[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
DEPARTMENT OF VETERANS AFFAIRS LEASES: IS THE VA OVERPAYING FOR LEASED
MEDICAL FACILITIES?
=======================================================================
(114-54)
HEARING
BEFORE THE
SUBCOMMITTEE ON
ECONOMIC DEVELOPMENT, PUBLIC BUILDINGS, AND EMERGENCY MANAGEMENT
OF THE
COMMITTEE ON
TRANSPORTATION AND INFRASTRUCTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
SECOND SESSION
__________
SEPTEMBER 28, 2016
__________
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COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE
BILL SHUSTER, Pennsylvania, Chairman
DON YOUNG, Alaska PETER A. DeFAZIO, Oregon
JOHN J. DUNCAN, Jr., Tennessee, ELEANOR HOLMES NORTON, District of
Vice Chair Columbia
JOHN L. MICA, Florida JERROLD NADLER, New York
FRANK A. LoBIONDO, New Jersey CORRINE BROWN, Florida
SAM GRAVES, Missouri EDDIE BERNICE JOHNSON, Texas
CANDICE S. MILLER, Michigan ELIJAH E. CUMMINGS, Maryland
DUNCAN HUNTER, California RICK LARSEN, Washington
ERIC A. ``RICK'' CRAWFORD, Arkansas MICHAEL E. CAPUANO, Massachusetts
LOU BARLETTA, Pennsylvania GRACE F. NAPOLITANO, California
BLAKE FARENTHOLD, Texas DANIEL LIPINSKI, Illinois
BOB GIBBS, Ohio STEVE COHEN, Tennessee
RICHARD L. HANNA, New York ALBIO SIRES, New Jersey
DANIEL WEBSTER, Florida DONNA F. EDWARDS, Maryland
JEFF DENHAM, California JOHN GARAMENDI, California
REID J. RIBBLE, Wisconsin ANDRE CARSON, Indiana
THOMAS MASSIE, Kentucky JANICE HAHN, California
MARK MEADOWS, North Carolina RICHARD M. NOLAN, Minnesota
SCOTT PERRY, Pennsylvania ANN KIRKPATRICK, Arizona
RODNEY DAVIS, Illinois DINA TITUS, Nevada
MARK SANFORD, South Carolina SEAN PATRICK MALONEY, New York
ROB WOODALL, Georgia ELIZABETH H. ESTY, Connecticut
TODD ROKITA, Indiana LOIS FRANKEL, Florida
JOHN KATKO, New York CHERI BUSTOS, Illinois
BRIAN BABIN, Texas JARED HUFFMAN, California
CRESENT HARDY, Nevada JULIA BROWNLEY, California
RYAN A. COSTELLO, Pennsylvania
GARRET GRAVES, Louisiana
MIMI WALTERS, California
BARBARA COMSTOCK, Virginia
CARLOS CURBELO, Florida
DAVID ROUZER, North Carolina
LEE M. ZELDIN, New York
MIKE BOST, Illinois
------ 7
Subcommittee on Economic Development, Public Buildings, and Emergency
Management
LOU BARLETTA, Pennsylvania, Chairman
ERIC A. ``RICK'' CRAWFORD, Arkansas ANDRE CARSON, Indiana
THOMAS MASSIE, Kentucky ELEANOR HOLMES NORTON, District of
MARK MEADOWS, North Carolina Columbia
SCOTT PERRY, Pennsylvania ALBIO SIRES, New Jersey
RYAN A. COSTELLO, Pennsylvania DONNA F. EDWARDS, Maryland
BARBARA COMSTOCK, Virginia DINA TITUS, Nevada
CARLOS CURBELO, Florida PETER A. DeFAZIO, Oregon (Ex
DAVID ROUZER, North Carolina Officio)
BILL SHUSTER, Pennsylvania (Ex VACANCY
Officio)
CONTENTS
Page
Summary of Subject Matter........................................ iv
TESTIMONY
Rebecca Shea, Acting Director, Physical Infrastructure Issues,
U.S. Government Accountability Office.......................... 3
James M. Sullivan, Director of the Office of Asset Enterprise
Management, U.S. Department of Veterans Affairs................ 3
Chris Wisner, Assistant Commissioner for Leasing, Public
Buildings Service, U.S. General Services Administration........ 3
PREPARED STATEMENTS SUBMITTED BY WITNESSES
Rebecca Shea..................................................... 25
James M. Sullivan................................................ 39
Chris Wisner..................................................... 56
SUBMISSIONS FOR THE RECORD
James M. Sullivan, Director of the Office of Asset Enterprise
Management, U.S. Department of Veterans Affairs, responses to
questions for the record from the following Representatives:
Hon. Mark Meadows of North Carolina.......................... 47
Hon. David Rouzer of North Carolina.......................... 52
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
DEPARTMENT OF VETERANS AFFAIRS LEASES: IS THE VA OVERPAYING FOR LEASED
MEDICAL FACILITIES?
----------
WEDNESDAY, SEPTEMBER 28, 2016
House of Representatives,
Subcommittee on Economic Development,
Public Buildings, and Emergency Management,
Committee on Transportation and Infrastructure,
Washington, DC.
The subcommittee met, pursuant to call, at 10:34 a.m., in
room 2253, Rayburn House Office Building, Hon. Lou Barletta
(Chairman of the subcommittee) presiding.
Mr. Barletta. The subcommittee will come to order. I want
to thank the witnesses from the Government Accountability
Office, the Department of Veterans Affairs [VA], and the
General Services Administration [GSA] for being here today.
The purpose of today's hearing is to make sure medical
facilities are delivered quickly and cost effectively so that
our veterans can receive the medical care that they require.
Now, the Transportation and Infrastructure Committee is
involved because the Public Buildings Act requires all leases
over $2.85 million to be authorized by our committee and the
Senate Environment and Public Works Committee.
Now, GSA can delegate this leasing authority to other
agencies, but it cannot waive the requirement for congressional
authorization. Providing quality health care to our veterans is
my top concern. Our men and women in uniform put their lives on
the line to protect our country and our freedoms. Medical
facilities, whether owned or leased, are a critical part of
delivering healthcare services. Unfortunately, the VA has
struggled greatly to require health care facilities on time, on
budget, and in compliance with the law.
The VA's new Colorado hospital is so far over budget and
behind schedule that the Army Corps of Engineers has had to
take over management of the project. And the VA's leasing
program has been too slow and out of compliance with the Public
Buildings Act and the most basic Government accounting rules.
Both the GAO and the VA inspector general have detailed a
history of VA's mismanagement of its real estate. In fact, in a
2012 letter from the House Veterans' Affairs Committee to the
VA, the committee expressed concerns about the ways that the
VA's seven healthcare clinic leases passed in 2009. In 2013,
the inspector general reported VA's management of timeliness
and costs in the healthcare clinic lease procurement process
has not been effective.
On top of all this, the Congressional Budget Office at OMB
raised serious questions about how the VA has been accounting
and budgeting for these leases. Unfortunately, as highlighted
at our July hearing, many agencies with leasing authority,
outside of GSA, do not understand the legal limits of their
authority. We have seen agencies like the SEC and the Commodity
Futures Trading Commission find themselves in serious trouble
because of this. Exceeding the legal limitations can result in
Anti-Deficiency Act violations, which have criminal penalties
and significant project delays.
In 2013 and 2014, OMB raised serious questions whether the
VA had, in fact, exceeded its leasing authority. As a result,
the administration directed the GSA to step in. GSA must ensure
the VA's leases are properly authorized and do not violate the
Anti-Deficiency Act.
On September 12, 2014, the committee officially received a
letter from the VA requesting approval of six leases for their
healthcare clinics, recognizing projects over GSA's threshold
of $2.85 million required this committee's approval. The
committee approved them 5 days later despite having to gather
updated information to evaluate costs.
It has now been 2 years since this committee approved those
six leases, and we have not received any new prospectuses for
healthcare clinics since then. We understand there are eight
additional leases requiring our authorization that were
included among the 27 leases in the 2014 Choice Act. Because of
this committee's role in approving these leases, the committee,
along with the Veterans' Affairs Committee, requested GAO
conduct a review of the VA healthcare clinic leasing.
Specifically, the GAO examined a few key areas. One, the
criteria VA uses to determine whether to lease or own medical
facilities. Two, the accuracy of VA's cost estimates for
projects. And, three, how the VA is aligning its leasing
process with that of the GSA.
Today, we want to hear what improvements have been made and
what still needs to be done to make sure that the VA medical
leases are cost effective and comply with the law.
We also want to receive updates on the previous six
projects we authorized in 2014 and a timetable on when we will
receive the additional eight. With all the issues the VA is
grappling with to ensure our veterans are served in a timely
manner, the VA should take full advantage of the opportunity to
leverage GSA's real estate expertise.
I look forward to hearing more from our witnesses on these
issues. Thank you.
I now call on the ranking member. Before that, I ask
unanimous consent that Members not on this subcommittee be
permitted to sit with the subcommittee at today's hearing,
offer testimony, and ask questions. So be it.
And now I call on the ranking member of the subcommittee,
Mr. Carson, for a brief opening statement.
Mr. Carson. Thank you, Chairman Barletta, and thank you for
your leadership.
Prior to 2014, the VA used their own real estate authority
to sign leases for medical facilities. However, the VA in
consultation with the Office of Management and Budget, later
determined that it did not have legal authority necessarily to
enter into multiyear leases. The VA now relies on GSA's
authority to execute these leases. In 2014, this committee
approved six prospectuses submitted by GSA on behalf of the VA.
These six medical facility leases were the first of their kind
to be approved by the committee.
Now, typically, these facilities include mental health
clinics, readjustment counseling centers, research, and other
types of clinical spaces. Because the VA is working with the
GSA to execute these leases, they have now come before this
committee for approval. Although we approved the first six
leases, Chairman Barletta and I and members of the Veterans'
Affairs Committee thought it was appropriate to request GAO's
study to the VA's choices in managing its real property assets.
While we want to support the VA's efforts to provide
essential health care to our country's veterans, it is also
important that this committee have some assurances that the VA
is managing its real estate assets as efficiently as possible.
Every dollar saved in a real estate transaction is a dollar
that can be redirected to supportive services for veterans, an
important priority for every Member of Congress.
I look forward to today's testimony from the VA, GSA, and
GAO on how this program is being managed and how improvements
can be made going forward.
Thank you, Chairman. I yield back.
Mr. Barletta. Thank you.
On our panel today we have Ms. Rebecca Shea, Acting
Director of Physical Infrastructure Issues, Government
Accountability Office; Mr. James M. Sullivan, Director of the
Office of Asset Enterprise Management, United States Department
of Veterans Affairs; and Mr. Chris Wisner, Assistant
Commissioner for Leasing, Public Buildings Service, General
Services Administration.
I ask unanimous consent that our witnesses' full statements
be included in the record.
Without objection, so ordered.
Each of you is now recognized for 5 minutes. And, Ms. Shea,
you may proceed.
TESTIMONY OF REBECCA SHEA, ACTING DIRECTOR, PHYSICAL
INFRASTRUCTURE ISSUES, U.S. GOVERNMENT ACCOUNTABILITY OFFICE;
JAMES M. SULLIVAN, DIRECTOR OF THE OFFICE OF ASSET ENTERPRISE
MANAGEMENT, U.S. DEPARTMENT OF VETERANS AFFAIRS; AND CHRIS
WISNER, ASSISTANT COMMISSIONER FOR LEASING, PUBLIC BUILDINGS
SERVICE, U.S. GENERAL SERVICES ADMINISTRATION
Ms. Shea. Thank you. Good morning, Chairman Barletta,
Ranking Member Carson, and members of the subcommittee. I am
pleased to be here today to talk about GAO's review of VA's
practices for leasing major medical facilities. VA operates the
largest healthcare network in the U.S. with over 2,700
facilities, nearly half of which are leased. Many of VA's
facilities are aging, and to replace them and expand access to
veterans, VA has increasingly turned to leasing rather than
construction and ownership to provide these important services
to veterans.
Over the past 10 years, the number of medical facilities
leased by VA grew to just under 1,300 facilities, 57 of these
were major medical facility leases, spaces with average annual
rent in excess of $1 million.
Today, I will discuss our June 2016 report, the focused on
factors affecting VA's decisions, cost estimating process, and
alignment with GSA requirements.
Turning, first, to the factors effecting VA's leasing
decisions, we found that VA leases major medical facilities,
because leasing can more quickly result in a finished facility
and because it provides VA flexibility to relocate at the end
of the lease term, which is limited to 20 years. In fact, VA
cited flexibility to move in all of its major medical lease
proposals since 2015, including some in which VA estimated the
construction of its own facility would be less costly.
According to VA, moving supports changing priorities such
as meeting requirements for veterans access and changing
security and compliance standards. As we have noted in our past
work, disposing of federally owned facilities can be difficult,
suggesting a certain level of support for VA's argument for
this flexibility. However, VA does not assess whether or how it
has actually benefited from this flexibility when justifying
its leases.
In our June report, we recommended that VA annually assess
how it has used the flexibility afforded by leasing and provide
this information to Congress in its annual budget submission.
Doing so would enhance the transparency of VA's decisionmaking
and provide Congress with important information it needs for
authorizing and funding decisions. VA agreed and plans to do
this moving forward.
Turning to VA's cost estimating process for leases, we
found VA's process met several but not all of GAO's standards
for reliable cost estimates.
In particular, VA's process was comprehensive and well-
documented, but it did not account for common and sometimes
large variations between the estimate and actual facility cost.
In fact, for 18 of the 23 leases we reviewed, the actual lease
costs were at a minimum 15 percent above or below the initially
proposed lease cost usually because of changes to proposed
design.
For example, actual cost for VA's San Francisco facility
were 26 percent over the estimated cost while actual cost for
the Montgomery, Alabama, facility were 44 percent below the
original estimate. Providing Congress with more accurate
estimates would support its authorization in funding decisions.
Accordingly, VA recently issued a new design guide to
reduce the risk of changes after proposing leases to Congress
as well as a lessons-learned study to identify improvements for
its cost estimating process. However, it is still early, and
the success of these initiatives or leases currently in the
pipeline will depend on how well VA implements them.
Lastly, we found that VA has made progress meeting GSA
requirements for delegated leasing authority. For example, as a
result of VA's new training and management review process, GSA
is now able to approve VA's proposals more quickly. However,
few of VA's high-cost leases have gone through GSA's approval
process, and their complexity can make it more difficult to
align with GSA's requirements.
In closing, VA should begin implementing our
recommendations by collecting the information it needs to
assess how it has used the flexibilities afforded by leasing.
Doing so will enhance the transparency of VA's decisionmaking
process and provide both VA and Congress with data to make the
most informed decisions.
VA should also monitor whether its recent changes such as
the design guide, lesson learned, and management review process
are working as intended so they can make timely adjustments if
necessary.
Thank you, Mr. Chairman. This ends my prepared statement,
and I look forward to your questions.
Mr. Barletta. Thank you for your testimony.
Mr. Sullivan, you may proceed.
Mr. Sullivan. Good morning, Mr. Chairman Barletta, Ranking
Member Carson, and members of the subcommittee. I am happy to
be here today to discuss how VA provides critically needed
healthcare services to veterans through a wide variety of
leased facilities. The Department maintains approximately 155
million square feet in more than 6,000 owned buildings as well
as 33,000 acres of land. In addition to our own facilities, VA
has approximately 2,000 leased facilities totaling 25 million
square feet.
VA's portfolio is one of the largest in the Federal
Government and provides a significant amount of health care to
veterans in these leased facilities. In our leased facilities,
we provide primary care, mental health, and specialty services,
such as ophthalmology, oncology, endocrinology, cardiology,
pulmonology, podiatry, neurology, just to name a few.
We also provide pharmacy services, radiology and imaging
and same-day outpatient surgery in some of our larger clinics.
Today, I ask for your support to help provide these
services to our veterans. VA is requesting the committee's
approval of eight pending leases that represent an additional
capacity over 1.2 million annual visits to these clinics for
our veterans. These eight leases are needed to ensure that VA
has the right sized facilities in place to serve veterans with
the right services and in the right locations where veterans
want them.
Leasing is a critically important tool that allows VA to
provide services to veterans. Leasing provides flexibility in
lieu of constructing owned assets to meet veterans needs.
Leasing enables VA to quickly respond to healthcare advances
and to adopt important--more importantly, to changing medical
technology in order to provide state-of-the-art health care to
veterans. Meeting the ever-changing pace of medical advancement
is a constant challenge for any medical system, and VA finds
that leasing versus owning provides one of the most flexible
approaches to meet that challenge. Leasing also allows us to
rapidly adjust to current and future demographic shifts in
changing service demands for our veterans.
VA clearly doesn't need more owned legacy assets to address
our outpatient access needs. We have enough of old and obsolete
facilities, we do not want to add any more to our current
portfolio.
For leasing, VA has the ability when these assets become
unneeded or obsolete or do not meet current medical practices
to walk away at the end of the lease term. In addition to these
8 leases we are requesting the committee's action on, VA has 24
additional medical leases that are pending congressional
action. These critically needed leases will replace, expand, or
create new outpatient clinics, research facilities, and provide
more than 2.7 million more annual healthcare visits for our
veterans and enhance our research capabilities nationwide.
As VA works to meet the challenge of addressing these
changing and ongoing demand of health care, these leases, both
the eight we mentioned earlier on and the 24, will go a great
way to help meet these needs.
As you were aware, VA relies on the authority and has for
the last 20 years that is delegated from GSA to enter into all
lease agreements. VA depends on its partnership with GSA to
obtain individual delegations, to make operating leases
feasible to provide services. Our agencies have worked to make
improvements, and the delegation process has evolved over the
last 2 years.
I want to thank GSA for their partnership and their help in
having us move forward with these leases and to provide
services to our veterans. They have been more than a willing
partner in this effort.
VA is also pleased that GAO in its 2016 report recognized
the important need for medical leasing and the flexibility that
leasing provides VA. As stated in the report, GAO recognized
that leasing allows VA to align its infrastructure more easily
with changing healthcare needs. The report highlights some of
the improvements VA has made while operating under the GSA
lease delegation process and suggests other agencies can
implement other processes.
VA fully plans to address the GAO recommendations in terms
of further articulating in our budget submissions to Congress
via advantages of the flexibility leasing provides, as well as
addressing some of the technical recommendations involving cost
estimating.
We have agreed to do that and are working with the lessons
learned effort to implement and consult with GAO as we
implement those recommendations.
As VA works to move the pending leases forward, VA is open
to any and all suggestion from the committee or from anyone
else of how we can improve your process so we can speed the
delivery of healthcare services to our veterans and their
families.
I am here with my colleagues to answer any question that
you may have or any member of the committee may have. Thank you
for your time, and we appreciate the committee's support for
our veterans and their needs.
Thank you, Mr. Chairman.
Mr. Barletta. Thank you. Thank you for your testimony.
Mr. Wisner, you may proceed.
Mr. Wisner. Yes, sir.
Good morning, Chairman Barletta, Ranking Member Carson, and
members of the committee. I am Chris Wisner, the Assistant
Commissioner for Leasing at the General Services Administration
Public Buildings Service. I appreciate being invited here today
to discuss GSA's efforts to provide cost effective and suitable
leased space for our partner Federal agencies including the
Department of Veterans Affairs.
GSA's mission is to provide the best value in real estate
to the Government and to the American people. GSA currently
manages an inventory of almost 400 million square feet.
Approximately half of this is leased space comprising more than
8,300 active leases across the country. GSA seeks to provide
space that assists our partner agencies in achieving their
missions while best serving the public interest. GSA's
prospectus process starts with requirements development where
GSA works with customer agencies to define their space needs.
As part of the administration's goal to maximize the use of
Federal assets and eliminate unneeded and excess real estate,
GSA first looks to the existing Federal inventory of owned and
leased space to meet those needs. If existing space is not
available, GSA determines whether Federal construction or
leasing is the appropriate space delivery method. This
determination balances the mission needs of the customer,
market parameters, resources constraints, and fiscal
responsibility to the public.
If leasing is the chosen alternative, GSA continues to work
with partner agencies to further define its program
requirements, which includes a comprehensive housing plan,
identification of delineated area, and an estimated space
utilization rate. The prospectus process also requires market
research to establish rental rates. GSA conducts its
procurements using prevailing market rates as the benchmark for
the evaluation of competitive offers to ensure that GSA rates
are in line with the private sector.
After we complete this thorough process, GSA submits a
prospectus and supporting documents for projects that exceed
$2.85 million.
In 2014, the VA began relying exclusively on GSA's
delegated authority to conduct its leasing activities. Some of
the VA's request for delegated leasing authority are above the
GSA's prospectus threshold. GSA will submit prospectuses to
this committee and to the Senate Environment and Public Works
Committee.
The initial delegation request from VA required a number of
revisions to comply with GSA's delegation program requirements
both in form and substance. As delegation requests above GSA's
prospectus threshold were not within the normal delegation
program management, there was no standing GSA process for
considering such an authorization. GSA and the VA have worked
together to ensure VA's documents are in line with similar GSA
prospectus submissions.
GSA supports VA's mission to provide assistance to veterans
and their families. From June of 2014 to September of 2016, GSA
has granted the VA 761 leased delegations, of which 96 percent
have been granted routinely under GSA's standing delegation
program. Only 4 percent, or 27 of those delegated leases, have
exceeded the square foot limitation that requires action by the
GSA Administrator. Only 6 of those 27 exceed the $2.87 million
prospectus threshold.
The Choice Act was enacted in 2014 to provide new
authorities and funding to continue VA's mission, including
statutorily authorizing the Secretary of Veterans Affairs to
lease medical facilities in 18 States and Puerto Rico. Out of
these 27, there are 8 remaining that are above GSA prospectus
threshold. The committee's help is needed in providing GSA with
resolutions for those projects, and we plan to submit this
package in the upcoming weeks.
As we move forward in our partnership, VA and GSA are
working closely to ensure VA projects comply with GSA's
policies and practices. With VA's expertise, discipline and
structure can be applied to market rate justification for VA
prospectuses. Furthermore, as part of strategic planning, VA
and GSA can identify opportunities for VA to backfill existing
underutilized and vacant space instead of initiating new leased
actions.
Chairman Barletta, Ranking Member Carson, and members of
the subcommittee, GSA is dedicated to meeting the requirements
of all of our partner agencies in an efficient, transparent,
and user-friendly manner. We will continue to support the VA in
their mission of providing assistance to veterans and their
families.
Thank you for the opportunity to testify before you today,
and I am happy to answer any questions.
Mr. Barletta. Thank you for your testimony.
I will now begin the first round of questions limited to 5
minutes for each Member.
If there are any additional questions following the first
round, we will have additional rounds of questions as needed.
Mr. Sullivan, in September of 2014, this committee approved
six VA leases, which were above GSA's prospectus threshold.
What is the status of each of those leased projects, and have
they all been awarded, and when will they be completed and
open?
Mr. Sullivan. Sure. There were six leases that the
committee approved back in 2014. Five of the six have been
awarded. The last one is Rochester, New York, which should be
awarded in the first quarter of 2017, based upon my information
from the contracting officials.
The first one Springfield, Missouri, was awarded in
February 28, 2016, and we expect to have it open in the spring
of 2018. Butler, Pennsylvania, was awarded in December 2014. We
expect to accept the building in the summer of 2017. San Jose,
California, was awarded in September 2015, and we expect
acceptance in the winter of 2017. South Bend, Indiana, this
lease was awarded back in July 2015, and we expect to accept
the building again in the summer of 2017. Mobile, Alabama, was
awarded on August 18th, 2016.
I will be happy to provide the committee with all the
specific dates and milestones for each of these leases.
Mr. Barletta. Thank you.
Mr. Sullivan and Mr. Wisner, what steps has VA taken since
2014 to work with GSA to prepare the additional eight leases
that are above GSA's prospectus threshold for approval by this
committee? Where are those leases in the process? And when can
we expect them to be efficiently submitted? And why have they
taken so long?
Mr. Wisner. I will take the first part of that.
So, sir, we have the full packages from the VA in hand
currently. They were received in final form July the 26th, I
believe. We are in the process of processing those and testing
them for operating leased--the operating leased threshold. I
expect we will have them through our stakeholders and with
signature for submission to this committee in coming weeks. I
would say in 7 to 10 days.
Mr. Sullivan. Yes, Mr. Chairman. We have worked with GSA
since that time to establish several efforts to improve the
product they received from us and the timeliness of the product
that we provide them. We have set up a central clearing house
that reviews all the leases that go over to GSA. We set up a
peer review to make sure that the products are of top-notch
quality that go over to GSA. And I think that's been
demonstrated in the quick turnaround time that we have an
average of 20- to 25-day turnaround time for leases that don't
require external approval.
We have also set up tracking systems so in VA we know where
every single lease is, both our leases that are in the
procurement chain that GSA sees but also all of our existing
leases. So for the first time, we have a complete inventory of
all leases in process that are executed, all leases that are
operating, and all leases that are in the procurement process,
as well as all leases pending congressional action.
We have also set up an integrated budget tool for the first
time in 2017, and it will be reflected in our 2018 estimates to
Congress where we allocate the funds and track the funds based
upon the schedules of our 1,200 leases of when we will need the
money, and what year we will need the money, and whether we
need capital money or we need the FTE associated with it.
So we have a really, I think, a good handle on what our
requirements are and what--importantly, what is the liability
of those requirements as we go out in time. Because as we have
seen, as many of the members that are on the Veterans' Affairs
Committee have seen, an influx of significant workload. We have
put our leases in place and have predicted what the liability
of those leases will be in 2017, 2018, 2019, 2020. We do it out
5 years now, so that is a big improvement that we started to
address the leasing.
We have also set up internal training sessions. As you
imagine, VA is a very complex organization, spread across the
country. And many of our small leasing below $1 million is done
in the fields, so it is important for us to train and provide
expertise, and GSA has helped us do that to those people who
are actually executing the leases.
So I think we have taken a lot of steps. It is not perfect
by any means. And as we go through the various budget estimates
that come out each year, we get a little bit better a little
refiner and we integrate our data and provide a better estimate
to Congress of our liabilities.
Mr. Barletta. Why do you think they have taken so long?
Mr. Sullivan. On the eight that are coming up to the
committee now? Two reasons, really. When we submitted the last
batch, we took the ones based upon the priority of where they
were in development, how complicated they were. And the ones
that we knew were closest to award, we submitted to the
committee in the first six.
The last eight are probably the more complex, larger leases
where we had to do the market research, the planning for the
space requirements and the design requirements for those
leases, so those took a little bit more time. So it was more of
a priority of what we could get through and what we were ready
to present. We did not want to present the committee with an
incomplete package.
Mr. Barletta. How much of the delay is due to structuring
the leases to score as operating leases as opposed to capital
leases?
Mr. Wisner. So I don't believe that there is any delay in
the structure between a capital and operating lease. There is
full commitment from GSA and from VA that we will not bring
forward anything that has the potential to become a capital
lease. That was part of the controls that were put in place in
2014. I don't think that there is an adjustment that is made at
all. When there is the risk of a capital lease, we stop that
prior to any award. So there are several checkpoints along the
way, and ultimately, if we started to go down the path or VA
started to go down the path of coming close to a capital lease,
I think we will probably pause and take a look at that. But
right now I don't see any delay when we are--we have enough
discipline in our program that we do not move even close to
anything above an operating lease into the world of capital.
Mr. Barletta. Thank you.
The Chair recognizes Ranking Member Carson.
Mr. Carson. Thank you, Chairman Barletta.
Ms. Shea, in your testimony, you indicated that the VA has
not provided Congress with information that backs up their
conclusion that its choice to have lease--to lease these
facilities, which is more expensive than construction is
justified. What metrics do you think would be helpful for the
VA to consider, ma'am, convincingly to make their case to
Congress that leasing provides the flexibility that they
repeatedly claim?
Ms. Shea. Well, what we looked at in our report was the
process that VA goes through to decide if it should lease. We
looked at 51 leases that were proposed to see whether leasing
was the right approach. And in all 51 of those leases that we
reviewed, they indicated that they required the flexibilities
that come with leasing. And sometimes this could even be when
the choice to lease was more than the choice to own or
construct. This goes back to one of the reasons we made the
recommendation that VA does need to provide information on how
it has used these flexibilities.
For example, with the requirement that leasing has for the
VA to vacate after 20 years, are they--when they need to find a
new leased space--still leasing in the same area: are they
really having to move because the patient demographic has
changed; or are the seismic security and other standards really
not that different from when the lease ended?
So there are a lot of things that, on its face, seem like
the flexibility is useful for VA, but they aren't collecting
any of the information to demonstrate how it has used that
flexibility. Did they move? Did the patient demographic change?
Did the seismic and Federal security standards change? Did they
record that? Did they then show how they benefited from that
flexibility, and that they need that moving forward?
And so we made that recommendation to VA, and they have
agreed to do that and include that information in its
prospectuses going forward.
Mr. Carson. Yes, ma'am. Thank you.
Mr. Sullivan, what are the cost controls as the VA puts
together a program of requirements for a leased facility? Do
costs ever cause the VA to not lease or build a clinic because
it is simply too expensive?
Mr. Sullivan. VA develops a rigorous business case for each
of its leased actions. And in that, the business cases flow up
from the clinicians in the field who actually are delivering
care to the veterans. And we look at them to, first, look at
whether they need a capital asset in the first place. They look
at other alternatives before they look at leasing to see if
that is more cost effective or more appropriate to do, and then
they look at build, and then they look at lease.
In terms of the cost analysis, we look at what the industry
standards are. We look at what indices are showing of what
leases should cost adjusting them for some of the Federal
standards to ensure that we are submitting reasonable costs to
the Congress when we submit these proposals. And then when our
contracting folks execute it, they have to ensure that the
cost, the rental rates, we are paying for these leases are
reasonable.
One thing I would say on cost, Mr. Carson----
Mr. Carson. Sure.
Mr. Sullivan [continuing]. Is when you look at the real
estate costs of providing care to veterans, we did a little
analysis a few weeks ago. And looked at what we see in the
lifecycle of a lease. When you look at a lease when you are
providing care for veterans, the real estate costs of a lease
are less than 9 or 10 percent of what the cost it is to provide
care for veterans. When you really look at it, the real cost of
deciding to put a clinic in, it is the docs; it is the nurses,
it is the schedulers, it is all of those people that are there,
and the real estate costs are really the small amount.
So when we look at the consideration, we have always put
with the question by people, you know, you could have a real
estate solution that is 25 miles down the road that is $3
cheaper a square foot. But if the veterans, where they are,
where they live are 25 miles away, our alternative has always
been to put the clinic where the veterans are, closer to them,
even if there is a cost difference. We look at in the life of
the lease, it is more important to provide the right services
where the veterans are rather than to get, say, a primo real
estate deal 45 miles away. And we have had where people have
come in and said, hey, we could save you $10 a square foot if
you move 60 miles down the road. I guess you could, but the
people wouldn't have access to it.
The same thing in metropolitan areas. People are saying,
well, if you can move one, you know, the other side of New York
City, I could get you $3 off. Well, if the veterans are in
Manhattan, you are going to put it all the way out in Queens,
people in the area, that is a 2-hour commute difference. That
is a huge impact on veterans. We look at the costs that way as
well. Thank you.
Mr. Carson. Now that we are out of time, thank you for the
very deep explanation.
Sorry, Mr. Wisner, I won't get to you. But nice haircut. My
kind of guy.
Mr. Wisner. I try.
Mr. Carson. I yield back, Mr. Chairman.
Mr. Barletta. The Chair recognizes Mr. Meadows for 5
minutes.
Mr. Meadows. Thank you, Mr. Chairman. Thank you for your
leadership.
Thank you each of you for being here.
So, Mr. Sullivan, let me come to you, because I guess I am
a little confused when Ms. Shea says that the flexibility is a
big issue for you signing up for leases. And yet, you have not,
to date, provided that kind of information.
Mr. Sullivan. I think we are talking a little bit of
different levels of information. In the prospectuses that we
send to Congress, we articulate why we wanted to use leasing,
and we articulate the flexibility that----
Mr. Meadows. And why do you want to use leasing? Because
most of the build to suit, I understand as a private sector
guy, why you want to do that, you write off the expenses and so
forth. But from a public sector standpoint, if you are doing
build to suit, how in the world is that generally--because
normally, a lessor is going to write off the cost over a 20-
year lease of the entire cost in case you don't re-up, how is
that a benefit?
Mr. Sullivan. To us, it is a big benefit. When we look at
what we--when we provide outpatient services in a leased
facility over--most of our leases are 15 to 20 years. If you
look at the changes in medical technology, 20 years ago where
you are, you know, standard practice now is, for example, to
have a CAT scan, to have an MRI scan, to have some oncology
services----
Mr. Meadows. No. I get all that. I guess what I am saying
is if the cost of the lease covers the entire cost of
construction that you are paying for, and yet, you don't have
an asset at the end--it is kind of like a car lease. If you are
paying the entire--if the residual value is zero at the end of
the car lease and you don't own it, what is the benefit from a
public sector standpoint?
Mr. Sullivan. From a public sector standpoint is that we
don't have an obsolete, outdated facility at the end of 20
years that we have to go back in and retrofit if we owned it.
And we have, unfortunately, many of those facilities in VA, and
we don't want to add more to that stock.
Mr. Meadows. Apparently, we are missing at each other.
If you are covering 100 percent of your cost in the lease,
100 percent----
Mr. Sullivan. Correct.
Mr. Meadows [continuing]. All right? Even if it is
outdated, it becomes an asset that GSA has, and you can start
over again.
I was in the real estate business. I know it extremely
well. So I guess what I am saying is are you leasing at less
than the full cost of the build to suit? I mean, is there a
residual value there?
Mr. Sullivan. There is--depending upon the transaction,
there can be a residual value. But at this point, if we were to
build instead of lease and we--from the beginning, we would
need to have all of that money upfront. So right now, in a big
lease, say of 200,000 square feet, we are paying, say, $3
million a year in rent, or $4 million, depending on the market,
where it is. We would need to have $35 million----
Mr. Meadows. You are saying because we are not allocating
it upfront, you are actually using a lessor to do it over a 20-
year period?
Mr. Sullivan. In your example, yes.
Mr. Meadows. OK. All right. So what analysis have you had
from veterans in terms of location? What matrix do you use?
Mr. Sullivan. We have a detailed healthcare planning model
that goes all the way down to the zip code.
Mr. Meadows. Who gives you input for that?
Mr. Sullivan. It comes from external contractors that take
census data, utilization data.
Mr. Meadows. How many veterans do you talk to when you do
that?
Mr. Sullivan. I don't actually do that. We get that from an
office of healthcare----
Mr. Meadows. How many veterans do they talk to? Because
here is what happens is, is a lot of times we make decisions on
locations, and it is based on a perception. But sometimes we
don't actually get the input from those who are going to use
the facility. Do you not see a problem with that?
Mr. Sullivan. I believe there are two things I was saying.
We get overall projections of what the need is in the catchment
area for a clinic; i.e., based upon census data, veteran pop in
the future, and expected utilization. We then go down to the
clinicians at the local level. Those clinicians at the local
establish what is known as the delineated service area for that
procurement. They determine, based upon their knowledge of the
local market, the local preferences of veterans, and local
clinical availability of resources where the type, delineated
service area would be for where they believe those veterans
will come for services. That is going to be different based
upon each and every market. So they reach down. And they are
the ones who establish the delineated service areas.
Now, our folks here in Washington cannot, you know, come up
with a delineated service area, because they know what the
local market is and what the local----
Mr. Meadows. I agree. And so what you are saying, it is
going to be made at the local level not in Washington, DC?
Mr. Sullivan. Yes. Correct.
Mr. Meadows. So let me finish in the 23 seconds we have
left.
Let me ask you. As we start to look at these allocations,
how many times out of the 700 and some odd times that Mr.
Wisner had mentioned that has been delegated to you, how many
times have you actually left a location and gone to a new
location because of the flexibility that Ms. Shea talked about?
Mr. Sullivan. I would have to get for you, but I would say
numerous places that we have move----
Mr. Meadows. Could you get the number to the subcommittee
on that?
Mr. Sullivan. Sure. It would take a little bit of data, but
we could get that to you.
[The requested information can be found in Mr. Sullivan's
response to Mr. Meadows's question number 4 on page 49.]
Mr. Meadows. Thank you. I yield back.
Mr. Barletta. And that is why we have to reform our
disposal rules, and we have that in our bill. And the second
thing is we also in our bill have a discounted purchase option
which would allow you to buy, so I think they are very good
points by Mr. Meadows.
The Chair now recognizes Ms. Brownley for 5 minutes.
Ms. Brownley. Thank you, Mr. Chairman. I appreciate it.
Thank you. And thank you, Ranking Member Carson, for allowing
me to participate in this morning's hearing.
As the ranking member of the House Committee on Veterans'
Affairs Subcommittee on Health, I have been working for several
years now to address problems in the VA's construction and
leasing program. As we all know, changes in CBO's scoring have
made it incredibly difficult for the VA Committee to authorize
new facilities. This is not only frustrating to me as a Member
of Congress, but it is having a very negative impact on
veterans who are underserved.
This is not just about better access, but it is truly a
clarion call for equitable access for all of our veterans. I
have brought a list today that I would love to share with the
committee of 24 leases still caught in limbo for fiscal year
2015 and fiscal year 2017. These are 24 communities in 15
different States all across the country where veterans are
underserved and where veterans sorely need better access to
health care and are not receiving it. I am frustrated that
Congress has not yet resolved this issue that has dragged on
for several years now, an issue I think is a moral imperative
and unquestionably an equity issue.
I have introduced legislation to permanently fix this
problem and to harmonize the VA leasing process with the GSA
leasing process. This small procedure will make a big
difference in the lives of veterans who are waiting for and
rightfully deserve better access to care.
That brings me to my first question. Last year, the VA
Committee held a hearing on my bill, the Build a Better VA Act.
At the time, VA was not prepared to answer specific questions
regarding the administration's position on the bill. My bill
has been endorsed by several VSO's and the Commission on Care
has identified this as an area that needs to be addressed by
the VA.
So, Mr. Sullivan, has the VA now had time to review my
bill, and does the VA support this approach? And if you don't,
what is the VA's proposed long-term solution to addressing this
ongoing problem that we have with authorizing the facilities?
Mr. Sullivan. The VA does support your bill, and we support
your efforts to look at the streamlining of the authorization
process that is outlined in your bill.
Ms. Brownley. Terrific. That is very good news. Thank you
for that.
Ms. Shea, I appreciate the work that GAO has done to ensure
that the American taxpayers are getting a good value for their
dollar. I share the views of my colleagues that cost
effectiveness is an important tool for measuring value.
However, I also believe that when it comes to veterans' health
care timely access--timely access to high-quality care should
be our absolute highest priority.
So, Ms. Shea, did the GAO analyze the length of time that
it would take to build new VA healthcare facilities from the
ground up versus the amount of time it would take to build out
a leased facility?
Ms. Shea. We didn't look at the time to build or lease in
this report, but we did look at the time to deliver a facility
through leasing in the 2014 report. And we found that there are
still delays in that process, but most of those delays were in
the upfront side before they were delivered, and the delays
were on average 3.3 years. And we don't have comparisons to VA
construction, but based on some of the other construction work
that we have done, there are generally longer delays for
construction.
Ms. Brownley. Thank you.
You know, I certainly think timeliness is--you know, is
critically important in terms of--with the goal, the sole goal
of quality health care and access to that health care for our
veterans. So, you know, I understand some of the issues that
have been discussed here, but I also believe that getting a
leased facility to our veterans as quickly as we possibly can,
assuming that it is cost effective, is critically, critically
important.
And finally, Mr. Sullivan, from the perspective of the VA,
can you just describe, again--I know you have already said some
of this already, but what advantages does leasing have over
construction? You have talked about flexibility and timeliness.
And do you believe, still, that the option allows the delivery
of health care to happen more swiftly?
Mr. Sullivan. Yes. We believe leasing we can deliver there
quicker. We can put an asset in place quicker--sorry.
We believe that leasing provides a more expeditious way to
provide healthcare services to veterans. We believe leasing is
the right thing to do in terms of allowing us to change the
types of services we need if we--at the end of the lease or if
we have a shorter term lease. We believe technology is the big
driver in health care. And for us to be able to have a 20-year
old facility that took 2 years to plan, so 22 years out, that
that technology is going to change, especially in the area of
radiology, imaging, oncology, and those areas. It is night and
day what it was 20 years ago, and we need to be able to have
those facilities that have that up-to-date technology.
There are challenges with the leasing process, I don't
doubt that at all. But we believe that flexibility and also the
flexibility if we have a new cadre of veterans that come in
that demand new services that we don't know about today,
leasing will allow us to shift, to provide those services where
they are. And especially as we deal with some of the younger
veterans coming into--from the Persian Gulf wars and more
recently that their need for services are different and they
want them in a different time in a different place than people
who are from the World War II Vietnam era. So we need to
balance that as we go forward, and we think leasing provides us
flexibility.
There is a need for owned assets. I am not saying there
isn't. But in the outpatient arena where access is key, we
believe that that is important.
Ms. Brownley. Thank you, Mr. Chairman, for allowing me to
be here and allowing me to go over my time. I yield back.
Mr. Barletta. Thank you for coming.
The Chair now recognizes Mr. Costello for 5 minutes.
Mr. Costello. Thank you, Mr. Chairman.
Before I got here, I used to be a real estate lawyer, and I
used to negotiate leases. And it was not necessarily a fun
endeavor, but I did learn that it is very value added. And I do
think that the questions today are largely oriented towards
improving the efficacy of the leasing process, and that is what
we want to see. We just don't want to see us paying more money
than we should pay in a lease. And I think we also want a
cleaner analysis on, to Mr. Meadows's point, the valuation
between an outright purchase and--or build to suit versus a 20-
year lease.
And in looking, Ms. Shea, at your analysis here, it strikes
me that the issue that the VA is deficient in, relative to this
analysis, comes under the credible characteristic and, most
specifically, the conduct risk and uncertainty analysis.
And I find that to be consistent with the conclusion
without analysis criticism that we say, oh, it provides more
flexibility and so, therefore, we should do it. I happen to
think that it, in a lot of instances, leasing a medical
facility probably is the more prudent cost, because unlike a
lot of other real estate assets and office building, certainly
raw ground, with a medical facility, there is a functional
obsolescence after 20 years. And that you do run into negative
equity much quicker. I mean, in my home township, we have an
old mental health facility that, you know, 20 years later it
was still there, and it was negative $8 million on an
appraisal.
So for Mr. Sullivan, what I would like to hear from you is
what do you intend to do to address the shoring up the risk and
uncertainty analysis, which I think will go a long way toward
addressing Ms. Shea's report where the VA is deficient? The
other question that I would have for you, Mr. Sullivan, is
contained on page 10 of Ms. Shea's report which references the
fact that the VA plans to conduct a, quote, ``lessons-learned
study that could further improve how VA estimates its costs.''
And the final point I would make, and then I will turn it
over to all of you, is those of us who serve on the VA
Committee, and I think even beyond that, the delivery model for
caring for veterans is changing very rapidly, telehealth. We
have a facility in my district where a lot more is done that
way. And we look at the way e-health is able to provide
services. It just doesn't require as much physical space. And
some of it is space that once built can remain flex space.
So I would ask for your take on that. And I think that that
is part of the risk that I mentioned.
And in the final question I have for you, Mr. Sullivan--I
am sort of doing it all at once is, the report that McKinsey
issued in 2015 found that for larger built-to-suit medical
facilities, VA rents were 40 to 50 percent higher than private
sector benchmarks. I think that that brings back into the fold
of Mr. Meadows's point on, well, why don't we just do a build--
I mean, why not build to suit and own it if you are going to be
paying 40 to 50 percent higher? It is one thing if at the end
of 15 or 20 years, it's like, OK. We paid for it, and now we
are at zero and we have a facility, and maybe it is worth
something, maybe it is not. It is a whole other thing when you
are paying 40 to 50 percent over and above.
Then the final point, I am not so keen on--I mean, we have
enough examples on the VA Committee where VA construction
projects end up a whole heck a lot higher than they should,
which I think, points again, to leasing versus building. If it
is a 50-50 proposition, I think I would probably lean towards
the leasing.
I have said a lot. I turn it over to you for your comments
on my comments.
Mr. Sullivan. Sure. I will try and take them as I jotted
them down here. In terms of the cost lessons learned that GAO
recommended, what I believe that lessons learn is going to do
is, right now we treat each procurement, it goes through a
process. We do a fair and reasonable assessment before we
award. What we have from that result is we have individual
instances of costs. And I think what GAO is saying from a
portfolio perspective to take all of those costs as you get
them, roll them back into your estimating model.
Right now, it may or may not be done. It is not required,
so we have agreed comprehensively to do that. That data is
there. It is just a matter of us going forward and pulling it
forward.
The same thing on the risk in terms of whether we really
move out of these facilities or we really will use them. The
data is there in the decentralized environment. And we defer to
the locals. When we submit the budget, we can easily pull that
data, and we will do if for the committee that shows where we
have moved, whether we have upgraded the facility, or whether
we have stayed in place.
So I think the data is there for that, and that will really
inform, you know, how much risk are we really avoiding by doing
this.
I think everyone just intuitively and all the clinicians
intuitively live in these facilities day to day, and they know
there is no way that they should stay in that facility, not
only due to the changes in care, but the security, the
setbacks, and all of those things. We take them from their gut,
but we need to get the data to make it clear to everybody that
that is and that is fair, and we will do that as soon as we
can. We have it, just a matter of aligning it.
In terms of the McKinsey report, we will have to get you
more specifics on that. I believe some of the comparison made
in the McKinsey report was made to private sector healthcare
facilities that do not have some of the Federal requirements
that we have to handle. But we can get that for you. We are
familiar with it. It is a pretty thorough report, and we are
happy to provide you and the committee with that.
Mr. Costello. And that would be providing veterans care.
Mr. Sullivan. Right.
Mr. Costello. There could be some good explanations. I am
just looking for that.
Mr. Sullivan. Right. Because there is a big difference. Our
clinics and one of the things we talk about a lot is when you
compare an MBO medical office building to a VA clinic, they are
very different. And a lot of the benchmarking people use
against us are medical offices buildings and----
Mr. Costello. I understand.
Mr. Sullivan [continuing]. Apple to orange. But we are
happy to provide that to you. Thank you.
Mr. Costello. Thank you.
Mr. Barletta. The Chair now recognizes Mr. Rouzer for 5
minutes.
Mr. Rouzer. Thank you very much, Mr. Chairman.
And I want to follow up on my colleague, Representative
Costello's questions and your answer there.
I have a specific case, in Wilmington, North Carolina,
where we have our Wilmington VA clinic, basically, a brand new
building. There is a lot of concern among constituents and my
veterans in particular, about the--what they feel is an
outrageous figure that we are paying for that space, roughly to
the tune of $300,000 a month.
Now, I heard your answer there at the very end to
Representative Costello where you are saying--when you compare
the prime medical space elsewhere, it is not necessarily apples
to apples, perhaps apples to oranges. But when you consider the
fact that it is $300,000 a month, and the vast majority of my
constituents, they are probably thinking in terms of a 30-year
mortgage, and that is far and above the average 30-year
mortgage in my district. So there are a lot of questions about,
you know, how do we negotiate these leases, and are we just
absolutely being raked over the coals with this?
So if you can elaborate more on how you go through what
that process actually is.
And I am curious where GSA fits into this. Who actually
negotiates the lease? Is it GSA and with--in consultation with
the VA, or is it the VA with advice from GSA? If you can
explain how that works, I would be interested.
Mr. Wisner. So I will take the first question--or the last
question first.
Mr. Rouzer. Sure.
Mr. Wisner. GSA provides advice to VA. VA has their own
lease contracting officers who are trained to use the GSA
program, GSA forms, and the Government leasing process. So they
follow the FAR, the follow the GSEM; they follow all the rules
and regulations there are related to GSA. Part of this
relationship is if you use GSA's delegated leasing authority,
you follow GSA's policies and practices.
I must say that the program has improved significantly with
VA in the past 2 years. The centralization that Jim has been
speaking about on bringing the decisionmaking to a central
point and having prioritization and decisions made through that
has been extremely helpful, and I think there is more that you
will see in the near future.
So VA does their own negotiations. We oversee through a
delegation of authority, and then we do pre-award checks to
make sure they are not capital leases. We also do post-award
checks to ensure that they followed all the rules and
regulations, and then we do clean up actions afterwards if
necessary.
Mr. Sullivan. I can tell you have we have an entire
organization that, as Mr. Wisner referenced, is our contracting
elements that actually contract and do all of the solicitation,
the evaluation, and the selection of the winning proposers on
these. I know generally that they validate with benchmarks and
appraisals the rates that they pay. I am not that familiar with
that case. I would be happy to get you the information or
whatever way you want. I would be happy to sit down with you
and go through that so you can understand what the process was
in that particular case.
Mr. Rouzer. Well, I would very much like to get that
presented to the committee because that is a big question mark
in the minds of many of my constituents when they look at that
figure.
One thing, if you can expound on this a little bit, you
mentioned that you use prevailing market rates as you try to
negotiate these leases, but yet if you have a medical clinic
and you have no comparable, per se, facility to measure
against, how do those two mesh? I am not sure I follow that.
Mr. Wisner. So this is one of the most challenging things
that we have had to work with and are trying to understand more
of. GSA typically acquires general office space. The VA works
through a market analysis and then does a type of buildup to
get to a cost of what their hospital should be. There are lots
of questions back and forth between our program. We are trying
to understand more about how the VA establishes those costs,
and I know the VA internally is working on cost estimating and
improving the mechanism by which they do these cost estimates.
We have access to many databases, RF means, et cetera,
where we can look and validate on what the VA has. I think that
there is still room for improvement on this market rate
question, but what we have before us today is by far an
improvement over where we were 2 years ago.
Mr. Rouzer. My time is expired. Thank you, Mr. Chair.
Mr. Barletta. Thank you. The Chair now recognizes Mr.
Massie, for 5 minutes.
Mr. Massie. Thank you, Mr. Chairman. Last week Chairman
Mica had a good hearing about property and assets and how
difficult it is for us to dispose of them or turn them over
back to the private sector, so I can definitely see the
benefits of leasing, but I left that hearing with a question
and I still have that question in this hearing--it seems to be
coming up--which is how good is our database of properties,
leased and owned? Because some of the questions we are asking
today we could answer ourselves if we could get on a computer
and just query the database. We wouldn't even have to show up
to get some of these apples and oranges questions answered. We
could go into that database.
Mr. Sullivan, let me ask you first. How close are we to
having a full database of all the properties that, for
instance, congressional staff could look at?
Mr. Sullivan. I think there are two levels of data, as I
understand it. There is the Federal real property database that
is run by an outlet, and it is a little bit out of Mr. Wisner's
area, but GSA runs, which includes all Federal assets across
all agencies. I believe most of what is in there is civilian-
based data for civilian agencies, and I believe that
information has been and can be released to committees and
other people with interest. I am sure that we could find out
what the status with that is.
In addition to that, we have kind of a subsidiary database,
if you will, that has a little bit more granularity so we know
where all of our assets are, all of our leases are, so between
the two of those, I am sure we could provide any information
that you would want.
Mr. Massie. My next question on this topic is to Ms. Shea
and Mr. Wisner. You deal with property across various
Departments, not just the VA, is that correct, that is in your
jobs?
Mr. Wisner. Yes, across the Federal Government.
Mr. Massie. So my question to both of you then--so I assume
you do as well, based on your title, Ms. Shea--how does the VA
database compare, because I am sure the DOD has maybe a
different type of database, and I am sure there are certain
Departments that maybe keep more information about let's say
the constraints on the property if it ever were to be released
to the public or something like that.
But how does the data on the buildings that we have within
the VA, leased and owned, compare to the data in other
Departments? Are they doing a better job or worse job?
Mr. Wisner. Yeah. So I have not looked at the database that
the VA has internally. I mainly work with the FRPP, which is
the Federal Real Property Profile database. I believe that the
majority of the property that VA controls is fed into the FRPP,
so it would be difficult for me to comment on something that I
haven't seen yet on the VA database.
Mr. Massie. Ms. Shea.
Ms. Shea. Right. And that is a bit outside of the scope of
this review, but we have in our other work for real property
used the FRPP and looked at that extensively. And perhaps at
the hearing that you are referring to, my colleague Mr. Wise
mentioned that there are fewer than half of the Federal
properties that are in that database because if you have
independent leasing authority, you won't be in that database.
So VA is in that database, but we didn't look to see how its
own internal database for properties compares to the FRPP.
Mr. Massie. It just strikes me that if the data was out
there, you would almost sort of have crowd sourcing monitoring
and reporting of this that it would just happen, and you would
have realtors combing through that database, looking for, OK,
in 3 years, this property is coming up and the Government is
going to want to dispose of it. I think it would be handy to
have the lease information in that database, particularly if
the bill we are talking about here is going to allow sort of a
purchase agreement at the end. That way we do want to compare
apples to oranges when we look at should we buy that property
at the end of the lease. So we want to have a comparable
database for the lease stuff, wouldn't you think, Ms. Shea?
Ms. Shea. I think GAO is always in favor of having
centralized data that we can look at, so yes.
Mr. Massie. All right. I am in favor of that, too, and I
yield back my remaining 30 seconds.
Mr. Barletta. Thank you. I am going to start a second
round. I just have one or two more questions.
Ms. Shea, the GAO noted that the VA has made progress in
meeting GSA's requirements. Can you highlight key challenges
that there may be?
Ms. Shea. When VA first started going to GSA for delegated
leasing authority, they had a bit of a learning curve. And
since that time, they have done three key things, including, as
Mr. Sullivan mentioned, a management review process so that
every single one of the proposals--before it gets put into the
database--gets reviewed to make sure they have got all the
right documentation. They also ensure that all of their
contracting officers received this training that they needed to
understand GSA's requirements and to make sure that they had
all the documentation at the ready.
And lastly, according to both GSA and VA, there is a lot
greater coordination among the two, and there are, for example,
weekly meetings to discuss the issues. I guess the issue for us
is that they have implemented this process, and that is all a
very good thing. But that is mostly for the lower, the non-
prospectus-level leases. They have applied that to those. It
may be harder to make sure that the prospectus level leases are
in alignment with GSA's requirements. And so it is something
that they are just going to have to test and see how well it
works and continue to monitor those new practices and make sure
that they are working for the larger leases as they move
forward.
Mr. Barletta. Mr. Sullivan, in your analysis as to whether
to lease or own a medical facility, how does the VA take into
consideration existing space that may be available?
Mr. Sullivan. When we do a procurement for a replacement
lease or an expansion, and many of our leases not only replace
what is there, but they expand it, we look first to see if
there is an existing asset somewhere that we can do. We also
check with GSA. As Mr. Wisner said, we are just as happy if we
can find a Federal building that has space that is located
where veterans are, to us it doesn't--unless there is some
special need in that clinic that can't fit within a Federal
building--or a lease that GSA has that has come free because
another tenant doesn't want it, if there is someone who can use
it, we are more than happy to take that.
So we look at existing first because it is going to be
usually in a lot of cases if the bare requirements for our
lease don't have a lot of specialties in it, we could move in a
lot quicker, which means that we can provide services quicker,
and that is what we want to do. So we use that as our first
look in the procurement process and in the process of
delegation to GSA. When we don't find ones there, we do go out,
and they end up going through the procurement process.
Mr. Wisner. Sir, we have several examples where this
methodology has worked. We have had a number of vacant spaces
where we have aligned with the VA. They have been able to move
into the space in a more quick fashion. These are the smaller
C-box, and I call them retail spaces so obviously not large
prospectus-level leases that you would see, but in the
operations we have seen quite a few number of leases where we
have been able to backfill.
Mr. Sullivan. It should be noted all of our nonmedical
leasing, I mean, we do not portray to have significant
expertise in nonmedical leases. So all of our nonmedical
leases, whether they are for cemeteries, veteran benefits, or
overhead leases, are all done by GSA, as they should be.
Mr. Barletta. Thank you. I have no further questions.
Ranking Member Carson.
Mr. Carson. Mr. Wisner, in January of 2016, the VA issued a
new standard design that covers the different types of
facilities that the VA procures. The GAO indicated that design
changes are the main drivers of increases of costs for a
facility. The committee previously tackled the issue of
courthouses spiraling out of control with increases related to
deviations from the design guide for courthouses. What are
appropriate reasons for the VA to deviate from the design guide
that they have completed, and would you recommend that our
committee resolutions require congressional notification if the
VA departs from the design guide at all?
Mr. Wisner. This is probably a two-person question, but I
will start off. As I understand it, the VA has established some
standard types of hospital and delivery mechanisms which can be
categorized, and I just call them like the big three, the types
of hospitals or types of locations that they need to acquire.
That will help a lot in the world of standardization. I don't
know necessarily if we need to go to the level of notification
to Congress if they deviate. You might look at it from a
standpoint of risk. How much have you deviated, and how much of
a notification do we require around that? But I think the
standardization is going to go a long way.
Many of our customer agencies--I am working with the United
States Coast Guard right now--are moving toward standard
platforms of what we will acquire other than individual one-
offs across the portfolio. So standardization is, I think,
something that we should push more, and we should look for that
discipline across the entire portfolio.
Mr. Sullivan. I agree with Mr. Wisner. We are doing three
types of standardization. At the lowest level we are doing
something called patient-aligned care teams where we set up
modules where we predesign what services will be provided and
create standardized areas where outpatient services are
provided, and we set them up in teams. So you can get one
module, two modules, six modules. You build on it.
The second thing we are doing is we are doing a prototype
what we are calling, what Mr. Wisner referred to, we have a
small, medium, and large prototype for outpatient clinics
trying to standardize that process. And then the third effort,
which is less mature than those two, is we are looking at all
of our contract documents and all of our contract standards
that we have out there for building and designing and trying to
reduce and make them, to the extent we can, more aligned with
what private sector practices are in the healthcare practice,
which is an ongoing effort, and we do have a lot to go on that
effort, but we believe that is what we need to do to bring us
more in align and lower cost. And we are pushing forward to do
that, probably on new leases in the coming years, to look at
standardizing that more to make it easier for the private
sector to come in. Thank you.
Mr. Carson. Thank you. I yield back, Mr. Chairman.
Mr. Barletta. Thank you. The Chair recognizes Mr. Rouzer.
Mr. Rouzer. Thank you very much. You may have answered this
when I had to step out, but I am just curious. What is the
percentage of those facilities that are leased versus owned at
the VA, security slip that is overall?
Mr. Sullivan. We have about 25 million square feet leased
and about 158 million owned, and the lease has significantly
increased while the owned has held steady, or we are trying to
move it down.
Mr. Rouzer. Got you. At what point in time did you change
your focus to leasing versus owning?
Mr. Sullivan. I don't know if we completely changed our
focus, but if we look back about 5 years ago, we had a major
change in the way we provided health care, maybe a little bit
longer, but we shifted more to the outpatient area. That is
when the leases, say, 10 years ago started to take off because
we wanted to move it to the outpatient setting, closer to where
veterans are, not in the hospital. So we kind of have focusing
on us a perfect storm that VA is coming through.
We have a whole series of leases that started 10 or 15
years ago that are all becoming mature, and we need to move
out. At the same time, as everyone in our world knows, we have
been hit with an unprecedented workload increase, which require
new clinics because we don't have the capacity. So you have the
expiring old ones and the new ones and then updating all of the
new ones for technology and security and safety, so we kind of
have this large cloud that is coming at us, and that is what we
are trying to work through.
Mr. Rouzer. Got you. Going back in my memory bank, and this
goes back to when this issue at VA clinic in Wilmington came to
light, and we were paying roughly $300,000 a month. I remember
being told by somebody somewhere--the specifics I don't recall
precisely--but basically that they did not look at prevailing
market rate. They looked at other comparable VA facilities or
other Government-owned facilities elsewhere in the country. And
so initially when I was listening to you, I was trying to
reconcile that with the comment about you do look at market
rate.
And then, of course, in response to Representative
Costello's question, market rate really doesn't apply if you
don't have a commensurate, you know, facility in the area. So I
am kind of going back in my mind on this, and I am thinking to
myself, OK, maybe what I was told originally actually is
accurate, that they don't look at prevailing rate, or they
didn't look at the prevailing rate in the Wilmington area and
looked at other VA facilities elsewhere.
I am just curious. This facility is roughly 85,000 square
feet from what I understand. So basically we are paying $3.50
or so per square foot. This pretty much has all the services
that can be provided at a VA facility. Do you know off the top
of your head how that compares with another facility elsewhere
in the country?
Mr. Sullivan. Earlier, I don't know the particulars of that
transaction. I will be happy to get it for you. I know as a
matter of policy we try and use benchmarking from existing
prevailing rates somewhere else with a like facility.
Mr. Rouzer. Now when you say somewhere else with a like
facility, where is somewhere else?
Mr. Sullivan. Well, in a reasonable area. The contracting
officer decides within a reasonable area, is there a comp that
is there. And in some cases, as I referenced earlier, there are
no comps. I mean, we have places where we put a clinic; there
is no healthcare comp anywhere near it. So then they look to
see is there an office comp that you can build up off of, and
in some cases there might be an office comp and there may not,
and they may have to go further away. So it is really market
driven.
So I don't think there is inconsistency in the answer
because in some cases we have straight comps; you can use them.
Others you have an office comp that you build up, and others
you will have to go further away. But I don't know the
particulars in that case, and we will just have to get it to
you.
Mr. Rouzer. Well I have to say for the record it is been
very, very difficult for my office to get any transparency at
all with the VA on this in terms of comparable rates and how
this was negotiated, and I would very much appreciate if you
all can provide some transparency there, because there are a
lot of folks in my district, and rightly so, including myself,
that would like to know.
Mr. Sullivan. I will take it back to the contracting folks
and get them in contact with your office.
Mr. Rouzer. Thank you very much. I yield back.
Mr. Barletta. Thank you. I would like to thank you all for
your testimony today. Your comments have been helpful in
today's discussion.
If there are no further questions, I would ask unanimous
consent that the record of today's hearing remain open until
such time as our witnesses have provided answers to any
questions that may be submitted to them in writing and
unanimous consent that the record remain open for 15 days for
any additional comments and information submitted by Members or
witnesses to be included in the record of today's hearing.
Without objection, so ordered.
I would like to thank our witnesses again for your
testimony today. If no other Members have anything to add, this
subcommittee stands adjourned.
[Whereupon, at 11:49 a.m., the subcommittee was adjourned.]
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