Review of the Food and Drug Administration's Cost Increases for the Arkansas Regional Laboratory

EXECUTIVE SUMMARY:

This final report provides the results of our review of cost increases related to the Food and Drug Administration's (FDA) construction of the Arkansas Regional Laboratory (ARL). The current ARL estimate is $37.9 million, which is $10.4 million, or 38 percent, higher than the original estimate of $27.5 million. The review was requested by the Subcommittee on Agriculture, Rural Development, FDA and Related Agencies, House Committee on Appropriations.

We determined that ARL project's cost exceeded the budget estimate by $10.4 million as a result of the following: (1) $3.4 million in costs not included in the estimate FDA used as a basis for the budget request, (2) $2.1 million due to the architecture and engineering (A&E) firm revising its estimate upward in October of 1996, and (3) $4.9 million in additional costs attributable to a combination of factors including: inflation, the A&E firm's unfamiliarity with the Arkansas area, the effects of a "building boom" in Arkansas, the A&E firm's cursory assessment of market conditions, and the inexact nature of construction estimates.

We also identified several management control weaknesses in FDA's oversight of this project, which may have contributed to the agency's underestimating ARL's project costs. Specifically, FDA did not: establish centralized control over the fiscal management of the project at the start of the project; maintain a sound project tracking system, or obtain a second estimate. Furthermore, the estimate obtained by FDA only included the cost of the construction contract, not total projected costs, which may also include items such as construction quality management fees, architect and engineering fees, telecommunications, and construction contingency. We also noted that FDA does not have adequate written policies for budgeting construction projects.

To ensure that the ARL and future FDA construction projects are implemented with anticipated cost ranges, we recommended that the FDA: (1) establish clear lines of responsibility for future construction projects by assigning responsibility for planning, budget development, and execution of the project to one high-level official within the Office of Management and Systems, (2) implement a system for tracking estimated project costs throughout the budget development stage, (3) institute a policy to closely review budgets and estimates to ensure completeness and accuracy, and (4) institute general policies regarding developing a construction project budget.

---