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Witness Testimony of Robert L. Neary, Acting Executive Director, Office of Construction and Facilities Management, DVA

Chairman Johnson, Ranking Member Donnelly and members of the Subcommittee, I appreciate the opportunity to testify on the Department of Veterans Affairs (VA) contracting practices for leasing and specifically on the Savannah, Georgia, Outpatient Clinic (OPC) lease procurement as a case study.  My testimony will outline the lease process/procurement used by VA as well as address the reasons for the changes required in the procurement of space for the Savannah OPC.

Savannah Appraisal

I would like to update information VA previously provided to the Committee. 

In response to a series of questions from the Subcommittee in December 2011, VA provided an incorrect appraisal for the targeted relocated Savannah Outpatient Clinic site.  Instead of referencing a 46.85 acre site, VA inadvertently referenced a 16.85 acre location.  The appraiser failed to identify that the deed of sale and the tax records did not reflect the same information. 

Since learning of the discrepancy, VA immediately requested a revised appraisal and provided an update to the Subcommittee on March 2, 2012, acknowledging the error.  VA is contracting for another certified appraiser to review the initial appraisal, and provide a determination regarding fair market value of VA’s preferred site as of Spring, 2010.  Finally, VA is also obtaining a new appraisal that reflects the current land value of the site.  VA will review all the appraisal reports concerning the targeted parcel in Savannah in order to determine what appropriate corrective action may be warranted.

I want to emphasize that VA only uses appraisers who maintain appropriate licensure and accreditation, in addition to adherence to the Uniform Appraisal Standards for Federal Land Acquisitions, which is standard operating procedure. 

I would like to apologize to the Committee for the delay in uncovering the facts and provide assurance that responses to future inquiries will be more thoroughly investigated.

General Leasing Information

Acquisition of space through lease is an important component to ensure that VA has adequate health care facilities to serve our Nation’s Veterans.  VA currently leases approximately 13.4 million square feet in support of the health care system. 

Beginning with the fiscal year (FY) 2012 budget cycle, decisions on whether to move forward with a lease project are an outcome of VA’s Strategic Capital Investment Planning (SCIP) process.  When analyzing lease projects, SCIP considers several factors, including facility and access requirements, availability of existing facilities and space, safety and security needs, and cost.  Lease project submissions include the completion of an Office and Management and Budget (OMB) exhibit 300, in accordance with OMB Circular A-11, Part 7.  The OMB-300 includes a cost benefit analysis of potential solutions, including evaluation of maintaining the status quo, constructing new space, and leasing.  The information enables VA to determine how to best use available resources for capital investments.  

There are specific approval thresholds for the acquisition of SCIP-approved facilities through lease.  A lease with an annual rent over $1,000,000 requires specific congressional authorization under 38 U.S.C. § 8104(a)2.  Smaller leases, with an annual rent between $300,000 and $1,000,000, require approval by the Secretary of Veterans Affairs.  Leases exceeding 10,000 square feet with annual rent under $300,000 require approval by the Executive Director, Office of Construction and Facilities Management.  Leases that are less than 10,000 square feet, under $300,000 in annual rent, and a 10 year term or less, are delegated to the Veterans Integrated Services Networks for approval. 

The lease acquisition process is typically conducted as a best value competition, and is always in accordance with the Competition in Contracting Act, the General Services Administration Acquisition Regulation, and other applicable laws and executive orders.  The best value process awards projects to the contractor that best meets a combination of price and technical qualifications.  Technical qualification criteria are identified in the Solicitation for Offers (SFO), and are evaluated by a team of qualified professionals, including architects and engineers.  The price component of an offer is also evaluated by qualified professionals, including technical and contacting staff.  This method results in performance-based accountability, as well as a full and fair competition.

For large leases, VA prefers to use a two-step process for obtaining a built-to-suit lease-based medical facility.  Step one is obtaining an assignable option to purchase a suitable site, and step two is competitively procuring a developer.  Step one is initiated by VA determining a delineated geographic area and issuing an advertisement for sites.  The preferred site is competitively selected by a market survey team composed of VA employees with experience in various disciplines such as real property, engineering, environmental issues, and clinical or program management.  The market survey team uses a standard set of criteria that includes an array of factors such as evaluation of the surrounding area, accessibility, availability of utilities and amenities, and the natural conditions of the site.

As part of step one, VA is also required to conduct certain due diligence activities in the areas of real estate, including a title report, survey, geotechnical survey and appraisal; and comply with the National Environmental Policy Act (NEPA), the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA); and Section 106 of the National Historic Preservation Act (NHPA).  During this stage, VA also conducts negotiations with the landowners, based on the appraised determination of fair market value, in order to reach a purchase price.  Once a price is agreed upon, VA and the landowner execute an assignable option to purchase the site.  This option is later assigned from VA to the developer selected in step two.  When all of the due diligence requirements are satisfied, the assignable option and all due diligence documentation become part of the SFO package in step two.

Step two is the competitive procurement seeking a developer to purchase the land identified in step one, and build the facility to VA specifications.  Wide competition is sought during the procurement process to ensure reasonable rental rates.  VA works with an Architectural/Engineering firm and the local VA users to determine the specific technical requirements of the clinic.  These requirements are made available to the potential offerors in the SFO.  The offerors are typically allotted 45 days to submit their offers to VA.  Once the offers are received, VA establishes a Technical Evaluation Board (TEB), which evaluates each offer by a set of pre-determined criteria.  VA also conducts a price evaluation.  Based on these evaluations, VA establishes a competitive range of offerors, negotiates with the offerors within the range, and requests Final Proposal Revisions from those offerors.  The TEB is then reconvened to review any new technical data before the Contracting Officer determines which offer presents the best value to the government.  The lease is then processed for award.

Savannah OPC Information

The current lease of 34,760 square feet for the Savannah OPC was activated in September 1991.  Because the existing lease was due to expire in 2011, and due to the growing demand for health care services, VA determined that a new lease for the Savannah OPC was required.  Current lease action for the Savannah OPC began at that time, and preceded use of the SCIP process.  The original lease expired in 2011; however, VA continues to occupy this space through a succeeding lease executed in July 2011.  This was necessary to maintain operations until a new space is procured and activated.

In FY 2009, Congress authorized $3,168,000 for a new 38,900 square feet OPC in Savannah, Georgia.  The $3,168,000 includes $1,029,000 for the first year’s rent, plus a one-time lump sum payment of $2,139,000 for special purpose medically-related improvements. 

The original requirement called for 38,900 square feet of space for the Savannah OPC. However, in 2009, the Charleston VA Medical Center, Savannah’s parent facility, raised its request to 55,000 square feet, based on an increased projection in workload, the need for enhanced mental health services, the addition of optometry, audiology, and radiology services, new physical security requirements, and the need to support and implement VA’s new Patient Aligned Care Teams (PACT) initiative at all sites.  This updated scope was based on an evaluation of current workload data and seems to be a reasonable solution to provided needed medical care to Veterans in the Savannah area.  The updated scope is reflected in VA’s current SFO.

PACT provides accessible, coordinated, comprehensive, patient-centered care, and is managed by primary care providers with the active involvement of other clinical and non-clinical staff.  PACT allows patients to have a more active role in their health care and is anticipated to be associated with increased quality and patient satisfaction, and may lead to a decrease in hospital costs due to fewer hospital visits and readmissions.  It also calls for the delivery of a full complement of mental health services, such as compensated work therapy and mental health intensive care management.

VA received proposals in November 2011, based on the updated space requirements.  The current market-based pricing indicates a cost that exceeds by more than 10 percent, the amount authorized by Congress in FY 2009.  Accordingly, per 38 U.S.C.

§ 8104(c), VA must now submit a notice to the Committees on Veterans’ Affairs of VA’s intent to proceed with the lease contract.  VA is in the process of finalizing the notice, and intends to award a lease contract.  In addition to the increase in size, the increase in rent takes into account VA’s increased environmental sustainability and physical security requirements, which were updated since the preparation of the original authorization request.  Barring any unforeseen circumstances, VA expects to award this lease in June 2012, complete construction in June 2014, and activate for service shortly thereafter.

In closing, we look forward to the completion of the facility and to providing care to Veterans in Savannah, Georgia. 

I look forward to answering any questions the Committee has regarding the Savannah CBOC expansion.