The biggest construction failure in VA history began with a handwritten note signed two days before Veterans Day 2011.
On that Nov. 9, project officials from the U.S. Department of Veterans Affairs were locked in a 7½-hour meeting with executives from Kiewit-Turner, the construction team tapped to build a hospital in Aurora for the agency.
The purpose was to settle on a final price, but negotiations had not gone well.
When KT joined the project more than a year earlier, the estimated cost to build it was $582.8 million, with the goal of finishing the medical complex in 2014. But after several months of pre-construction work, KT executives were convinced the figure was too low.
So the two sides put together what became known as “The Book,” a paint-by-numbers guide that spelled out a plan to build the hospital for $604 million. In it, KT agreed to the price but insisted on design changes and other allowances to reduce costs.
But a key VA executive found those terms unacceptable.
Chris Kyrgos, who helped run the Aurora project from Washington, D.C., had flown in for the Colorado meeting. He had not looked at the book — as he would later testify in a lawsuit arising from the project — but he insisted it be thrown out.
“This is for health care,” Kyrgos testified. “This is something the VA cannot sacrifice.” He walked out of the meeting at one point, threatening to call off the talks and find another contractor.
What saved the deal was a simple proposal — and a pen and paper. Rather than fight over the book’s details, negotiators agreed to shrink the deal to a handwritten note of 70 words with two basic terms: KT would build the hospital for $604 million, and the VA would provide the design to get them there.
That brief note became the pact to start work on a state-of-the-art medical campus spread across 31 acres. Its signing also marked the moment when the VA hospital in Aurora began to devolve from a mismanaged project to a national calamity.
The VA could not hold up its end of the deal and control its designers, who initially operated under a contract that left the construction price blank. The agency stonewalled elected officials as costs, delays and questions mounted, and its own investigative staff did nothing.
VA officials pressed ahead with the project — internal and external — about the project’s high risk of busting its budget.
Congress, too, shares blame. Colorado’s delegation was largely ineffective — and often impotent — in keeping the project on track. The most they did was ensure, early in the process, that the VA would build the hospital as a stand-alone complex even though a less expensive option existed.
To tell the story of the troubled project, The Denver Post read hundreds of court documents, interviewed dozens of those involved and reviewed congressional testimony going back a decade.
Even now, there is no agreement on fully funding the new medical campus, which the VA could cost a stunning $1.73 billion. The design includes features such as a curved lobby spanning two city blocks, 43 elevators and a vivarium for animal experiments. The cost is five times an initial $328 million estimate and nearly three times the $604 million construction target.
This outcome, however, was far from the minds of KT and VA officials the night they agreed to handwritten terms. They codified their note as Supplemental Agreement 007 and later showcased the project with a slideshow.
The presentation included photos of actors who played James Bond, Special Agent 007, with one frame declaring “in every instance we all leave debonair, smiling and alive.”
They were right on one count: The major players are still alive.
Like many area veterans, Jim Sack has waited two decades for a modern replacement for the aging Denver VA hospital. The new medical center in Aurora will have 30 beds for veterans with spinal-cord injuries, something the existing hospital does not have. But it will come too late for Sack’s current treatment.
Sack, 67, who uses a wheelchair, flew to California in March for surgery and rehabilitation at a spinal-cord center there. He’s being treated for a severe pressure sore and considered the hospital in Long Beach the best option for the surgery.
He’s still there, alone.
“We get that new VA hospital, it’ll be a heck of a lot more convenient,” the Vietnam veteran said. “This thing should have been built 10 years ago, and it would have been a hell of a lot cheaper.”
In Aurora, the new medical center will feature expanded services such as mammography for a growing number of women veterans, roomier clinics, private hospital rooms and abundant parking. It will serve about 400,000 veterans living in Colorado and neighboring states.
A less ambitious and less costly replacement for the Denver hospital, which opened in 1950, could have been chosen at various times over the past 20 years.
In 1995, with the Fitzsimons Army Medical Center scheduled to close, the VA had a chance to claim its hospital and land at the site. But a top department official quashed that idea, recommending against spending an estimated $30 million for moving and renovation costs.
Several years later, local VA officials hit upon another plan to improve veterans’ care. They would cement their relationship with University of Colorado Hospital — which was moving to Fitzsimons — by sharing its new facility.
In 2004, the VA announced it would build a replacement medical center in Aurora, “with some shared facilities with the University of Colorado.”
But support for the shared facility began to fall apart after the American Legion voiced its opposition. The powerful veterans group worried that vets would not receive the treatment they deserved. The Colorado delegation, which had backed the idea of joint space, .
In January 2009, when newly elected President Barack Obama nominated Gen. Eric Shinseki to become VA secretary, the Colorado delegation made its position clear.
By then, the cost estimate was up to $568 million and rising steadily.
“We acknowledge and understand overall cost estimates for this project continue to outpace initial projections,” Colorado’s lawmakers wrote to Shinseki. “However, we also consider it unsuitable to compromise the project to the point it can no longer function as a stand-alone facility.”
The letter was signed by eight of nine Colorado members of Congress, including incumbent Reps. Diana DeGette, Ed Perlmutter, Doug Lamborn and Mike Coffman.
The lone exception was Rep. Jared Polis, who had just taken office. Polis co-signed a delegation letter to Shinseki two months later calling a stand-alone hospital “essential in order to meet the needs of veterans throughout the Rocky Mountain region.”
, permanently scrapping the idea of a shared hospital.
Unfamiliar to agency
One reason the cost of the Aurora hospital has risen is the VA decision to use a contracting method — known as integrated design and construct, or IDC — .
No major VA project had been completed using an IDC contract. Its project leaders in Colorado were not experienced with it.
The whole idea of IDC was to bring the contractor aboard early to assist the designer and accelerate construction. Yet in Aurora, the designers had been working sporadically for four years when KT was hired in 2010 to provide pre-construction advice.
That proved a recipe for conflict, delay and rising costs.
By August 2011, a consultant had pegged the price at $677.7 million. A VA analysis listed 27 high risks, from cost overruns to insufficient staffing, poor communication, an unfamiliar contracting method, a need to rein in the architect and “slow or unclear decisionmaking.”
Meanwhile, pressure mounted for the VA and its contractor to reach a deal to start construction. Veterans were frustrated and angry. Perlmutter, the district’s congressman at that time, to a protest.
Under this cloud, the VA and KT got together on Nov. 9, 2011, to hammer out an agreement.
KT wanted its book to take precedence over design-team specifications. Dewey Newton, a KT executive, testified the plan featured “custom glass, custom walls, custom wood and custom floors.”
When the two sides met in a brick building at the site that once belonged to a doctors group, the local VA team thought they had a deal. But Kyrgos, the VA executive from Washington, saw too many caveats. “We’re not accepting the stipulations,” he recalled saying. “I said, ‘Look, we mean business. We cannot play around any more.’ “
After walking out and being coaxed to return, Kyrgos accepted an agreement that excluded the book. The first paragraph of the “path forward” agreement originally read, “All parties agree that they must get price to $604 mil. They will each expend resources to reach that goal.” Kyrgos decided that wasn’t strong enough. He changed “reach” to “keep.”
The second paragraph would prove deadly in court: “VA shall cause JVT (the joint venture design team) to produce a design that meets their ECCA (estimated construction cost at award) ….”
Elated messages followed the signing.
“We just reached an agreement with KT after long and hard negotiations,” Kyrgos wrote to top VA construction officials.
“Congratulations to all of you,” a regional VA leader replied. “Great job!”
Kyrgos, who retired from the VA this year, declined to comment for this story.
Issues with the design
From the project’s earliest days, there were issues with the design.
In January 2006,a high-powered coalition of architects and engineers was hired to develop a blueprint for the facility. Later, work would be suspended twice as the VA changed size and budget estimates.
Two companies led the group on the architectural side: Skidmore, Owings & Merrill in Chicago and H+L Architecture in Denver. The engineering component was managed by Cator Ruma & Associates in Lakewood and S.A. Miro Inc. in Denver.
As many as 24 firms were involved at one point, according to congressional estimates. But by the fall of 2011, the coalition had major concerns.
About a month before the VA and KT signed their handwritten agreement, Skidmore’s Thomas Fromm, the JVT director, wrote the VA and going forward. His worry: KT and the design team remained at odds over the estimated cost.
“If the VA proceeds,” Fromm wrote, “there will be no agreed-upon financial baseline against which the parties will be able to measure and control costs and identify cost overruns, which we expect to be substantial.”
The lack of agreement on price, Fromm wrote, imposed “high risk on the project.” And in a line that would prove prophetic, Fromm cautioned that signing a contract then could “result in significant claims against the VA.”
Much of the debate centered on so-called “indirect costs,” which typically include items such as temporary structures on the site for safety or access.
In court testimony, the project’s contracting officer, Thaddeus Willoughby, acknowledged the debate over indirect costs, but said he felt it could be handled later and that the direct cost estimates were “close enough” to “move forward with the design.”
The assessment proved overly optimistic.
After it agreed to the November 2011 deal, the VA clashed repeatedly with its designers as it tried — and failed — to develop a hospital plan that would fit within a $604 million budget.
Early proposals for the complex never came close to that amount. In 2008, Colorado lawmakers raised concerns about a plan purported to cost about $1.1 billion — nearly twice as much.
One submission envisioned a medical complex that would span 1.6 million square feet. It also featured the same layout seen in the project today — several buildings jutting from a central spine structure.
“The quality of care will be second to none and nonnegotiable,” noted a summary of the design. “The physical facility will stand up to any comparison to any other medical center.”
Asked about the $1.1 billion cost estimate, design team spokesman Andy Boian said it was for a “different and much larger project plan, as requested by the (VA), than the one now under construction.”
But according to documents filed by KT in its lawsuit, the design team operated initially without worrying about the project’s final cost — at least contractually.
The provision that “sets the ‘estimated construction contract price’ was left blank in the original contract,” KT attorneys noted.
Boian said that prior to 2010, the target price “varied as the VA changed the location and size of the facility it needed.”
Features viewed as excessive
Records of early design plans are scarce, but KT’s court filings make mention of several features the construction company considered excessive. Among them: an “expensive saw-tooth ‘zig-zag’ design” on the west side of the concourse described as an “aesthetic” function with no impact on patient care.
Though its removal was suggested by KT and VA officials, according to court documents, the zigzag feature remains part of the design.
Parking was an issue, too, including the south visitors parking lot.
One proposal called for part of the structure to be built underground — a costly approach because that would require “foundation walls, waterproofing and subgrade foundation systems,” according to court records.
A suggestion to lower the cost by bringing the whole garage above-ground and then adding levels to another parking lot was rejected.
Tim Pogany, the VA’s project executive in Aurora, testified that the design team listened to the advice of a former VA secretary who told them, “The pie in the sky is what we’re shooting for here, so whatever you want from the Denver area, I will get you, whatever additional funds you need, so design me what the Medical Center wants.”
Pogany said the secretary was Jim Nicholson, a former Denver resident and Republican National Committee chairman who led the agency from 2005 to 2007.
In a December 2006 interview, Nicholson did call the Aurora project after securing land for the new VA hospital.
But Nicholson, when contacted by The Post, emphatically disputed Pogany’s testimony, calling the “pie in the sky comment “absurd on its face.”
He said he does not know Pogany and does not remember meeting the designers, let alone advising them not to worry about the cost.
“Believe me, that’s not me,” he said.
Pogany, who was reassigned to another VA position in 2013, said in a statement to The Post that he was “referring to my understanding that the design team had one opportunity to design a facility that would meet the true needs of the Veterans in Denver instead of a design that would fit the project budget at that time.
“This was my interpretation about the early design efforts of the first schematic design of the Denver project, which was ultimately canceled,” he said.
Letters between the VA and its designers suggest an often-hostile relationship.
A few weeks after agreeing to the KT deal, the VA wrote the designers and made clear it expected a plan that fit the budget.
Fromm responded in January 2012 with his own letter that accused the VA of ignoring them and withholding crucial information.
“Proceeding with construction on such a major project without a common understanding of and access to the project’s documents of record would be reckless on our part as it would be foolish on the government’s part,” he wrote.
Another factor was time. The VA didn’t have another firm lined up to peer review the design work. This failure — coupled with already-poor communication — delayed the delivery of plans until August 2012, months behind schedule.
When they did arrive, KT attorneys noted the plans “had to be revised at least once, which had a significant impact on the subcontractor community who lost confidence in the project and its design.”
These issues came to a head in January 2013 when Jacobs Engineering Group, which assisted the VA in managing the project, released an estimate that put the cost of construction at nearly $785 million.
By this point it was clear the project was falling apart. VA officials began to map out options including the possibility of ditching KT.
“KT is putting our project in jeopardy and (the design team) is not helping,” Kyrgos wrote in one e-mail.
In a 12-page evaluation of each option, VA predicted that keeping KT could prove costly.
“Expect a court battle on a large claim,” the analysis noted. “KT could decide to refuse to continue without assurance of additional funds, leading to KT walking off the job.”
Congress on the sidelines
Even as the Aurora project slid toward disaster, one key player — Congress — spent much of its time on the sidelines.
Part of this is by design. As a separate branch of government, Congress is limited in the authority it can wield over executive agencies such as the VA. Although Congress controls the flow of money, there’s only so much pressure it can apply.
That said, congressional oversight of the Aurora project reads like a hit list of dead ends and missed opportunities.
Take the case of congressman Perlmutter, the Arvada Democrat who was instrumental in pushing the VA to build a stand-alone facility, but who also did more than most in .
Perlmutter planned to visit the construction site in December 2012, prompting project officials to put aside their differences with KT to coordinate a response.
At the time, the Government Accountability Office, which acts as the investigative arm of Congress, was preparing an audit of the project.
“Heads up,” wrote Pogany in one e-mail. “We need to work with (KT) to develop what our message is.”
Daniel Warvi, a VA spokesman, proposed they “take Rep. Perlmutter outside to the job site first and then bring him back in for a briefing afterwards. He might be more inclined to hearing a shorter briefing that way.”
But Perlmutter was called back to Washington and never made the trip. Looking back, the congressman said he thinks about what more he could have done — as well as the difficulty in piercing the VA’s bureaucracy.
“Of all the federal government agencies, this has been the most difficult, in terms of working with them,” he said. “It’s a bureaucracy that’s calcified, with an attitude that those in Congress will be long gone and they’ll still be there.”
That challenge also applies to the VA’s internal watchdog — the Office of Inspector General. On two occasions, members of Colorado’s congressional delegation asked for investigations into the Aurora project and were rebuffed.
In each case — first by congressman Coffman in 2013 and then by Sen. Michael Bennet in 2014 — the OIG response was that because of the court battle between KT and the VA.
An investigation could be “viewed by the VA and the contractor as interfering in the litigation,” Richard Griffin, then the deputy inspector general, wrote in a 2013 letter. Griffin later became OIG’s acting chief.
The White House, too, had a blind spot when it came to the Aurora hospital — as well as other over-budget VA projects. It was only in May 2014 that Obama dispatched Rob Nabors, one of his most trusted advisers, to the VA to help right the ship.
The line in the sand — for Congress and the administration — was the GAO’s .
The report blew open the doors on the problems in Aurora, as well as VA facilities in Florida, Louisiana and Nevada. It found that all four projects faced major schedule delays and a combined price increase of nearly $1.5 billion.
It’s an estimate that has since proven to be too low.
The expected cost at the time for the Aurora facility was $800 million, according to the GAO. It hit $1.73 billion and has scaled back to about $1.67 billion by delaying a nursing home and a building to treat post-traumatic stress disorder. A rehabilitation program for the blind also was delayed.
These changes reduced the number of beds from 182 to 148. The price tag does not include with furniture and equipment.
Attention from Colorado’s congressional delegation shot up sharply after the release of the GAO report — although there were exceptions.
Since his election in 2006, congressman Lamborn of Colorado Springs has sat on the House Committee on Veterans’ Affairs. He also serves on its oversight and investigations subcommittee.
But records show Lamborn has missed critical VA meetings or left them early, including the hearing about the GAO report. Missing or leaving committee hearings is not uncommon among lawmakers, but Lamborn’s timing was striking.
At an April 15 hearing this year — which focused on the Aurora project and its problems — Lamborn gave a short delivery and asked several questions.
“I don’t even know where to begin. This is just beyond my comprehension — how we got to this point. I’m appalled and angry,” he said.
Lamborn then left the hearing, which lasted about two more hours.
His staff said he had schedule conflicts those two days and that he has taken part in dozens of phone calls and other meetings concerning the project.
In a statement, Lamborn said he joined the oversight and investigations subcommittee in 2011 “due to my growing concern over lack of accountability within the VA.” In multiple hearings since then, “we have asked tough questions of VA officials and have become increasingly concerned over VA’s in-house construction capability,” he said.
VA obstinacy
The lack of oversight was made worse by VA obstinacy. In dealing with Congress, agency officials often closed ranks and shielded internal decisions.
At a House hearing in May 2013 to examine the GAO report’s findings as well as the pace of VA construction, frustrated members of Congress got few answers.
“One of the most distressing items in the (GAO) report is that VA failed to learn from its mistakes as it went from project to project,” said Coffman, whose congressional district included the hospital starting in early 2013.
But Coffman was told not to worry.
“The lessons we have learned from (the project in Orlando, Fla.) and other past major construction projects are guiding us in our management of the Denver and New Orleans replacement hospitals,” said Glenn Haggstrom, then the VA’s construction chief.
It was one of numerous instances beginning as early as 2006 in which VA officials held lawmakers at arm’s length, insisting they had learned from their experience.
In July 2013, KT sued VA for breaching its contract.
At a hearing five months later, Haggstrom again deflected questions about Aurora, but with a twist.
“VA will not be able to respond to the matters at issue in the litigation as it may compromise the government’s legal position,” he said, adding that “the VA has changed the way it conducts business significantly.”
Haggstrom just as VA investigators queried him about the project.
He was one of just two VA officials who suffered any ramification for the debacle in Aurora — and, even then, the impact on his career was minimal.
He retired in March with full benefits, after collecting $63,777 in bonuses from 2009 to 2013.
“I’m not going to say I’m not accountable, but I was not on the site on a day-to-day basis,” Haggstrom said in an interview outside his northern Virginia home.
He did not offer an explanation of what happened, but noted the VA’s construction division worked closely with the agency’s legal team, which battled KT in court.
Lawmakers such as Bennet and Perlmutter said they told the VA that fighting KT was a losing strategy and that the agency should settle.
The VA never did. The result was a against the agency in December by the U.S. Civilian Board of Contract Appeals.
The court found the behavior of VA officials did not comport with “standards of good faith and fair dealings required by law.” The VA never gave KT a workable design — in part because it “did not control its designer” — and, when presented with more cost-effective options, VA officials “paid no heed.”
Phillipa Anderson, who led the VA legal team that developed the Aurora contract and fought KT in court, after being questioned about her role.
Every other senior executive involved, VA officials say, is gone from the project. Many have retired, and lower-level staffers are working elsewhere in the agency.
That no one is being punished for what happened is a sore point for lawmakers. “The parade of VA executives who retire or resign in lieu of any form of accountability is nothing short of insulting to veterans and taxpayers,” said Rep. Jeff Miller, chair of the House veterans committee, in March.
One obstacle, perhaps, is the that went along with the court fight.
Judi Guy, the Denver medical center’s project coordinator, tried to get rid of Pogany, the project executive. She testified that he failed to control the designers. But the medical center itself requested more than 1,400 design changes, according to court records. Guy explained that the budget was not her responsibility and nobody told her to stop asking for things.
VA spokesman Paul Sherbo characterized the design-change requests as comments, many repetitive in nature, which resulted in minor changes.
Sometimes project leaders haggled at length over small details. They spent six months, for example, deciding where the sinks should be installed in an MRI lab.
“The record is replete with instances in which the agency’s on-site personnel … lacked confidence in each other’s abilities and respect for each other’s actions,” the appeals judges wrote.
The board also noted that James Lynn, the Jacobs Engineering consultant who brokered the handwritten 007 agreement, “described this group, prior to a shake-up in June 2013, as the least effective and most dysfunctional staff on any project that he had ever seen.”
Four investigations
Today, investigations abound.
Last year, after a scandal in Phoenix, where veterans died waiting for appointments. This year, Griffin, the acting inspector general, departed amid complaints about his office’s effectiveness.
In Colorado, four investigations into the Aurora hospital debacle are completed or underway.
The GAO this year, citing the switch to a stand-alone medical center as a major contributor to its ultimate cost. Colorado Sens. Bennet and Cory Gardner , inquiring just how a $604 million construction budget was off by more than a billion dollars.
Even the OIG is “currently reviewing VA’s major construction process, including the Denver facility,” a spokeswoman said.
The U.S. Army Corps of Engineers also is expected to produce a report soon on VA construction problems at its major medical centers.
Finally, a VA-appointed administrative investigation board is drafting an accountability report.
VA Deputy Secretary Sloan Gibson said that report is finished but the agency is awaiting the conclusion of the OIG inquiry before it acts on the findings. This includes the possibility of punishing junior-level staffers involved in the Aurora project who still are with the VA.
“We won’t make any decisions about accountability actions until we’ve got the (OIG) report because it is at least possible that the (OIG) uncovers some additional evidence,” Gibson said.
Since taking office in early 2014, Gibson estimates he has been to the Aurora site nine times.
“I just leave a pair of boots out there so I’m ready when I get there to knock around the site,” he said in an interview.
He blamed the mess in Colorado on two factors: the VA’s use of an unfamiliar contract method, the IDC, and its decision to agree to the terms of the 2011 handwritten note.
“The missteps are unforgivable,” he said. “We own that. I own that. I have since the day I raised my hand and swore the oath. We are committed to fixing those. We are committed to finishing this project.”
But Gibson was optimistic for the future — as well as how veterans and taxpayers ultimately will see the project, which he expected would be complete by the end of 2017.
“It’s going to be a marvelous place for veterans to receive their care for decades to come,” he said. “And quite frankly, I think you get some relatively small number of years down the road and people aren’t going to be thinking or talking about what the building cost. They are going to be thinking about the great care that’s being delivered for veterans.”
Mark K. Matthews: 202-662-8907, mmatthews@denverpost.com or twitter.com/mkmatthews
