The Department of Veterans Affairs has agreed to let the U.S. Army Corps of Engineers oversee its troubled hospital construction project in Aurora, a representative of U.S. Rep. Mike Coffman said Wednesday.
Contractor Kiewit-Turner on Tuesday walked away from the project after a federal board of appeals ruled that the VA had breached its contract.
Kiewit had previously said the Corps of Engineers’ takeover of the project was a requirement if the company was to stay. The other requirements were that Kiewit be paid in full for past work and that the two sides “agree on a delivery model based on Federal Acquisition Regulation cost reimbursable principles.”
The announcement that the Corps of Engineers will oversee the project does not mean that Kiewit-Turner will agree to continue the work.
Meanwhile on Wednesday, Colorado lawmakers were scrambling to bring the sides back to the negotiating table.
Coffman, R-Aurora, said members of the Colorado delegation met with VA officials in the office of U.S. Sen. Michael Bennet, D-Colo., while lawmakers made phone calls to Kiewit-Turner.
He said VA officials want to bring Kiewit-Turner back to the project with a short-term contract as they hammer out a long-term funding deal.
Although it was uncertain Wednesday how the VA would cover the new costs, there were at least some options, Coffman said.
These include finding money within the VA itself or tapping into a reserve fund for federal agencies that’s available in the event of a losing court fight.
Kiewit-Turner said the VA owes it more than $100 million it has paid to subcontractors and suppliers, and Tuesday’s ruling did not resolve that issue.
“VA’s senior leadership is in discussion with Kiewit-Turner’s senior leadership to find a potential way forward in light of the ruling,” wrote VA spokeswoman Genevieve Billia.
Documents filed in the dispute reveal a project gone off course, a disconnect between the engineering and architecture firms designing the hospital and the construction contractor in charge of building it within agreed-upon budget limits. VA officials failed to control the design team, and “much of the blame for this situation must be ascribed to the VA,” the board wrote in its opinion.
Problems have been evident for some time. In January 2013, a three-day brainstorming “blue ocean” meeting was held during which a colossal VA budget blunder years in the making became crystal clear.
A cost estimate of $785 million for the VA hospital had just dropped on officials’ desks. Design elements had ballooned out of control, pushing construction costs to an estimated $199 million above budget.
The point of the meeting of officials from the VA, Kiewit-Turner and a joint venture of design firms was to find ways to cut costs, according to court documents. More than 70 ideas totaling $400 million of cuts — of which $240 million was deemed “acceptable” or doable although “undesirable” — were proposed.
Yet in the end, after much indecision by the VA, the agency approved just $10 million of cuts.
These and other details are laid out in Tuesday’s 17-page ruling by a federal board of appeals that took construction contractor Kiewit-Turner’s side in a dispute with the VA over the project’s rising cost.
Kiewit-Turner claims that design changes and VA mismanagement pushed the project’s cost from the $600 million estimated in 2010 to more than $1 billion.
The U.S. Civilian Board of Contract Appeals ruled that the VA breached its contract with Kiewit-Turner. The company halted work and says it will walk away from the much-delayed project.
The VA had made efforts to force the design firms — Skidmore Owings & Merrill, S.A. Miro, Cator Ruma and H+L Architects — to modify the design and accused them of misleading the VA in “delivering a project way above the design cost.”
VA officials complained the architect-engineering team “placed an over-emphasis on aesthetics, had produced an unnecessarily complex design, did not believe that a budget problem existed, and was often uncooperative with the agency,” said court documents.
The design team asked to end its contract, but the VA refused, saying redesign within “funding limitation” was required by the contract.
Yet the VA at times “acted in contradictory fashion,” court records state. After telling the architecture-engineering team to redesign the project, the VA told the construction contractor to proceed with current drawings. In response, the construction contractor said the VA “is quickly creating a massive funding issue on this project.”
Soon after the “blue ocean” meeting, officials at VA headquarters grew concerned. In an e-mail, one executive referenced a letter the VA previously sent to the design firms about being over budget. “Can we get a copy of that letter so we can see the context before we all go to the roof and jump?” he asked.
The projected cost of the hospital grew nearly every time it was calculated after the signing of the 2010 contract.
In January 2012, the project was considered about $57 million over budget, which had been set at $582 million. By March that year, Kiewit-Turner warned the cost was trending above $700 million. Then it climbed to $712 million.
Kiewit said subcontractors weren’t being paid in a timely fashion because of the VA’s mismanagement of the project. Prospective subcontractors began avoiding the project and those that did increased their bid amounts because of the risks.
“The bad name of this project is on the street. No one wants to bid on this project,” a VA resident engineer wrote in December 2012, according to filings.
Even now the cost of construction is unclear, the board of appeals wrote.
An estimate by the construction contractor put the cost at $1.085 billion last March, although a design team estimate around the same time was just $630 million.
The mismanagement occurred in part because the VA used a type of contract structure it had never used before, the board found. Under an “integrated design and construct,” the contracts for the design team and the construction contractor were separate.
The construction contractor was brought into a project early to analyze the design and give advice. The VA could either direct its design team to make changes or procure additional funds.
What happened, though, according to court records, is that the VA lost control of spending while the design firms dictated the scope of the project.
As early as August 2010, the design was at 50 percent completion and funding decisions had been made, according to court documents.
“This limited the agency’s flexibility to make modifications” based on Kiewit-Turner’s advice.
A review by the Corps of Engineers in September 2011 concluded that the integrated design and construct approach was inappropriate for the project.
The integrated model “represents new contracting approach for VA; does not fit existing procedures which is complicated by VA culture that does not encourage or is (not) comfortable with new approaches,” the agency said in its own project management plan.