Questions mount on VA cost overruns

“Good riddance.” That was the two-word statement issued by U.S. Rep. Jared Polis (D-Colo.) on hearing the news that Glenn Haggstrom, the Veterans Affairs Department chief of acquisition, logistics and construction, had resigned last week.

Haggstrom had become the face of the controversy over huge cost overruns and delays on four large VA hospital projects in Aurora, Colo., Orlando, Fla., New Orleans and Las Vegas. Those projects have seen their costs mushroom between 66% and 487% and their openings delayed by 14 to 86 months.

Haggstrom’s resignation came after VA Deputy Secretary Sloan Gibson told Congress on March 17 that the cost of the Aurora hospital, under construction on the Anschutz Medical Campus outside Denver, had increased by $930 million to $1.73 billion and that the VA needed Congress to approve another $830 million to complete the project.

But Rep. Jeff Miller (R-Fla.), chairman of the House Committee on Veterans’ Affairs, said Congress “will not authorize another dime until VA gets its construction affairs in order. VA must generate a deficit-neutral plan to pay for these options. The department owns this mess, and it’s not fair to force taxpayers to bail out the bungling bureaucrats who created it.”

Dennis Kaiser, healthcare market sector leader for the Boston office of Perkins & Will architects, said large projects like the VA facilities have to be constantly reviewed to ensure their scope is still aligned with their budgets. He said checkpoints need to be established that allow for course correction if projects go astray. His firm, he said, employs two independent estimators to assess whether designs will match their budgets.

“The crystal-balling of where prices are going is more of an art,” Kaiser said. He added, however, that history and data can be used to develop a reasonable schedule that can account for changing circumstances.

Richard Galling, president and chief operating officer of healthcare developer Hammes Co., said common mistakes that lead to runaway costs include approving projects before their scope is defined and the potential risks are thoroughly reviewed, and basing expense projections on faulty market assessments or incomplete cost information.

Colorado’s congressional delegation released a statement that condemned the cost overruns and delays but also expressed support for getting the Aurora project completed.

Rep. Mike Coffman (R-Colo.) introduced a bill in January that would cap spending on the new Aurora facility at $1.1 billion. The bill also would “fire” the VA from managing any future construction projects costing more than $10 million and turn that responsibility over to the Army Corps of Engineers. It also calls for the Government Accountability Office to find out when senior VA officials knew about “excessive cost overruns” on the Aurora project and why that information was withheld from Congress.

A House Committee on Veterans’ Affairs hearing to explore options on how to proceed with the Aurora hospital is scheduled for April 15.

The GAO has chronicled the problems experienced with these projects in reports released this past January and in April 2013. The reports said the Aurora and Orlando projects were first envisioned as joint ventures between the VA and local academic medical centers, but that they were later changed to stand-alone facilities; those decisions contributed to significant cost increases. For the Aurora project, the GAO said the VA had concerns about sharing a facility and governance with the University of Colorado and also about space limitations.

The GAO also said the Aurora site had to mitigate problems caused by asbestos in existing buildings, a swimming pool that had been built over, and a previously undetected underground spring that required water to be constantly pumped away from the site.

The Las Vegas facility originally was considered a clinic expansion of a facility shared with the Nellis Air Force Base. Costs increased 80% after it was decided to build a stand-alone facility. The GAO also noted that after designs were completed on a mental-health ward in Las Vegas, the VA released new guidelines on mental-health facilities and the space had to be redesigned to meet those guidelines.

The eventual site of the Orlando project, the Lake Nona Medical City development, is the third location for which the project has been designed. A primary-care clinic opened there in February, and a phased opening of the rest of the facility is underway but may not be complete until next year.

On the New Orleans project, the GAO said massive rebuilding in that city after Hurricane Katrina added to labor and material costs of that facility.

Experts say, however, that none of these issues should have created such massive delays and additional expenses. “Communication is at the heart of most of these types of problems,” Kaiser said. “If any agency doesn’t have a clear point of direction or someone who can respond to issues quickly, problems occur.”