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8 EARLY BUDGET ESTIMATING in the VETERANS ADMINISTRATION John J. Zamostny Office of Facilities Veterans Administration The Veterans Administration (VA), unlike such agencies as the Army Corps of Engineers and the Naval Facilities Engineering Command, has no districts or divisions that develop cost estimates for major construction projects. The Cost Engineering Service in the VA's Office of Facilities is the sole preparer and reviewer of cost estimates for major VA construction projects. These estimates are subject to the approval of either the VA Project Directors or the VA Associate Director for Architecture. Since only one office handles VA cost estimates for major projects, no pricing guides or cost criteria are issued to field stations. In the VA, the conceptual phase is the first construction planning and development effort by the Office of Facilities. During this phase the Office of Facilities coordinates with other VA departments to develop a data package that includes estimates of the project's scope, staffing, workloads, etc. These conceptual estimates generally are developed several years before construction is scheduled to begin. Usually three or more concepts and estimates are prepared. On medical projects the Department of Medicine and Surgery selects the concept to be developed through preliminary plans. During the conceptual stage, designers (from either a private architect-engineer firm or the VA) prepare several alternative design concepts with block or schematic plans for each. The Estimating Service is asked to prepare a conceptual estimate for each alternative (see Table 1). The most the estimator can expect at this early stage of development is general information on the project scope; e.g., the probable gross area of new construction (or renovation work). The 37
Table 1 Conceptual Estimates for Seven Alternative Design Concepts for a VA Project Concept Estimated Cost Area (gross square feet) Sources of Space A $168,000,000 690,880 381,000 120,000 New Construction Renovation Work Unchanged Space B $176,000,000 690,880 440 , 900 60,000 New Construction Renovation Work Unchanged Space C $163,500,000 1,100,000 New Construction 0 $140,000.000 506,764 501,500 New Construction Renovation Work E $111,000,000 471,063 210,148 291,352 New Construction Renovation Work Unchanged Space F $247,500,000 1.500,000 New Construction G $ 91,500,000 393,266 150,000 351,000 New Construction Renovation Work Unchanged Space 38
estimate for each alternative usually is based on the computed gross areas and applicable historical unit costs. The unit costs are adjusted for time and location and for any known specific factors that could influence project costs, such as unique site conditions and special utility requirements. Conceptual estimates form the basis of the Statement of Anticipated Project Cost Ranges (SOAPs), which are part of project submissions to the VA Administrator for his approval or disapproval. For the project mentioned in Table 1, for example, Concept D was selected and a cost range estimate of $133 million to $154 million was submitted. The Administrator's approval is required before preliminary design work can begin. In January 1984, after the VA had experienced a number of "cost underruns" (that is, low bids being far below budget), the Director of the Office of Facilities directed the Cost Engineering Service to use "discount budgeting." This directive, which is still in force, requires the Estimating Service to establish construction project cost targets that are at least 10 percent below historical costs for similar projects. The primary objective of the directive is to ensure that new VA facilities are not too lavish. At about the same time, the Office of Management and Budget published new lower escalation rates, which the Estimating Service began using when estimating for future work. The use of lower escalation rates and discount budgeting has resulted in better alignment of budget estimates, government estimates, and contractor bids on recent projects. This situation could change, of course, if inflation rates increase. 39
