What Went Wrong with the VA Denver Medical Center? – Why $888 Million Over Budget?

In the beginning, this project was an exciting one, building a new hospital complex for veterans to replace the aged Denver Medical Center in the Eastern Colorado Health Care System. Unfortunately, it has basically turned into a nightmare. New estimates are showing the final costs are now going to be $1.675 billion dollars.

The Repercussions:

  • $888 million-111% over budget.
  • Original completion date in 2013, now slated for final completion in early 2018.
  • Budget issues resulted in the Community Living Segment of the project being scratched (the original cost for this was assumed to be about $45 million).
  • Other components had to be eliminated also for budget reasons.

Congress Demands Answers

Congress has demanded answers as to why this has happened, and the Veterans Administration (VA) Office of the Inspector General has responded with a detailed report. This report basically outlines the setbacks and escalated costs that were due to the following factors:

  • Poor management and leadership at all levels of the VA .
  • Poor processes for planning and design of the project, as well as the acquisition of services, constructability, and change orders.

This is just another example of what can go wrong with any project, and, unfortunately, this one was a large-scale venture that has suffered greatly because of the factors identified above, in addition to others.

These pitfalls can be avoided, as I have shown in my book titled AVOID THE PITFALLS: Finish the Building On Time, On Target and On Budget!

THE PROBLEM: LACK OF A SYSTEMATIC APPROACH

From the very beginning of the VA project, there was not a consistent project planning and management approach. This lack of planning and management resulted in a dramatic and overwhelming increase in costs, which directly affects the taxpayers, and results in a major delay in veterans’ ability to access the services and upgraded facilities.

The Solution: AVOID THE PITFALLS: Finish the Building On Time, On Target and On Budget!

Principle #1

The goal of any project is to achieve success based on a set price. The project has to be completed on time, and in order to accomplish this, all parties must have an organized approach for the critical components of the project. This approach includes planning, design, construction, and occupancy/operations. The optimal approach is a defined process like that featured in my book, the PPMA process, to plan for and stay abreast of the factors that might impact the progress, performance, and price of the building(s).

THE PROBLEM: PROJECT MANAGEMENT

The original ideas (the conceptual plan) including the size, and design of the project were constantly being changed by senior VA management. In addition, the designed was not properly monitored. VA management rushed in with the construction option without waiting for the design to be completed, and there was not enough staff for the key areas of the project.

The Solution: AVOID THE PITFALLS: Finish the Building On Time, On Target and On Budget!

Principle #2

The project manager/owner representative must take control of the entire project. The project manager must be consistent in overseeing and directing the activities of the team. The project manager is responsible for developing with the team a realistic schedule and not rushing to construction without proper documentation. The core team; the PM, the architect and the contractor need sufficient management staff to move the project forward.

THE PROBLEM: THERE WAS NOT AN EFFECTIVE CORE PROJECT TEAM

The contracting method used for the project called for the general contractor and designer to be able to work together with the VA early on the project. It mandated, properly, that the construction contractor be able to troubleshoot potential issues, keep the costs of change management down, and speed up the construction process. This would mean alterations and changes in the design could have been implemented in a manageable way. This was not done in this project, as the contractor did not enter the project until after the completion of the schematic designs. Unfortunately, there were a string of different project managers assigned to the project and not in place long enough to oversee the entirety of the project.

The Solution: AVOID THE PITFALLS: Finish the Building On Time, On Target and On Budget!

Principle #3

It is always advisable for unique, large, or difficult projects to have not only the architect but the contractor brought in during the very early stages of the project. This allows for early input from these professionals, and it allows them along with the PM to create a teamwork spirit at the early stages. The owner should have a designated PM and if there is indeed staff turnover make sure there is a smooth transition and that the replacement PM is properly trained and experienced.

THE PROBLEM: COST SAVINGS AND CONTROL

In the VA project, it was not verified that the design plans would allow for staying on budget.  There was no reconciliation of design costs vs. the cost estimates from the construction contractor. Furthermore, the project managers did not act on ways to reduce costs.

The Solution: AVOID THE PITFALLS: Finish the Building On Time, On Target and On Budget!

Principle #4

The finalization of the budget should be done as close to the completion of the design process as possible and if you can wait until construction bids are in, even better! The early segments of the project planning phase yield only cost estimates. Hiring an independent cost estimator and bringing the contractor in early will help to create more realistic figures. Also, have a formal process for soliciting cost reduction suggestions from team members at all stages of the project so you can act on them when they are the least costly and distributive to the schedule.

THE PROBLEM: THE OVERALL DESIGN

The designs were not scrutinized properly and costly changes in the designs were not identified. For example, at one point the exterior wall service area was increased, which in turn increased the costs. Costs were increased because VA management approved the design of small buildings vs. a larger contiguous structure. Also, having a curved wall design increased the construction costs.

The Solution: AVOID THE PITFALLS: Finish the Building On Time, On Target and On Budget!

Principle #5

Test the architect and probe if indeed they are creating a beautiful and functional space within the expense level of the design as originally conceived. Do this in the early stages of the design. Require options with associated cost comparisons to see if there is an alternative that is just as pleasing that results in less costly construction.

THE PROBLEM: CUSTOM DESIGN

The design details escalated the costs in the VA project. It was indicated that about $30 million was paid for curtain walls over and above the cost of a standard wall system.

The Solution: AVOID THE PITFALLS: Finish the Building On Time, On Target and On Budget!

Principle #6

Style factors are important however every attempt should be made to stay away from more expensive custom products. The Project Manager must review the architect’s plans concerning elements that are custom and consult with the contractor about price premiums they identify because of custom elements. Request the use of standard products and systems whenever possible.

THE PROBLEM: CONSTRUCTION DRAWINGS

There wasn’t one complete set of drawings produced by the architect before the construction commenced.

The Solution: AVOID THE PITFALLS: Finish the Building On Time, On Target and On Budget!

Principle #7

A complete set of documents must be available for the contractor. The complete drawings are necessary for accurate costing and to help limit the number of change orders because the construction plans are ambiguous.

THE PROBLEM: SITE WORK

There was a design for three levels of underground parking, but the water below the water table was toxic and required treatment. There were other site challenges on top of that issue. As a result, a redesign of the garage area was necessary, which caused a 10-month delay and pushed additional delays down to other construction segments.

The Solution: AVOID THE PITFALLS: Finish the Building On Time, On Target and On Budget!

Principle #8

With a project such as the VA project, it is imperative to anticipate that the problems are “in the ground” and there are unknowns that will have to be considered when determining the design and cost estimates. It is important to have a sufficient contingency to handle these unknowns.

THE PROBLEM: PROJECT CHANGE ORDERS

In total, the VA project included 1,080 change orders. The sheer volume of change orders was a challenge for the VA to handle. A multi-level review process for approval was mandated by the VA and was done with inconsistent timelines, no set standards, and not enough staff to handle them. Project delays and over $44 million in cost escalations were the result.

The Solution: AVOID THE PITFALLS: Finish the Building On Time, On Target and On Budget!

Principle #9:

If the plans are complete from the start, then fewer change orders will be necessary. There should be a system in place for the written authorization for change order approvals that will be efficient and manageable by the team. Reviews and authorizations should be able to be done in a timely manner to prevent unnecessary delays in the construction process. Some change orders are to be expected no matter what, so budget funds to handle this unknown as part of the contingency.

CONCLUSION

The VA project was riddled with mistakes and cost overruns. However, as can clearly be seen, the solutions for the prevention and handling of these issues are defined in my book, AVOID THE PITFALLS: Finish the Building On Time, On Target and On Budget! We can change the current perception and unfortunate reality that most building projects are “out of control” by educating the community about the necessity of using the Project Planning and Management Approach (PPMA) outlined in the book.

Reference:  “Department of Veterans Affairs-Review of the Replacement of the Denver Medical Center, Eastern Colorado Health Care System, 15-03706-330” VA Office of the Inspector General, Issued September 21, 2016.

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