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Witness Testimony of Donald H. Orndoff, U.S. Department of Veterans Affairs, Director, Office of Construction and Facilities Management

Mr. Chairman and members of the Committee, I am pleased to appear today to discuss the VA’s healthcare construction program, and specifically the processes we use to plan, design and construct state of the art healthcare facilities.  In August 2007, I was honored to be appointed the Director, Office of Construction & Facilities Management (CFM).  In this capacity, I am responsible for the execution of VA’s major construction program.   My new assignment in the VA follows over 29 years of service as an officer in the Civil Engineer Corps of the United States Navy.  Joining me today are Mr. Robert Neary, Director, Service Delivery Office, CFM, Ms. Patricia Vandenberg, Assistant Deputy Under Secretary for Health for Policy and Planning, and Ms. Brandi Fate, Acting Director, Capital Asset Management Planning Service.  Let me begin by briefly reviewing the status of VA’s construction program for health care.

The Department is currently engaged in the largest building program since the immediate post-World War II period.  This program represents implementation of the results from the Capital Asset Realignment for Enhanced Services program or CARES which was initiated system wide in 2002 and produced initial results announced in May 2004.  At that time, 30 major construction projects were approved and funded in whole or part.  In subsequent fiscal years, six additional projects have been submitted for funding in budget requests.  The total cost of these projects approaches $5 billion and $2.83 billion (including Hurricane Supplemental Funding) has been appropriated between FY 2004 and FY 2007.  The FY 2008 budget now before the Congress requests an additional $560 million in major construction for infrastructure improvement for the veterans health system.  These projects are in various stages of design and construction.  I am pleased to note that construction contracts have been awarded on 18 projects.

The minor construction program is also an important part of addressing infrastructure needs of the health system identified by CARES.  Since FY 2004,  $1.08 billion has been appropriated (including Hurricane Supplemental Funding) and an additional $180 million is requested in the FY 2008 budget. 

VA has a real property inventory of over 5,000 owned buildings, 1,100 leases, 32,000 acres of land and approximately 158 million gross square feet (owned and leased).  As the CARES process revealed, the average age of VA facilities is well over 50 years old, and many of these older facilities are not designed or constructed to meet the demands of clinical care in the 21st century.  VA's management of these assets is critical to providing health care and services to our veterans.

Implementing an aggressive real property management program includes use of a disciplined capital investment and planning process, development of tools, processes and methods for improved inventory and analytical capability and innovative acquisition methods.  VA uses internal and external benchmarks and best practices, monitoring portfolio performance on a quarterly basis.  VA conducts condition evaluations, evaluating a third of VHA facilities each year.   VA effectively manages its vast holding of capital assets through performance monitoring and analysis, supporting the President’s Management Agenda and Federal Real Property Council efforts to decrease underutilized and vacant space, improve facility condition, decrease operating costs and reduce non-mission dependent assets.  In FY06 and FY07, VA disposed of 77 and 43 buildings, respectively.   Forty-eight buildings are planned for disposal in FY08.  In addition to disposals, VA also uses its authority under the Enhanced Use Program to engage the private sector and other public entities in the adaptive reuse and development of unneeded property with lease consideration flowing to VA.  VA develops energy savings performance contracts designed to reduce energy consumption in federally owned facilities, reducing the demand and dependence on natural resources.  Further, VA integrates energy and real property initiatives and programs.  VA plans to implement energy metering, bill auditing and commodity purchasing for improved efficiency and effectiveness of both real property and energy management.  VA’s energy pilot is scheduled for implementation in FY08. 

VA utilizes a multi-attribute decision methodology enabling a disciplined decision making approach in prioritizing its capital investment needs and requirements.  Through this methodology, VA establishes its 5 Year Capital Plan.  The 5 Year Capital Plan is a living document that reflects the changes in the composition and alignment of VA’s assets.  The plan is the document used to describe the selection of VA’s capital acquisitions and funding requests by incorporating a formal executive review process. 

This process begins with Veterans Health Administration (VHA) strategic planning initiatives that identify capital needs based upon demographic data, workload, actuarial projections, cost effectiveness, risk, and alternatives.  Once a potential project is identified, it is reviewed and scored based on criteria VA considers essential to providing high quality services in an efficient manner.  The criteria VA utilizes in evaluating projects include service delivery enhancements, the safeguarding of assets, special emphasis programs, capital asset priorities, departmental alignment, and financial priorities.  The new funding requirements are considered, along with existing CARES decisions, in determining the projects and funding levels to request as part of the VA budget submission.  Appropriate projects are evaluated for joint needs with the Department of Defense and sharing opportunities.

Selected projects based on VHA strategic process are vetted through the Department’s Capital Investment Panel (CIP) to ensure all projects are based upon sound business and economic principles, promote the one-VA vision, align with VA strategic goals, address the Secretary of VA’s priorities, and support the President’s Management Agenda.  The CIP analyzes and scores these projects and submits the results to the Strategic Management Council (SMC) for consideration.  The SMC is VA’s governing body assigned the responsibility to oversee VA’s capital programs and initiatives.  The SMC reviews the projects and submits its recommendations to the Secretary, who makes the final decision on projects to include in the budget.   

Identification of capital needs through the Secretary’s decision occurs annually.   Major capital investment needs are requested from facilities in October, prioritized through each Administration and the Departmental review process, and vetted for the Secretary's approval by the following summer.  Under the current process, once a decision has been made to include a project in the Department’s budget, the design process begins with the selection of the design architect.  The traditional design process consists of three phases – schematic design, design development and construction document preparation.  While the timing varies with the size and complexity of the project, design typically takes 18 months.  Once design is complete, the construction contractor is procured and construction begins.  Approximately one-third of VA projects are executed using the design build method in which a contract is awarded to an architect/engineer (A/E) and construction contractor team who take a preliminary design provided by VA and completes the design and constructs the projects. 

The Department utilizes standard industry practices in the design and construction of VA facilities.  The architectural and engineering firms that design facilities for VA are selected in accordance with established laws and regulations.  We are pleased that highly qualified A/E firms with health care practices compete to be selected as VA designers.  These firms are on the cutting edge of modern health care design for state-of-the-art medical care facilities for the private sector as well as for VA.

Construction contractors are often selected using a combination of quality factors and price.  Contractors that are selected through a negotiations process are evaluated based on their experience and track record in constructing similar facilities from both a corporate perspective as well as the company’s specific personnel that will be managing the VA project and the firms' proposed project management plan.

VA benefits from its reliance on private sector architects, engineers and contractors.  Selection of the top firms in the nation brings to VA’s construction program the highest quality of expertise in healthcare design and construction.  VA is also expanding the support received from the private sector through the use of Construction Management (CM) firms for VA’s largest projects.  These firms bring extensive expertise in managing large projects to support VA’s major construction efforts.  The first of these contracts has been implemented on the project to construct a new VA Medical Center in Las Vegas.  Other projects that will benefit from the use of private sector CM are Orlando, New Orleans and Denver.

VA’s construction program is not without challenges.  The rising cost of construction has had a significant impact on VA since 2004.  This is not a problem unique to VA, but has similarly affected all government and private sector organizations with construction requirements.  Cost growth is largely attributable to the robust economy in the United States and around the world.  The demand for labor and building materials continues to outpace the supply.  Coupled with rising fuel prices and the impact of the hurricanes of 2004 and 2005, building programs of all types have experienced significant cost growth. 
As VA monitors the industry, we regularly learn of major corporate capital projects which are postponed or cancelled because of the price.

Another challenge in the construction process is attracting competition for VA major projects.  The large volume of construction in most markets makes it extremely difficult to attract significant competition.  It has not been unusual for only one or two bidders to compete for VA work during the past 18 months and this lack of competition has diminished the likelihood of good pricing.

VA is taking a number of steps to minimize the impact of these circumstances on the construction program.  VA regularly conducts market surveys in the cities where we have upcoming work in an effort to better predict the costs we will encounter, and the labor supply that will be available.  In our budget estimates we now vary the escalation rates included based on the current and predicted construction activity in individual markets.  We are working with the contracting community to improve their awareness of upcoming VA projects and to attract their interest in performing VA work.  VA is also reviewing the planning process to identify improvements that can be made to insure that when VA commits to a budget cost, a full and compete understanding of the project requirements is known and included in the budget estimate.    

In closing, I would like to thank the Committee for its continued support for improving the Department’s physical infrastructure to meet the changing needs of America’s veterans, and we look forward to continuing to work with the Committee on these important issues.

Again, thank you for the opportunity to appear before the Committee today and my colleagues and I would be glad to answer your questions.