now.
First, as part of the fiscal year 2010 appropriation,
Congress authorized $800 million that established the total
budget for this project.
Second, in August 2010, K.T. signed a contract with the VA
for preconstruction services, which included their close
involvement with the project design going forward. At that
time, the project was at 35 percent design, and K.T. submitted
their offer for the 1.2 million square foot facility at $519
million.
Third, K.T., after 16 months of involvement with this
project that provided them access to design and construction
drawings and specifications, on November 11, 2011, signed a
supplemental contract agreement for the construction of the
project, which established a firm target price of $604 million
and a not-to-exceed ceiling of $610 million, with a contract
completion date of April 2015.
As we look at the total project today, almost 44 percent
complete, the project scope remains essentially the same as it
was in 2010 when K.T. first became involved in the project.
With the progression of the design to the full 100 percent
documents, and with construction underway, there have been and
will continue to be some changes to the project, something not
uncommon for a project of this magnitude and complexity.
As these changes have been identified and documented, VA
has and will compensate the contractor accordingly, and has to
date increased the contract target price to $630 million.
But clearly, there has been no change in the project scope
or complexity dramatic enough to justify the contractor's
alleged cost of over $1 billion, nor has the contractor
provided the required supporting documentation to VA to justify
their estimated cost increase.
Despite the cloud of litigation that hangs over this
project, fortunately, a work stoppage has not taken place,
allowing progress to continue.
VA continues to work with the contractor to keep the
project moving forward and has taken specific actions to ensure
it does.
In an effort to assess K.T.'s entitlement to the requested
cost adjustments, VA entered into negotiations with the
contractor. Despite fundamental disagreements regarding
entitlement level and completeness of the documentation
required from the contractor to justify additional payments, VA
started processing supplemental agreements in the amounts that
it considered justified, which K.T. refused to sign.
Nonetheless, in an effort to ensure funding is available to
K.T. and subsequently to its subcontractors, VA has issued
unilateral modifications to allow K.T. to bill for the
permitted amounts.
Further, although K.T. is responsible for their cash flow
and for paying their subcontractors for work approved and
completed, in a good faith effort, VA has allowed for billing
adjustments totaling up to $30 million. VA is proceeding
cautiously with these adjustments due to the inherent risks to
project completion, if K.T. is unable or unwilling to finish
the project.
The VA remains focused on managing successfully this
project. Our goals are simple. We want to complete the project,
pay K.T. what they have earned, abide by the requisite
contracting rules and regulations, and act as prudent stewards
of the resources entrusted to us by American taxpayers.
Although there may be additional changes in cost and
schedule, based on all pertinent information currently
available to us today, VA has the funds necessary to complete
this project. VA remains committed to meeting the current and
future challenges necessary to finishing this long-awaited
project for our veterans in the most judicious, cost-efficient,
and timely manner.
Thank you, Mr. Chairman.
[The prepared statement of Glenn Haggstrom appears in the
Appendix]
Mr. Coffman. Thank you, Mr. Haggstrom.
Mr. Haggstrom, I think when we met before, you gave me the
$604 million figure as the figure that this hospital could be
built for. Can you reflect on that?
Mr. Haggstrom. We did. And as I recall, Mr. Chairman, we
met almost a year ago in May onsite when we had the
opportunity, both Ms. Fiotes and I, to personally brief you on
the contract, where we stood with that, and how that contract
worked.
The contract that was signed has a target price of $604
million with a ceiling price of $610 million, at that point in
time.
Since then, there have been numerous change orders and
adjustments to the contract, which now bring it up to $630
million as the target price.
Mr. Coffman. Are you familiar with a letter--is there a
copy of the letter that Mr. Haggstrom can be given?--a letter
dated January 23, 2013, from Thaddeus Willoughby?
And the letter states this: The current design exceeds the
estimated cost of construction at award (ECCA) of $582,840,000
by an estimated--so they are saying that $199,160,000 in
accordance with the contract clause.
It essentially goes on to recommending that there be
changes in accordance with the contract clause, design within
funding limitations.
Are you aware of this letter?
Mr. Haggstrom. I am, Mr. Chairman.
Mr. Coffman. Do you disagree with this letter?
Mr. Haggstrom. I believe you have to take that letter in
context. And that letter was the result of a contract
management firm that we commissioned to be a part of our team,
and results in that cost estimate that they performed.
And no point in time was this cost estimate ever accepted
as an independent Government cost estimate. It was strictly the
estimate of the firm and how they chose to look at the project.
What Mr. Willoughby was responding to was notification to
our A&E contracting firm that this is what those costs were,
and to execute planning. It was nothing but planning. We never
followed through on that. There was never a redesign or
schedule adjustment that resulted from this letter.
Mr. Coffman. Mr. Haggstrom, Mr. Chang, a resident engineer
on the project, wrote a series of emails explaining the
project's management issues. In one, he stated, ``The scope,
schedule and budget were not managed.'' He said: No leadership,
no knowledge and experience in this business, not following the
handbook.
What is FAR OPM?
Mr. Haggstrom. I believe that would stand for Federal
Acquisition Regulation.
Mr. Coffman. Okay, he references that.
Not as to the handbook, FAR OPM, et cetera, and no skill in
organization.
As a result of these issues, when and what was done to try
to correct the VA's management and leadership shortcomings on
the Denver project?
Mr. Haggstrom. To be honest with you, Mr. Chairman, I am
not aware of the email. I don't know Mr. Chang personally.
Those apparently reflect his view of the project. They do not
necessarily reflect the view of the rest of the Department of
Veterans Affairs.
Mr. Coffman. There was also internal correspondence
directing the individual working on change orders not to
process any change orders for a period of time, so change
orders have gone 2 years unresolved.
Is that simply incompetence from a bureaucratic standpoint?
Or is that calculated to mask the true cost of this hospital?
Mr. Haggstrom. I believe it is neither, Mr. Chairman. I
have been involved in this project on a recurring basis since
early 2012, first on a quarterly basis when we had executive
partnering sessions, and then in the summer going to monthly
meetings here.
I have been down in Denver or----
Mr. Coffman. Excuse me for a second. Do you think 1.5 to 2
years is normal for the process of a change order?
Mr. Haggstrom. No, and I would ask Ms. Fiotes to comment on
that. That was part of the process that we agreed with GAO on.
We changed our change order process. GAO accepted those
changes. And I think if you look at them, they very much align
with the Corps of Engineers.
But I would ask her to comment, if you will, on those
processes and our changes.
Ms. Fiotes. Mr. Chairman, clearly, that----
Mr. Coffman. Can you please start with how many change
orders are pending right now?
Ms. Fiotes. Currently, we have, in our books, about 120
change orders that are in review, either by the contractor or
by ourselves.
Mr. Coffman. Ranking Member Kirkpatrick?
Ms. Kirkpatrick. Thank you, Mr. Chairman.
Everyone here wants this to be completed, because it is
really about providing services for our veterans. With your
completion now at 44 percent, do you think a completion date of
April of next year, 2015, is achievable?
Mr. Haggstrom. Congresswoman, the initial completion date
on the contract when it was initially signed was in fact April
2015. Just recently, we have issued an extension that now
adjusts the extended legal completion date of this project to
May 2015.
It is the responsibility of the prime contractor to comply
with those agreements and ensure that they staff and manage
this project accordingly to meet those completion dates.
Ms. Kirkpatrick. What is your plan to make sure that
happens? You heard the first panel suggest that a team be
brought in to look over this, oversee it, make sure that things
happen on target, on time, in budget.
Do you agree with that approach? And if you don't, what is
your plan?
Mr. Haggstrom. I don't. And I would ask the committee to
allow Ms. Fiotes to put forth our position as she testified
before the committee in late March on the view of the
involvement of the Corps of Engineers with this project.
Ms. Kirkpatrick. Ms. Fiotes.
Ms. Fiotes. Congresswoman, thank you.
As I stated earlier in my remarks, testimony, we believe
that the assignment of a special project manager will not help
the project, but in fact could hurt and complicate the project.
Management oversight, an additional layer of management and
oversight, doesn't solve or resolve project issues.
There are questions of authorities, questions of
contracting. The VA has a contract with K.T.; the Corps of
Engineers does not. We can't just, with a single assignment of
a special project manager, give up our responsibilities to
manage the project and the funds associated with that project.
In fact, the Corps of Engineers, and we have been meeting
with the Corps of Engineers, because we have reached out to
them to see what other avenues of support they could provide
us. They provided us with support on the project early on. In
fact, they reviewed our contract, and at the time, established
that the project and the contract were being managed in
accordance with the Federal Acquisition Regulations.
So we have been working with the Corps to see what other
avenues, and what other types of support they could provide us.
We have talked with them about what they call a major design-
construct evaluation, which is another method they use on their
own projects.
But on the issue of the special project manager, they have
in fact stated that where they have used that in the past, it
was unsuccessful, and it resulted in an adverse impact to the
project. And they cited a specific example with another agency.
Therefore, they did not recommend that we pursue that.
We do continue discussions with them on the possibility of
a review of the project or specific aspects of our project
management that could continue to improve our management of the
process. And that is ongoing. Those discussions are ongoing.
Ms. Kirkpatrick. So it sounds like the funding is adequate.
You have a good plan to complete the project.
I heard the first panel talk about how important
relationships are in having a successful project. And so I am
concerned about the fact that the monthly meetings between the
VA and K.T. have been terminated.
Is that a concern of yours? Is there an effort to
reestablish those monthly meetings? I really think that a good
relationship is essential, again, to completing this project.
Mr. Haggstrom. Those monthly meetings were terminated at
the request of Kiewit-Turner.
Ms. Kirkpatrick. And did they give you any reason for that?
Mr. Haggstrom. I believe they felt that the investment of
their time and effort was not warranted based on what they
perceived the results of those meetings were. So in February, I
was advised that they would no longer attend monthly meetings.
However, I still do communicate regularly with Mr. Scott
Cassels, who is a principal executive within Kiewit, on a
monthly basis to discuss ongoing issues.
Ms. Kirkpatrick. I just want to express my concern about
that, having managed major building projects, and knowing how
important that line of communication is. I hope that that would
be reestablished.
Mr. Haggstrom. I reassure you, ma'am, on a day-to-day
basis, those teams are right across the hall. We are on the
same floor, in the same building. And those discussions
continue on a daily basis, to ensure that we do make progress.
And where possible, we overcome those issues in those daily
discussions and reviews that are continually ongoing.
Ms. Kirkpatrick. Thank you, Mr. Chairman. I yield back.
Mr. Coffman. Mr. Lamborn.
Mr. Lamborn. Thank you, Mr. Chairman.
First, on a positive note, I want to compliment the VA on
the progress of the super-clinic in Colorado Springs, which is
anticipated to open later this year. And veterans in southern
Colorado are really looking forward to that completion, so
thank you for your work on that.
Mr. Haggstrom, my concern, as I stated earlier, is that
schedule delays might result in a veteran in southern Colorado,
or anywhere else in the region, for that matter, currently
being denied access to the high level of care that they will
ultimately be able to have when the Denver project is
completed.
Can you address my concern?
Mr. Haggstrom. Certainly, Mr. Lamborn. I am not a
clinician, and I wouldn't pretend to be. We manage the
construction of the project.
But I can assure you that we have recurring meetings with
the VISN director and the medical center director with regard
to this project. And certainly, I am not aware of any veteran
who is enrolled in the Eastern Colorado Health Care System who
has been denied care as a result of this project.
Mr. Lamborn. So there are backstops with commercial
hospitals, other hospitals?
Mr. Haggstrom. I believe that Ms. Roff, who is the medical
center director, has taken every avenue, be it through fee
basis or with other VA Medical Centers or clinics, to assure
that no veteran goes unserved.
Mr. Lamborn. Okay, I appreciate your answer.
Do you still believe that the completion date for the
Denver project will be April of next year?
Mr. Haggstrom. Sir, as I just spoke with Ms. Kirkpatrick,
we have issued a contract extension, a modification. That
extended contract completion date is now May 2015.
Mr. Lamborn. Okay, one month later. Okay, thank you for
that clarification.
And that is in spite of the 16 pending lawsuits and all the
other change order issues that we discussed?
Mr. Haggstrom. There is still an obligation of Kiewit-
Turner to perform on this project, notwithstanding the
litigation that is ongoing before the Civilian Board of
Contract Appeals.
Mr. Lamborn. Mr. Haggstrom, what action, in a general
sense, is the VA taking to address the increases of estimated
cost or the delays? I know we have addressed specifics here,
but can you just give us a little more of an overview?
Mr. Haggstrom. I would be pleased to do that.
First of all, I think I would like to make it very clear
that, in fiscal year 2010, Congress authorized $800 million to
complete this medical center project. This was an all-
encompassing cost to include land acquisition, design,
construction management services, and actual construction.
And as we have gone through this whole process, we have
made adjustments in management through management processes and
in our change order. And there are two tracks that we have
tried to take on this to ensure that both the subcontractors
and the prime contractors are being paid. It is not the intent,
and never will be the intent, of this department to have
subcontractors or the prime contractors fund and finance the
project.
However, what has to be realized with regard to this is
that this project does not contain a clause that allows for an
economic price adjustment. Those adjustments that come to this
cannot just be because, ``Well, our low bid was this,'' or,
``The market now says the cost is this.'' That is not allowed
in this contract.
I would like to ask Ms. Fiotes--we have taken two tracks,
through an equitable adjustment track and a change order
track--to give you a sense on where we are, what we have
provided to the contractor, in terms of additional payments.
Mr. Lamborn. Now, before we do that, and I would like that,
but first let me ask, the fact that this is also happening in
other places around the country, like Orlando, Las Vegas, and
other places, does that point to a systemic issue with the VA
not having the processes completely in order?
Mr. Haggstrom. There was an issue, admittedly, in Orlando
years ago, in terms of the quality of the design and
construction drawings. We resolved that. There continues to be
issues in terms of the performance of the prime contractor to
complete the work.
But we keep talking about cost estimates. Are you aware
that, actually, in Orlando, the department down-funded that
project from the original authorization to a lesser
authorization, and used those savings to perform another
project in New Orleans?
So we talk about cost estimates, but these are not
necessarily the case. We are operating within the appropriation
and the authorization that Congress gave us to do these
projects. And we are allowed to expend those resources
accordingly.
Mr. Lamborn. My time is up. I yield back, Mr. Chairman.
Mr. Coffman. Thank you, Mr. Lamborn.
Mr. Miller.
The Chairman. Mr. Haggstrom, help me reconcile the numbers.
Everybody is focusing on $604 million or $620 million, or
whatever that number happens to be, as the cost of the
hospital. But you asked for $800 million, and that includes, as
you said, the cost of the land and I guess management.
Mr. Haggstrom. Management, contingency fees, construction
management services, design.
The Chairman. You don't consider that as part of the cost
of the facility, so you don't think $800 million is the cost of
the facility?
Mr. Haggstrom. It is the cost of the overall medical center
to construct. Where we have this particular type of contract,
the brick-and-mortar piece of it is $604 million.
The Chairman. I guess if you were trying to explain to a
layman how much this medical center cost, and they are looking
at the building and the land and the roads and all the
infrastructure that was put in there, wouldn't most people say
that it is $800 million, not $620 million?
Mr. Haggstrom. That would be correct. It is the total cost
to construct, not only the steel, the bricks and mortar, but
all the other services that predate that.
The Chairman. Just as there are startup costs and costs
that are not even associated, I don't believe, even in the $800
million, are they?
Mr. Haggstrom. That is correct.
The Chairman. So even if we agree that $800 million is the
number, you know that number is going to be more than $800
million?
Mr. Haggstrom. There were additional funds that are spent
in what Congress authorized in what they call the advanced
planning funds. And in those advanced planning funds, we have
authorization to do those initial site investigations, those
types of things.
The Chairman. But I am talking about the startup of the
hospital. It doesn't just start up by itself.
Mr. Haggstrom. Oh, I see, the activation, you mean, Mr.
Chairman? Yes, absolutely.
The activation costs are separate and apart from the
construction costs.
The Chairman. Do we know what the activation costs are
going to be for this?
Mr. Haggstrom. I am sorry, Mr. Chairman, I do not know.
Those are out of the medical----
The Chairman. They would be over on the health side.
Mr. Haggstrom. Right, through VA.
The Chairman. I mean, again, we are dickering, supposedly,
about a $1 billion number. You keep driving it back to $600
million. But $1 billion is probably pretty close to accurate,
even if you don't factor in any of the change orders that are
on the table today.
So we could be talking about over that, correct?
Mr. Haggstrom. Again, if you are looking at the cost of
construction, that is established at $630 million, plus
whatever activation, potentially, that cost.
The Chairman. Plus infrastructure and the acquisition of
the land.
Mr. Haggstrom. Yes.
The Chairman. Okay, all right.
Ms. Fiotes, you said there was no way that you could assign
this contract to the Corps of Engineers? Is that what you said?
Ms. Fiotes. Assign the entire contract over to the Corps of
Engineers?
The Chairman. I think that is what you said. I think if we
go back to the transcript, it would say you said we could not.
My question is, is it you could not or you will not?
Ms. Fiotes. Well, I was responding to the actual proposal
in the bill, which is the assignment of a special project
manager from the Corps of Engineers to oversee the
construction, not necessarily to take over the contract.
The Chairman. Well, okay.
Ms. Fiotes. So I was responding to the special project
manager and saying that would probably not work well.
The Chairman. How about responding to this: What if
Congress mandated that the Corps of Engineers take the project
over? You could then assign that to the Corps of Engineers,
could you not?
Ms. Fiotes. I am not sure how to answer that, Congressman.
The Chairman. Yes or no?
Ms. Fiotes. If Congress mandated that we assign the
contract to the Corps of Engineers, I guess we would have to
assign the contract to the Corps of Engineers. I am not----
The Chairman. It is a very simple question.
Ms. Fiotes. I am just not clear on what the details of that
would entail. That is all.
The Chairman. You are the only people that are defending
the debacle that exists today in all the major construction
projects. And all we are trying to do is to get a handle on
what is going on.
Again, as I told the commander just a minute ago, we have
given every dollar that has been asked for, haven't we?
Mr. Haggstrom. To my knowledge, you have, sir.
The Chairman. We have given every FTE or personnel that has
been asked for, every piece of the most modern equipment.
I mean, I have been told the Orlando hospital has been
delayed because we want to put in the latest and the greatest.
And that is great, that we should be able to do that. But when
you are talking about replacing a facility that was built in
1947, or whatever the date was, anything is the latest and
greatest, I would suspect.
I think you are the only people who have confidence in what
is going on. We are looking to you to help instill what you
feel to us and to the contractors.
I mean, if I am to believe what you say, then you have the
worst record of picking general contractors of anybody in this
country, because you are picking bad ones everywhere you go,
because they can't build on time, they can't build on budget. I
don't think that is the case.
There is a problem. Let's find it. Let's fix it.
I yield back.
Mr. Coffman. Thank you, Mr. Chairman.
Mr. Gardner.
Mr. Gardner. Thank you, Mr. Chairman.
Mr. Haggstrom, in terms of the budget, we have seen on the
Civilian Board of Contract Appeals Web site that throughout
2012 and 2013, K.T. was notifying the VA that the design was
turning higher and higher, and is now over $1 billion.
Why didn't the VA share this information with the committee
and Congress, rather than telling us that the project was
within budget, as it continues to do so today?
Mr. Haggstrom. Mr. Gardner, the contract that K.T. signed
was for $604 million. Interestingly enough, we always try to
reach a firm fixed-price contract.
So in March 2013, K.T. provided to the department a firm
fixed-price proposal of $898 million. With that proposal, we
did the evaluation and we rejected it. And we rejected it
because there was no supporting documentation that accompanied
it that justified the increase in price.
Interestingly enough, those proposals were based on 100
percent design drawings, and they had complete access.
Today, after those 100 percent design drawings, that firm
fixed-price proposal, now, I believe, K.T. is saying this cost
is over $1 billion.
Well, what has changed? That is what we are asking K.T. to
tell us. What has changed in terms of the project scope on
this, that even after they had access to this information,
provided a firm fixed-price contract, now a year later, it is
again grown over $200 million.
So based on the facts, and, Mr. Gardner, that is all I can
go on, are the facts. I can't go on conjecture of somebody just
saying it is going to happen. I have to have the facts in front
of me to understand what those changes are.
Mr. Gardner. What is the VA's belief for the percentage of
completion of the project at this point?
Mr. Haggstrom. Approximately 44 percent.
Mr. Gardner. And that is not the same as the prime
contractor?
Mr. Haggstrom. It may not be.
Mr. Gardner. Do you know what the prime contractor believes
it to be?
Mr. Haggstrom. I do not.
Mr. Gardner. You haven't talked to the prime contractor
about where they are with completion?
Mr. Haggstrom. I don't----
Mr. Gardner. At least what they think they are?
Mr. Haggstrom. No, I have not, in several months, to my
recollection.
Mr. Gardner. Is there anybody who has talked to the prime
contractor about where they believe they are?
Mr. Haggstrom. I would have to ask my project team.
Mr. Gardner. The project team doesn't share that with you?
Mr. Haggstrom. Mr. Gardner, they have not.
Mr. Gardner. Isn't that something that you should know?
Mr. Haggstrom. Mr. Gardner, we base our completion dates on
how we have paid out, and that is 44 percent.
Mr. Gardner. But not on actual progress?
Mr. Haggstrom. It is related to the actual project and the
cost of the project that we authorize payment against the total
cost.
Mr. Gardner. Why was the firm target price of $604 million
arrived at without regard to any design documents?
Mr. Haggstrom. Well, as I said earlier, I find that very
interesting, in that Kiewit-Turner was conducting
preconstruction services on a contract that was awarded in
August 2010. Sixteen months they were on this contract. They
had access to these documents. And they signed. We didn't twist
their arm. We didn't demand that they sign.
They signed the contract for $604 million, as did we.
Mr. Gardner. But there were no design documents, at that
point?
Mr. Haggstrom. We believe there were.
Mr. Gardner. The contractor, I believe, has made numerous
requests to meet with the Secretary to try to resolve these
issues outside of the legal process. Has that meeting taken
place? And if not, why not?
Mr. Haggstrom. It has not. The Secretary has invested the
authority within me to make this project happen. I have told
K.T. that. And I cannot see, nor does the department see, any
benefit at this point in time in terms of that meeting.
K.T. has chosen to go to litigation. It is now in the
courts, and those decisions will be made in the courts.
Mr. Gardner. So the Secretary has refused to meet with the
contractor on this?
Mr. Haggstrom. That is correct. The Secretary has not met
with the contractor, nor do we recommend that the Secretary
meet with the contractor.
Mr. Gardner. I understand there are claims filed, but when
there are disputes that arise, isn't that a natural thing, a
requirement to file a claim at that point?
Mr. Haggstrom. It is.
Mr. Gardner. So why has the Secretary refused to meet with
the contractor?
Mr. Haggstrom. There is nothing that is going to change
with regard to the claims that have been put forth by Kiewit-
Turner.
This is a legal interpretation of the contract, and the
courts need to decide. We have a position, as does K.T.
And mediation is not going to resolve that difference in
our views. And that is exactly why it is in the board of
appeals to make resolution on.
Mr. Gardner. So there is an active contract----
Mr. Haggstrom. There is.
Mr. Gardner [continuing]. Of a VA hospital somewhere
between $600 million and over $1 billion that has not been
built, and the Secretary of the VA and the contractor have not
met.
Mr. Haggstrom. I meet with the contractor. I represent the
Secretary. He has given me authority to do so.
Mr. Gardner. Well, may I suggest that perhaps we need
somebody else in the room, like the Secretary?
Mr. Haggstrom. I will, certainly, relay that to him.
Mr. Gardner. I yield back.
Mr. Coffman. Ms. Kirkpatrick.
Ms. Kirkpatrick. Thank you, Mr. Chairman.
You said that this is a firm fixed-price contract, yet that
doesn't preclude change orders, does it?
Mr. Haggstrom. This is not a firm fixed-price contract at
this time.
Ms. Kirkpatrick. Okay, I misunderstood.
Mr. Haggstrom. The goal is to get to a firm fixed-price
contract. And even in a firm fixed-price contract, there is
still the potential for change orders.
Ms. Kirkpatrick. Okay, so I am just a little unclear on why
you want to move it to a firm fixed-price contract from what it
is now.
And will you tell us again what it is now?
Mr. Haggstrom. What this is, is a firm target-priced
contract.
Ms. Kirkpatrick. And how is that different, a target-priced
contract different from a firm fixed-price?
Mr. Haggstrom. When you go into a firm fixed-price, many of
the issues are included in that firm fixed-price that may
potentially not be included in a firm target price.
So what this is, is we are working with the contractor to
try to establish a firm fixed-price, and then that would
mandate what that final cost is of the project.
Ms. Kirkpatrick. When you get to the firm fixed-price
contract, will that include the change orders that have now
been issued that are being in the process of being resolved?
Mr. Haggstrom. It would. And those adjustments have already
been made within the contracting vehicle that we are using, in
that we have adjusted that firm target price to $630 million.
Ms. Kirkpatrick. Okay, thank you for that clarification.
I yield back.
Mr. Coffman. Thank you so much for your testimony today.
I just want to say, as a veteran, before you are excused, I
just think that the mission of the VA is really to provide
health care benefits to those who have served this country. And
what you have demonstrated, I think, today, or what has been
demonstrated today in testimony, certainly, by the GAO, is that
you have problems on every project, not just this project. And
every project has different contractors.
And what that leads me to believe is, clearly, the VA is
not a construction entity. It is not your core competency. And
I think that is, certainly, demonstrated here today.
Thank you so much for your testimony.
Mr. Haggstrom. Thank you, Mr. Chairman.
Mr. Coffman. I would like to bring the first panel back for
a final round.
Thank you so much for returning. This is the final round,
and we will conclude the hearing following this round.
Mr. Gifford and Mr. Davia I think from a contracting point
of view, what is concerning to me is the extraordinary length
of time that it is taking to do these change orders. And I have
to think it is so long that it is calculated.
And I think that there is evidence, certainly, that has
been disclosed in internal documents that say it is calculated.
From your perspective, I would like to hear your view on
why this change order process is so slow, and is it there to
mask the true cost of this facility?
Mr. Gifford.
Mr. Gifford. Mr. Chairman, members of the committee, I
can't sit here and speculate as to intent, on why change orders
would take so long.
However, I do know that the GAO's report documents that
this has taken place on a number of projects, regardless of
delivery method. We have talked a lot about that. So it does
seem to be a pattern.
There has been recognition in the VA's own testimony that
they were slow in processing change orders and were needing to
make improvements and are trying to do so.
However, I will say that the true cost of a project is a
simple mathematical formula, which is the budgeted cost,
sometimes it has been called a firm fixed-price. In State
contracting here, it is called a guaranteed maximum price, a
GMP.
But then you are going to have some change orders that I
talked about before, that could be only scheduled related, just
a change in schedule. It could be a change in design. It could
be conditions that are encountered, a change in scope. Maybe
you want to move somebody into the fourth floor of an
individual building faster than you originally thought. Just
that speeding up of a schedule, over time, different things.
You have to add those pieces into the mathematical
calculation to get to the final true cost. And the slower it
takes to lay another change order on the table, then you are
not adding that to the final numbers.
Mr. Coffman. And it gives the appearance of a lower number,
does it not? At that point in time?
Mr. Gifford. At that point, it would appear lower than what
the final cost is going to be, because you haven't laid some of
those other change orders on the table yet.
Until they are an official change order--remember, I said a
change order is a change to the contract--it is just a field
directive or a change directive. ``Go do this, and we will
count that up later.'' Until you add that in, the cost of the
project has not risen.
Mr. Coffman. Mr. Davia
Mr. Davia. I would only add that, in construction, we
consider the cost to build something to be inclusive of land,
the cost of materials, the people to build it, the
commissioning, everything it takes, so that we deliver to the
owner a fixed-price project for X dollars.
And in layering items in different buckets, or calling them
different things, whether it is $600 million, or $1 billion,
you need to derive at what it costs Congress and the taxpayers
to arrive at, ``This is how much this building will cost.''
And I would echo Mr. Gifford's comments and only add one
more thing. In an environment like today, most projects are
being fast-tracked. We do something called building information
modeling, which is we build a building on the computer before
we dig a ditch.
And why that is important is it avoids collisions and other
things that maybe the steel erectors put a wall here, and we
have to drive our pipe or duct through it, and now all of a
sudden, we are cutting it out and redoing it, which lends
itself back to the original comments that I made, which is that
it is really nice to have the entire design team involved long
before we start kind of finalizing contracts and values. It
would lend itself to avoid situations much like you are hearing
today.
Mr. Coffman. Are there smaller employers, either one of
you, that may very well go under as a result of this
mismanagement, in terms of the change order process?
Mr. Davia. I will take a turn at that first. Two things,
number one, I talked about the cash flow crisis, and yes, it is
very possible that one or more especially smaller companies
could cease to exist if they are starved of the extra cash long
enough.
And we are at a point now where I have a concern that that
could happen on this project. I am not saying it will happen,
but I have a concern. And there are two reasons for that.
Number one, construction is a cash flow business, so you need
cash flow to continue to work and keep your people working on
other projects. And if you have receivables that are over 90
days, if you have a lack of cash on your balance sheet, you
can't go and bond for the next job.
So if you can't continue to do work, and you are owed money
that you didn't anticipate a change, an additional cost, they
can really get you into a bad spot. Now, maybe you can go get
some other work that doesn't require bonding and try to make up
the difference, but it really can impair your ability to go
forward.
And if you stop moving as a construction company, and you
are smaller, the real possibility exists that you can no longer
be in business.
Mr. Coffman. My time has expired.
Ms. Kirkpatrick.
Ms. Kirkpatrick. Mr. Davia on fast-tracking, whether or not
the VA or the Army Corps has that capability, I don't really
know. But in your experience, isn't it typically the contractor
who has that capability to fast-track?
Mr. Davia. Ms. Kirkpatrick, it is. It is issued by the
owner to say the date is the date, and we need you to make
that. And we would come back to them and say that may require
two or three crews, it may require graveyards, weekends, things
that weren't part of our original pricing because in a panacea,
we work 5 days a week, start at 7, end at 3. But when you get
into that kind of environment, it does cost the owner more, and
we as construction professionals, we work for the owner.
So if that is what they say we need to do, we do it, but it
does come at a price.
Ms. Kirkpatrick. Do you see that as a possibility for this
project in Aurora, or do you see it as necessary to meet that
target completion date of May 2015?
Mr. Davia. We heard today from the two gentlemen to my
right and your left about access of a facility of this nature.
I would say to you that the construction community always finds
a way to rally behind things. All you have to do is look to
Northwest Colorado to the floods we experienced.
We can move mountains and do great things in a very
condensed period of time. We just need the owner to say yes and
have assurances that the funding is available, because if we
move without that approval process, then we as the contractors
are at risk. It is our livelihood that is at risk, not the
owners' or the veterans'.
Clearly, in this case, we could do that if we were given
the assurances and the green light to go.
Ms. Kirkpatrick. Can a fixed-price contract be fast-
tracked?
Mr. Davia. I don't know the terms of this particular
agreement. But I would offer the following comments, maybe a
little naively, to say I heard there is a desire to get to a
fixed-price contract for this project, but it is currently not
a fixed-price contract.
Therefore, I can only assume that we can fast-track or the
VA can make necessary arrangements to authorize the fast-
tracking of this contract. But again, I think price will be the
factor, if it is not already.
Ms. Kirkpatrick. Mr. Gifford, I am concerned about the
number of contractors who might be affected in this particular
project, because, as you know, you testified or Mr. Davia that
the profit margin is between 2 percent and 3 percent, and very
few contractors have the ability to carry huge amounts of money
for a long time, and especially in the current economic
climate.
Do you have any idea how many contractors on this
particular job are facing that possibility?
Mr. Gifford. Representative Kirkpatrick, I don't have a
firm number, because that would be going into some pretty
minute detail in each financial situation. But it is not
uncommon to have anywhere from 20, 30, 50, or even more
subcontractors or pieces of a commercial building of this size.
And all of them, to my knowledge, have a piece of any change in
schedule, which is a huge one on this project, just to change
the schedule and design. And so that goes to the financial
wherewithal of each of those companies.
But I wouldn't be surprised if you were looking at 10 or
more companies that could be in a serious category, just based
on different ones that I have talked to.
Ms. Kirkpatrick. Thank you. And again, I thank the panel
for testifying, and thank you for your service to our country.
Mr. Coffman. Thank you, Ms. Kirkpatrick.
Mr. Lamborn.
Mr. Lamborn. Thank you, Mr. Chairman.
Mr. Bozella, transparency is a problem that you cited in
your testimony, and that is one where the VA suffers what
appear to me to be systemic issues and problems.
What can the VA do to improve transparency in major
construction projects like the Denver project?
Mr. Bozella. Mr. Lamborn, Mr. Chairman, first, let me
preface that by saying, in our work in the System Worth Saving
Task Force, the biggest problem we see in VA is not the fact
that they have problems. Every health care system has problems.
It is what they do about the problem.
And what they do is a very slow process of enabling the
local administration of that hospital to be able to get out in
front of it, tell the public what is going on, and what they
are going to do to fix it, once we understand they have a
problem.
The Legionella issue in Pittsburgh, where six veterans died
from Legionella disease--I know Chairman Miller is well-aware
of that whole process.
In South Carolina, and the backlog of G.I. consults, and
four veterans ended up with cancer because they weren't
diagnosed in time.
But the process to fix that goes through a long line up the
chain of command to the central office to finally approve a
press release. The same thing happens with the construction
processes.
This local administration was told they weren't allowed to
talk to us, the veterans, about what is going on in hospital. I
have sat in meetings, the last one that comes to mind is June
2011, where the contracting officer sat in one corner of the
room, the other contracting officer ran the meeting. The room
was full of VA staff members. And nobody is asking questions.
I was invited to the meeting as a veterans' representative.
I was the only person asking questions. And when the meeting
was over, one of the senior hospital medical staff came to me
and said, ``You keep doing this. We are not allowed to say
anything here.''
So it seems to me the communication has closed up. And I
believe that is where a different perspective on the change
order process--it is like nobody is talking about what is wrong
with the hospital. They, certainly, don't want to talk to us.
And I did challenge the VA with that, yesterday. And I want
to credit Mr. Haggstrom and his team. They met with eight of us
at the hospital yesterday, and that was the first time that we
heard information of what the VA is thinking about this
project, a lot of what you heard this morning. And it was good
to hear that.
The point is, you should tell us what is wrong, tell us
what you are going to do to fix it. Don't be afraid of bad
information.
In fact, instead of us crafting your message, you craft
your message and we can be become your greatest ally to resolve
it.
Mr. Lamborn. And, Commander Rosa, I appreciate your work
here in Colorado, and it has been great to work with you over
the years. My office enjoys working with you and the folks at
the VFW.
Do you have anything that you would like to respond to,
having heard the VA's testimony?
Mr. Rosa. Mr. Lamborn, I sat here and I listened to it. And
I will be honest with you, I come from an old school in the
Navy. I am an old Navy Chief. And I think it would probably be
better if I didn't comment, because some of the things I
heard----
[Laughter.]
Mr. Rosa. I think we have a term for it in the Navy, and I
refuse to do that here, out of respect.
But I do think that some of the things I have read in my
research, dealing with these litigations and the lawsuits and
everything, I am still trying to figure out how we can still
have a date of May 2015 when we have constant delays. We have
litigation going on. We have lawsuits going on. But we are
going to complete this thing in May 2015?
I am sorry, I am a realist. I am not a dreamer. Thank you.
Mr. Lamborn. Thank you.
And I will just conclude by saying I do appreciate what the
VA is doing in Colorado Springs with the super-clinic down
there. They are doubling the current space available for local
treatment of health care for veterans. And that means that
people all over southern Colorado won't have to make the trip
to Denver that is sometimes very difficult, especially if there
is a health issue.
So what they are doing appears to be on time, on budget.
And I applaud that. And I thank them for that good work. And I
look forward to that opening later this year.
I just hope we can get this facility in Denver fixed.
Mr. Chairman, I yield back.
Mr. Coffman. Thank you, Mr. Lamborn. That is Aurora.
[Laughter.]
Mr. Coffman. Mr. Miller.
The Chairman. Mr. Gifford, these are pretty general in
nature, but does a contractor or a subcontractor do work before
the change order is authorized or approved, as a general rule?
Mr. Gifford. Representative Miller, that is a very good
question. There are situations where the contract requires that
when the owner directs additional work, that that work
commence, even if there is not a signed change order.
The Chairman. But they have been directed by the owner to
make that change. So they are not just going out and doing this
work, I would not assume, unless somebody had approved. But
what they are saying is, we need to do this change, and this is
what it is going to cost to make the change.
Mr. Gifford. And to be clear, there is a chain of command,
so the owner would direct the prime or the general contractor.
Only the prime or general contractor would direct the
subcontractor.
The Chairman. And the other question is, when a contractor
bids, when the prime bids a project, he is relying on documents
and designs that are provided by the owner, correct?
Mr. Gifford. That is correct. There are nuances in the
different delivery methods, whether it is design-bid-build or--
--
The Chairman. So if there is a flaw in the design, or some
type of groundwater problem exists, or there is dewatering that
needs to be done, or piles that need to be set, that wasn't
apparent from the design and the documents, who bears that
cost?
Mr. Gifford. Again, that is a fairly----
The Chairman. Especially if we have a firm target-price
contract.
Mr. Gifford. It would go back to the type of contract that
you have. But you are describing maybe a condition that wasn't
known. It could be asbestos in a building, or it could be
groundwater.
The Chairman. Wasn't known to the contractor.
Mr. Gifford. Right.
The Chairman. It may have been known to the owner?
Mr. Gifford. In some cases, that, certainly, can be the
case, that it can be known, and there could be other kind of
design changes, where it just says, why do we have a curved
wall when we can have a straight wall?
The Chairman. And I am not implying at all that that it is
what has occurred here. But I am definitely aware of instances
at New Orleans, where the owner knew certain things existed and
did not inform the contractor. And that is not right.
Mr. Gifford. I would agree. In most cases, that is why the
change order vehicle or tool exists, to adjust for those types
of situations.
The Chairman. And I am just trying to help the committee
understand that I don't believe the contractor is going out
arbitrarily, throwing change orders at the owner in order to
get their price jacked up.
I mean, I find it very difficult and, unfortunately,
because of the litigation, we can't invite the prime contractor
on this project to testify, but I can't believe that they have
submitted change orders and no documentation.
Is that normal?
Mr. Gifford. No, that is not normal.
The Chairman. I yield back.
Mr. Coffman. Mr. Gardner.
Mr. Gardner. Thank you, Mr. Chairman.
Mr. Davia. I just would like you to respond to some of the
comments made by Mr. Haggstrom.
Mr. Davia. Thank you, Congressman Gardner.
It felt like to me, from listening to the testimony, that
there is an assertion that the general construction community
may be filled with some bad actors or folks who just don't get
it right in every market, maybe specifically here in Aurora.
Kiewit-Turner, to be in full disclosure, is not a member of
mine, but I feel compelled to defend them a little bit.
They are great contractors. My members enjoy working for
them. If they were not good contractors, we sell a service, and
if we can't sell that service and perform to the owner's
expectations over a period of time, we would be out of
business. Those are just the pure factors of the market and the
dynamics we live in.
We are not in the legal profession. We are in the
profession of building items. And so it is not in our general
interest, nor is it our desire, to end up in court, nor
position a project to do that.
You only get so many opportunities to do that before an
owner says, ``I am never going to hire that so and so again.''
And that is unfortunate.
Ninety percent of construction firms in Colorado employee
20 or fewer people. This is a small-business issue. This isn't
about some behemoth financing some project, or trying to play
chicken, if you will, with an owner.
I have to tell you that we specialize in building
buildings. We have teams that specialize in building certain
kinds of applications just by nature.
I too would offer, and this may sound trite, and I
apologize, but I stopped believing in the tooth fairy a long
time ago. I think the date of May 2015 is problematic, given
the fact that you have this much before the legal system to
interpret and sort out.
And so I would just ask that this committee take a look at,
real hard and fast, the proposal Chairman Coffman has, and try
and find a way to support that.
The Army Corps of Engineers does an outstanding job, in our
opinion, of being stewards of taxpayer dollars and
administering construction projects.
So I would conclude my comments, unless you have something
else you would like to ask.
Mr. Gardner. I just want to thank the panelists.
And thank you, Mr. Chairman, for your leadership on this
issue. Thank you.
Mr. Coffman. Thank you, Mr. Gardner.
Ms. Kirkpatrick.
Ms. Kirkpatrick. Mr. Chairman, I have some statements for
the record, from Senators Udall and Bennet, and from
Representatives Polis and Perlmutter, that I would like to
submit for the record.
Mr. Coffman. Is there any objection?
So ordered.
Mr. Coffman. Thank you, panel. You are now free to leave.
Thank you so much for your testimony today.
Mr. Bozella, thank you so much for your service to our
country.
Chief Rosa, from my Marine Corps days, thank you for your
service as well.
Today, we have had a chance to hear about many problems
occurring with VA's major construction projects, particularly
with regard to extensive delays and cost overruns occurring at
the replacement Aurora VA Medical Center.
As such, this hearing was necessary to accomplish a number
of goals: first, to assess the extent of delays and amount over
budget for the current project; second, to require an
explanation from VA on how the project has been allowed to
suffer these pervasive problems; and third, to determine what
measures can be taken to get the project back on track, so
local veterans can begin receiving necessary care.
I remain unconvinced that VA can fix these problems without
outside intervention, so I encourage my colleagues to support
our bipartisan bill, H.R. 3593, the VA Construction Assistance
Act.
I ask unanimous consent that all members have 5 legislative
days to revise and extend their remarks and include extraneous
material.
Without objection, so ordered.
Mr. Coffman. I would like to once again thank all of our
witnesses and the audience members for joining us in today's
conversation.
With that, this hearing is adjourned.
[Whereupon, at 11:11 a.m., the subcommittee was adjourned.]
APPENDIX
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Prepared Statement of Kirk Rosa
Mr. Chairman and Members of the Subcommittee:
On behalf of the men and women of the Veterans of Foreign Wars of
the United States (VFW), our Auxiliaries, and specifically the nearly
19,000 VFW members living in Colorado today, I would like to thank you
for the opportunity to testify regarding the continued construction
delays and cost overruns of the Aurora Veterans Affairs Medical Center
(VAMC) replacement project.
The current VAMC in Denver was built in 1948 and has outlived any
reasonable lifecycle expectations. Over the past 66 years, health care
technologies have improved and patient demands have changed, but our
medical center has not kept pace. Discussions for replacing the
facility began in 1997, and in 2004 the Capital Asset Realignment for
Enhanced Services or CARES put the Denver VAMC as one of the three
facilities most in need of replacement. Now on its forth Secretary, the
Denver VAMC replacement project is still a year away from its projected
completion date.
Veterans in Colorado have waited long enough. The Government
Accountability Office (GAO) reported last year that the total estimated
time to complete this facility will be 10.5 years. In contrast, the
Naval Facilities Engineering Command reports that they take
approximately four years to build a medical facility from design to
completion. This shows there are more efficient ways for federal
agencies to contract and build facilities.
The Department of Veterans Affairs (VA) has taken steps to improve
their major construction practices. In April 2012, the Secretary
established the Construction Review Council to conduct oversight and
performance accountability for planning, budgeting and executing VA's
capital asset management process. The Council identified five areas
that contributed to VA's construction cost overruns and delivery
delays.
VA identified that placing project development in front of
authorization and appropriations in the capital investment program
process will reduce the number of project unknowns and provide a more
reliable cost and time estimate. Then the Council recommended four
other actions that should improve VA's real property capital program.
The recommendations start with requiring VA to have the more complete
design of a project before submitting for funding, and to conduct
master planning in coordination with the Strategic Capital Investment
Plan (SCIP). It then calls on VA to improve the design review process,
better coordinate the SCIP process with the budget process to improve
funding recommendations, and design a program management process that
will be used while the facility is being built to improve communication
within VA and between VA and the general contractor.
These and other initiatives VA has undertaken to improve their real
property capital planning are noble, but with access and utilization
gaps in major construction that will cost more than $20 billion to
close, more must be done.
That is why the VFW supports Chairman Coffman's bill, HR. 3593, the
``VA Construction Assistance Act of 2013.'' This bill will codify many
of the recommendations of the Construction Review Council and GAO by:
Using medical equipment planners from the onset of a
major medical facility construction project.
Developing and using a project management plans to
improve communication among all parties involved.
Place construction projects under peer excellence
review.
Developing a metrics to monitor change-order
processing times and ensure that process meets other federal
department and agency best-practices.
By placing these provisions in code, there will not be any
ambiguity at the project management level on what is required while a
facility is under construction. This will lead to better communication
between VA and general contractors, reducing the number of change
orders and reducing the number of disputes between the two parties, and
in the end ensure that facilities are built on time and on budget.
The bill will also require VA to use the design-build process when
possible. This process places the architectural/engineering company and
the prime construction contractor under one contract. This method can
save VA up to six months of time by putting the design phase and the
construction performance metric together. Placing the architect as the
lead from start to finish, and having the prime contractor work side-
by-side with the architect allows the architect to be an advocate for
VA. Also, the architect and the prime contractor can work together
early on in the design phase to reduce the number of design errors, and
it also allows them to identify and modify the building plans
throughout the project. This is a common sense solution to more
efficiently and effectively build major construction projects.
The last provision is for the Army Corps of Engineers to provide a
special project manager to conduct oversight of the construction
operations regarding compliance with acquisition regulations, and
monitor the relationship of VA and the prime contractor. It will also
authorize the Corps to assist in construction related activities, such
as change-order requests, and provide guidance on developing best
practices in overall project operations.
The VFW supports this provision, but it should be seen as a stop-
gap measure to help VA to quickly complete these three outstanding
major construction projects, and systems must be put in place to ensure
VA can function under similar guidance without the assistance of the
Corps on future projects.
It is important for VA to become more efficient at facility
construction. Veterans have expectations that medical facilities will
be available when VA first states what the completion date will be. It
is obvious by looking at the number of delays and cost overruns that
the contracting and building procedures that VA currently uses are
antiquated and are costing VA millions of dollars more for each
project; and causing five to six year delays in much needed medical
facilities. By passing this legislation, VA will gain better oversight,
cost controls and more efficient procedures for future construction
projects.
Mr. Chairman, this concludes my remarks and I look forward to any
questions you or the Committee may have.
Information Required by Rule XI2(g)(4) of the House of
Representatives
Pursuant to Rule XI2(g)(4) of the House of Representatives, VFW has
not received any federal grants in Fiscal Year 2013, nor has it
received any federal grants in the two previous Fiscal Years.
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Prepared Statement of Mr. Glenn D. Haggstrom
Good morning, Mr. Chairman and Members of the Committee. I am
pleased to appear here this morning to update the Committee on the
status of the construction of the replacement medical center in Denver.
Joining me today is Stella Fiotes, Executive Director for Construction
and Facilities Management.
I would like to take a few moments to highlight two of VA's most
recent projects that have been completed to serve Colorado Veterans.
Valor Point Homeless Domiciliary, which opened in May 2013, is a 40-bed
facility with a two-fold mission: 1) To identify homeless and at-risk
Veterans who need residential treatment to overcome homelessness; and
2) To provide these Veterans transitional, recovery-focused treatment
that increases their independent living skills so that they can obtain
and maintain housing upon graduation. The new Golden VA Clinic, which
opened in February 2014, is a two-story, 40,000 square foot facility,
with a Silver LEED energy efficiency rating, that replaced the 2,000
square foot Lakewood VA Clinic at the Denver VA Regional Office.
Serving 12,000 Veterans, the Golden VA clinic has been outfitted with
additional radiology, laboratory and mental health staff to increase
access for Veterans. To date, over 6,000 Veterans have switched their
primary care site to this clinic over other facilities in the Denver
metropolitan area.
The Office of Acquisition, Logistics and Construction (OALC), is
currently managing the major construction project to replace the
existing Denver VA Medical Center in the VA Eastern Colorado Health
Care System (ECHCS) with a new medical center complex at the Fitzsimons
campus in Aurora, Colorado and is actively engaged in the execution of
46 additional major medical and cemetery projects that are either in
active planning, design, or construction. This year, VA plans to
deliver five medical and two cemetery projects for Veteran use
The Denver VA replacement medical center project will include 182
inpatient beds, an outpatient clinic, a 30-bed community living center,
a 30-bed spinal cord injury center and a 4-bed blind rehabilitation
unit. To date, construction has been completed on three phases,
bringing the total project to 44 percent complete. This project will
also allow continued collaboration between the Denver VA Medical Center
and the University of Colorado Hospital, which relocated to the
Fitzsimons campus, and with the U.S. Air Force, for which OALC
completed construction and delivered the outpatient clinic currently in
operation. VA currently serves over 78,000 Veterans through these
facilities, with 170,000 Veterans enrolled.
VA is under contract with Kiewit-Turner (KT), as prime contractor,
to provide pre-construction services and to build the new facility
within a 40-month construction schedule. Both the VA Secretary and
Deputy Secretary are briefed monthly on the status of this project as
part of our Construction Review Council
(CRC) meetings. The primary purpose of the CRC, which was established
by the Secretary in 2012, is to serve as a single point of oversight
and performance accountability for VA's major construction program, and
the regular meetings serve to ensure that VA leadership has visibility
and oversight of the VA construction program--to include program
requirements development and major changes. To date, VA is still in
litigation with the contractor regarding the interpretation of the
integrated design construct contract. As of March 2014, the contractor
has filed a total of 23 complaints seeking monetary relief for
approximately $13.3 million and has made it clear that it will continue
to file additional complaints with the Civilian Board of Contract
Appeals (CBCA) if KT is not compensated in the exact amount requested
for changes or contract modifications. On February 28, 2014, VA filed a
motion to dismiss KT's initial complaint, and KT filed its response
with CBCA on March 31, 2014. VA filed its reply on April 14, 2014 which
CBCA will take under advisement.
Accordingly, I ask for the Chairman's and the Committee's
understanding since VA will be unable to respond to the matters at
issue in the litigation as it may compromise the Government's legal
position. However, regardless of the litigation, construction is
ongoing.
Regarding the cost of the project, VA received the final
appropriation of the $800 million total project cost as part of the FY
2012 VA budget. VA signed a contract with KT to provide pre-
construction services on August 2010 and to build the new facility for
$604 million with a firm ceiling price of $610 million. As of March
2014, VA has paid KT $254.9 million for work performed, and supported
by required documentation, under the contract agreement. The original
contract amount has been revised to $616.6 million (not to exceed $630
million), to reflect approved contract modifications. In a good faith
effort and to assist the contractor in making payments for work
performed, VA has allowed the contractor to bill for work performed
later in the project up to $30 million.
As part of its schedule reviews, VA will extend the contract
completion date to adjust for delays that were not the responsibility
of the contractor. The first extension was offered in February 2014,
and VA awaits a response from the contractor. VA will continue to
monitor the schedule during its reviews and work to mitigate further
delays in the completion date. However, VA is concerned that KT
continues to fall behind their proposed schedule based on monthly
evaluations of schedules provided to VA.
In the Spring of 2013, VA initiated monthly meetings with KT to
facilitate open communication amongst senior executives to ensure that
the project continued apace in spite of the ongoing litigation. It was
very disappointing that the contractor made the decision to discontinue
these meetings. However, VA staff continue to work with the contractor
to ensure the construction of the medical center moves forward and is
still operating within the appropriation. The local respective project
teams also continue to meet to address any issue that may arise during
the normal course of construction. Additionally, Glenn Haggstrom,
Principal Executive Director for the VA Office of Acquisition,
Logistics and Construction, meets monthly with Mr. Scott Cassels, of
Kiewit Corporation, to discuss issues of concern.
VA appreciates the Committee's interest and support to ensure that
VA major construction projects, and more specifically the Denver
replacement facility, are delivered successfully. While there have been
challenges with this project, we have undertaken a comprehensive review
of the major construction program and have taken numerous actions to
strengthen and improve our execution of VA's ongoing major construction
projects. With the acceptance and closure of the April 13, 2013,
Government Accountability Office report recommendations and
implementation of CRC recommendations, VA has changed the way it
conducts business, significantly.
Change orders are not unusual during the construction of any large,
complex project, such as the Denver replacement medical center;
however, VA recognized that our process was too lengthy and too
cumbersome resulting in delays in the execution of change orders. We
addressed those challenges by establishing new policies and metrics for
change orders, by adding staff and legal counsel to help with the
review of change orders and by bringing online a real-time, information
technology tool to accept and track change orders. As a result, we are
in a much better position now and are processing change orders at a
much faster rate than in the past. Although the total number of changes
in progress is in constant flux, our goal is to process all change
orders within 60 days. Other areas identified for review and
improvement include the design-review process and steps to streamline
procedures, while at the same time ensuring that decisions are made at
the appropriate levels within the Department. We will keep the
Committee informed of our progress in these areas.
Discussions continue with our Federal and industry partners,
including the U.S. Army Corps of Engineers (USACE), on collaboration
with VA on various aspects of our major construction program. VA and
USACE have a long history of working together to advance VA facility
construction and share best practices. Recent collaboration includes
involvement in contract reviews for this construction project and the
New Orleans construction project. Current discussions are a logical
evolution of that relationship, and we will continue work with our
Federal and private partners to drive the successful delivery of these
facilities.
In closing, each day, VA is moving toward its goal of improving and
streamlining our processes to increase access to our Veterans and their
families. To that end, to help ensure previous challenges are not
repeated and to lead improvements in the management and execution of
our capital asset program as we move forward, we will continue to focus
on:
Ensuring well-defined requirements and costs are
provided to Congress when seeking appropriations for
construction projects;
Ensuring appropriate staffing levels are met to ensure
timely project and contract administration;
Continuing open dialogue at every level that includes
VA and construction and design contractors;
Ensuring early involvement of the medical equipment
planning and procurement teams; and
Applying the acquisition program management framework
to our projects.
VA continually seeks innovative ways to further improve our ability
to design and construct state-of-the-art facilities. VA is fully
committed to this goal, and we have demonstrated great efforts to work
together with our Federal and private partners to achieve VA's goal of
being a people-centric, results-driven, and forward-looking
organization, which ultimately enables us to better serve Veterans and
their families.
This committee has been a strong and supportive advocate for
Veterans' health care, and VA will continue to ensure transparency
during the construction of the Denver replacement facility.
Mr. Chairman, this concludes my statement. Thank you for the
opportunity to testify before the Committee today. My colleagues and I
would be pleased to respond to questions from you and Members of the
Committee.
[F-dash]
FOR THE RECORD
Statement for the Record
Statement of the Hon. Ed Perlmutter (CO-7)
Chairman Coffman, Ranking Member Kirkpatrick, thank you for your
efforts regarding the new stand-alone U.S. Department of Veterans
Affairs Denver replacement medical center at the Fitzsimons medical
campus in Aurora, Colorado.
This hospital has been one of my top priorities for seven years,
for six of those the project was in my congressional district, only to
be removed in the redistricting process. This hospital has been
promised to our veterans for nearly fifteen years. The project has gone
through a number of iterations over the years under two Presidents and
four Secretaries of the VA. The hospital is well underway and I
appreciate the Committee's interest in it, but the time has come to
focus our efforts on ensuring the completion of this hospital. Our
veterans deserve nothing less and the people of Colorado and our nation
expect it.
Once completed, this medical center will serve hundreds of
thousands of veterans across the Rocky Mountain West. The 182-bed
facility will include a full range of medical, laboratory, research and
counseling services, a 30-bed spinal cord injury unit, a 30-bed
community living center and a PTSD rehabilitation clinic.
The original design called for an approximately $1.1 billion state-
of-the-art medical center, but Congress authorized and appropriated
$800 million for acquisition of approximately 40 acres of land and
several buildings, as well as design and construction. The original
design appears not to have significantly changed, and consequently a
funding gap exists between the authorized amount for the contract and
the overall cost of the project. This dispute is leaving the sub-
contractors who are small businesses left footing the bill as they are
required to continue construction without the guarantee of getting paid
for work completed. The contract dispute will be heard next month by
the U.S. Civilian Board of Contract Appeals.
Completely separate from the decision by the U.S. Civilian Board of
Contract Appeals, the project would immediately benefit from insights
provided by independent, external experts regarding the VA's
construction policies and procedures going forward. I have urged the VA
to work with the U.S. Army Corps of Engineers (Army Corps) which has
decades of technical and managerial experience in hospital
construction, as well as a remarkable track record for completing major
construction projects on time and on budget. The VA has the authority
to enter into an Interagency Agreement as soon as practicable to allow
the Army Corps to conduct a Design-Construction Evaluation (DCE) on
this project. This evaluation is a common practice to provide the VA
with a full review of the procurement, engineering, construction and
project management processes to identify problems and recommend
solutions the VA can implement. The Army Corps regularly completes DCEs
on its own projects at major milestones or when potential funding or
schedule delays arise.
The Army Corps has also worked with other federal agencies on a
number of occasions to conduct evaluations on their construction
practices to improve project management and timely project completion.
The VA has a strong history of collaboration with the Army Corps on
construction projects, and discussions are ongoing for the use of these
DCEs on major construction projects, including the Aurora medical
center. This approach can be done today, without any congressional
action, and I continue to urge the VA to enter into this agreement as
quickly as possible.
Our veterans deserve the best hospital possible built at the best
price as quickly as possible. They should not be forced to wait even a
day longer than necessary for the timely, world-class care this medical
center will provide. The U.S. Army Corps of Engineers has the expertise
to assist the VA in fulfilling this promise to Rocky Mountain veterans.
I look forward to continuing to work with the VA on this critical
project to ensure our veterans receive the health care they earned.
Statement of Hon. Michael Bennet (CO)
Chairman Coffman and Ranking Member Kirkpatrick:
Today's hearing on the status of the Department of Veterans Affairs
(VA) Regional Medical Facility in Aurora, Colorado, is critically
important, not only to western region Veterans, but to the American
taxpayer. When complete, this facility will provide world-class care to
generations of Veterans and their families. However, the VA has
struggled to keep this project on time and on budget, and we welcome
continued scrutiny and oversight of this venture.
As a Congressional delegation, we have attempted to maintain an
open dialogue with the VA throughout this process. We have met with
officials at the highest levels to identify and correct the systemic
flaws plaguing this construction project. Although we have worked
closely with VA officials over the last several months, our most
pressing questions remain unanswered, and our concerns continue to grow
regarding the management of the payment process to sub-contractors. The
VA claims to have streamlined the change order system, yet sub-
contractors remain unpaid. It is unconscionable that Colorado small
businesses should bear the burden of the VA's inability to competently
manage this endeavor.
Additionally, the fact that the VA and the prime contractor Kiewit-
Turner (KT) have been unable to resolve fundamental contract disputes
and have instead entered into litigation has increased frustration with
this project and added unacceptable levels of uncertainty for Veterans.
For months, the Congressional delegation has worked to find avenues for
the VA and KT to resolve these contract disagreements. Unfortunately,
entrenched interests prevented both sides from coming together to act
in the best interests of the people. However, I firmly believe we
cannot allow the litigation process to hold back much-needed progress.
The VA does not need Congressional approval or additional funding to
take advantage of available best-practice standards and resources
available through other government partners.
The need for action is why I, along with Senator Udall and
Representative Perlmutter, have called for the VA to enter into a
Memorandum of Understanding with the U.S. Army Corps of Engineers
(USACE). The USACE has the technical and managerial experience with
major construction projects, as well as a successful track record for
completing hospital construction on time and within budget. The USACE
and the VA have the ability to enter into an interagency agreement to
conduct a Design-Construction Evaluation (DCE) on this project to
ensure completion. This evaluation is common practice in the
construction community and will provide the VA with a full review of
construction and project management processes to identify problems and
recommend solutions going forward. The USACE routinely uses the DCE
process on its own projects, and the VA will benefit greatly from this
independent assessment.
Again, I thank Chairman Coffman and Ranking Member Kirkpatrick for
their attention to this important issue. The delays and cost overruns
plaguing this project are deeply disturbing and represent a disservice
to our nation's veterans and the American taxpayer. Veterans and
Colorado small business deserve straightforward answers from the VA
about how it will put this project back on track.
Sincerely,
[F-dash]
Statement of Senator Mark Udall
Chairman Coffman and Ranking Member Kirkpatrick, the subject of
today's hearing is of great importance to Colorado and veterans from
throughout the Rocky Mountain west. When completed, the VA Medical
Center currently under construction on the Fitzsimons campus in Aurora
will provide the world-class medical care and facilities that our
veterans have earned, and your attention to the project is appreciated.
The demand for an on-time, on-budget completion of this critical
project has united the Colorado veteran community and our congressional
delegation. It is important that Congress continue to exercise its
oversight authority to ensure that taxpayers and veterans receive the
best possible facility for their tax dollars.
We must also continue to identify and correct the systemic issues
that have led to significantly delayed payments for many of the small
businesses employed as subcontractors on this project. While there is
no doubt that significant disagreements exist between VA and the prime
contractor, it is not acceptable to delay payment to subcontractors for
work already completed. VA and its contractors must take immediate
steps to establish management practices and contract agreements that
provide for far quicker review of change order requests. As I have
stated repeatedly, VA should adopt standards and best practices long
used by other federal agencies such as the Government Services
Administration and the Army Corps of Engineers (USACE) to streamline
the change order approval process. Those actions do not require
congressional authority and should be taken by VA as soon as
practicable.
While the contract dispute between VA and the prime contractor is
still pending review and adjudication in the U.S. Civilian Board of
Contract Appeals, there are other immediate steps VA can take to ensure
that best practices are being followed during the construction of the
Aurora hospital and other major VA projects. USACE has significant
experience and expertise in the management and construction of large
military medical centers--as well as a record of delivering on-time,
on-budget major medical facilities to the Department of Defense. In
light of that fact, I--along with Senator Michael Bennet and Rep. Ed
Perlmutter--wrote to VA Secretary Shinseki in March of this year urging
VA to allow USACE to conduct a Design-Construction Evaluation, or DCE
on the Aurora project.
DCEs are a common practice used to provide construction managers
with a full review of the procurement, engineering, construction and
project management processes in order to identify problems and
recommend solutions going forward. The Army Corps regularly completes
DCEs on its own projects and has worked with other federal agencies--
including VA--to conduct evaluations of construction practices that
improve project management and increase the likelihood of on-time
completion. Such an evaluation would only look at the project going
forward and would have no effect on the pending litigation. A DCE does
not require a congressional mandate and could be underway in a matter
of weeks. I would once again urge VA to take this common-sense,
practical step as soon as practicable for the good of this project,
Colorado veterans, and taxpayers.
Again, I thank Chairman Coffman and Ranking Member Kirkpatrick for
their attention to this important issue, and I appreciate the
willingness of the witnesses to provide their important perspectives
regarding this matter. As evidenced by the collaboration and united
efforts of our veterans, state and local leaders, and the Colorado
congressional delegation, the on-time, on-schedule completion of the
replacement medical center is of extreme importance to all of us. We
will not ask our veterans to wait any longer than absolutely necessary
for this hospital. Through their service and sacrifice, they've earned
the best medical care our country can offer, and every effort must be
taken to deliver that care as promised. Anything less is simply not
acceptable.
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