Architect of the Capitol: Efforts Are Ongoing to Update Cannon House Office Building's Renovation Cost and Schedule Estimates

The Cannon project intends to preserve the historic character while improving the functionality of the 111 year-old Cannon Building—the oldest congressional office building—as well as address deterioration to the building and its components. The project—nearing the mid-point of its planned 10-year duration—is being implemented in five sequential phases with an initial phase (Phase 0) for utility work and four subsequent phases (Phases 1 through 4) to renovate the north-, south-, east-, and west-facing sides of the building. Each phase is scheduled around a 2-year congressional session. This statement describes: (1) the status of the Cannon project and (2) changes to the project's estimated cost at completion. This statement is based on GAO's prior reports in 2009 and 2014 and ongoing monitoring of the project. To monitor the project, GAO has been observing the ongoing construction, attending project meetings, and analyzing AOC documents.

The Architect of the Capitol (AOC) has substantially completed two of five planned phases to renovate the Cannon House Office Building (Cannon project). AOC completed Phase 0 utility work; has almost finished the Phase 1 work to renovate the building's west side, as planned; and is progressing with Phase 2 work to renovate the building's north side.

From 2009 to 2018, AOC consistently estimated the project cost at $753 million, but AOC reported in June 2019 that it expects costs to increase by 10 to 15 percent, resulting in a total cost of approximately $828 million to $866 million. In 2014, GAO found that AOC's cost estimate of $753 million reflected several, but not all, of GAO's leading practices for high-quality, reliable cost estimates, including that AOC had conducted a risk and uncertainty analysis.

In January 2018, AOC updated its analysis of risks by undertaking an integrated cost-schedule risk analysis. AOC's 2018 analysis arrived at the same conclusion as its earlier analysis—that the project's estimated $753 million total cost was adequate to complete the project. However, AOC's 2018 analysis indicated that inaccurate estimates of costs for risk mitigations, unknown risks, and optimistic assumptions about the effect of risk mitigations on the project's cost and schedule could affect its total cost. In June 2019, AOC reported that greater-than-expected risks, such as from unforeseen conditions that led to more extensive exterior stone restoration than anticipated and the unplanned mitigation of asbestos in roof materials, would increase the project's cost. AOC is currently determining the effect of these and other changes on Phase 1, where work has been substantially completed, but costs have not been settled. AOC is also determining how the costs of the project's remaining phases will be affected by scope changes stemming from lessons learned in Phase 1. Toward this end, in August 2019, AOC began updating its integrated cost-schedule risk analysis, with the aim of more accurately determining the extent to which the project's costs are increasing and its estimated cost at completion.

In 2014, GAO made recommendations pertaining to AOC's cost-estimating guidance and policies. AOC has implemented these recommendations.

Thank you for the opportunity to discuss the Architect of the Capitol’s  (AOC) efforts to renovate the Cannon House Office Building (Cannon  project). AOC intends to preserve the historic character of and address  deterioration to components and systems in the 111 year-old Cannon  Building, and improve the functionality of suites for members of the House  of Representatives (Members). The Cannon project is nearing the mid- point of its planned 10-year duration.

My statement today provides information on (1) the status of the Cannon  project and (2) changes to the project’s estimated cost at completion. It is  based on our 2009 and 2014 assessments of AOC’s planning and cost  estimating for the Cannon project prior to the start of construction as well  as our observations made during construction to support congressional  oversight of the project. Detailed information on the scope and  methodologies for our 2009 and 2014 reports can be found in GAO’s  published products, which are cited throughout this testimony. Our  ongoing observations of the construction have included reviews of AOC’s  project summary reports, construction contractor reports, and other  project documentation and recurring discussions with AOC and contractor  officials as well as other project stakeholders.

We conducted the work on which this statement is based in accordance  with generally accepted government auditing standards. Those standards  require that we plan and perform the audit to obtain sufficient, appropriate  evidence to provide a reasonable basis for our findings and conclusions  based on our audit objectives. We believe that the evidence obtained  provides a reasonable basis for our findings and conclusions based on  our audit objectives.

The Cannon Building, completed in 1908, is the oldest congressional  office building and occupied by Members and their staffs. (See fig. 1.) The  Cannon Building houses 142 office suites, five conference rooms, four  hearing rooms, and the Caucus Room, which can accommodate large  meetings. The building also includes a library, food servery, and a health  unit.

AOC began developing the scope for the Cannon project in approximately  2004 when its consultant conducted a facility condition assessment that  identified the building’s deficiencies. This condition assessment identified,  for example, that the hot water heating and air-handling systems had  components dating back to the 1930s that are in need of replacement. In  addition, the assessment identified deficiencies such as an outdated fire  alarm system for which repair parts were difficult to obtain, worn and  damaged marble tile in corridors, and original windows that were  damaged and often nonfunctional.

AOC continued its planning and design work through 2014 to establish  the final scope of the Cannon project, which entailed correcting most of  the identified deficiencies and addressing current requirements such as  for energy conservation, physical security, hazardous materials  abatement, and historic preservation. Key components of the project,  among other things, include:  substantial reconfiguration of member suites and the reconstruction of  the building’s top floor to convert storage space into new suites,  refurbishment of windows and installation of a new roof, preservation of the building’s stone exterior,  replacement of all plumbing, heating and cooling, fire protection,  electrical, and alarm systems, and  refurbishment of restrooms to make them more accessible to people  with disabilities.

As part of the development process for the Cannon project, AOC  established a budget of approximately $753 million. Key components of  the budget include costs for the construction contract; architect and  engineering (A/E) design services; construction management support;  security; furniture and fixtures; swing space design and construction;  contractor incentive bonuses; and contingency.

AOC is using the Construction Manager as Constructor (CMc) delivery  method to implement the Cannon project. Under this approach, AOC:  contracted with a construction contractor that consulted on the  project’s design, and negotiated with the construction contractor to set a “guaranteed  maximum price” for the construction work based on the completed  design.

AOC also contracted with an A/E firm, which produced the design for the  project and is providing consultation during construction, and with a  Construction Manager as Agent (CMa), that provides administrative and  technical support to AOC in managing the construction work.

AOC scheduled the Cannon project’s construction in five sequential  phases with an initial phase (Phase 0) for utility work and four subsequent  phases (Phases 1 through 4) to renovate the north-, south-, east-, and  west-facing sides of the building. Each phase is scheduled around a 2- year congressional session. As the project progresses, tenants displaced  during construction (Phases 1 through 4) are to move to temporary offices  while other occupants are to remain in the building sections not affected  by construction.

AOC Has Completed Two of Five Phases of the 10-Year Cannon Project

Currently, AOC has substantially completed Phase 0 and Phase 1 of the  five phases planned for the Cannon project and is progressing with work  on Phase 2, which it expects to complete in November 2020. (See fig. 2.)

AOC completed Phase 0, as planned and under its budget estimate, from  January 2015 through December 2016. This work primarily included the  construction contractor’s replacement of the utility infrastructure and  distribution systems in the basement, garage, and courtyard. During this  time, AOC also managed the work of its Construction Division to build 31  additional Member Suites to offset the suites that would be inaccessible  when sections of the building were under construction.

From January 2017 through December 2018, AOC managed the  renovation of the first of four building sections, consisting of the building’s  west side (facing New Jersey Avenue) and Rotunda (Phase 1). AOC  substantially completed Phase 1 to enable occupancy of the building  section, as planned, on January 3, 2019, at the start of the 116th  Congress. However, it is continuing to address “punch-list” items of  incomplete or corrective work from Phase 1. AOC expects to complete  the punch-list items by December 2019. Further, AOC encountered  several issues during the Phase 1 renovation that have prevented it from  settling the costs for this phase and that will affect the cost of the project’s  later phases. According to AOC’s most current (July 2019) Executive  Summary, unforeseen conditions, design issues, and scope changes  have increased both the estimated cost for Phase 1 and the project’s  three remaining phases. For example, AOC found that more extensive  exterior stone restoration was needed than planned and encountered  some unforeseen asbestos-containing materials in the roof that it needed  to mitigate. Further, AOC needed to provide additional security features to  address U.S. Capitol Police requests. Collectively, these issues are  creating cost pressures that have caused AOC to reassess the cost to  complete the project. We discuss the project’s costs in greater detail later  in this testimony.

AOC is currently progressing, as planned, in renovating the north side of  the building (facing Independence Avenue), which is the second of the  four building sections to be renovated (Phase 2). Because the work in this  phase and the Cannon project’s remaining phases is similar to work  completed in Phase 1, AOC expects to benefit from its application of  lessons learned. For example, AOC reported that its construction  contractor experienced challenges installing the temporary roof enclosure  that it used in Phase 1. Based on this experience, AOC officials told us  that the contractor developed a new design for the temporary roof  enclosure that the contractor expects to install more rapidly in the  project’s remaining phases than in Phase 1. Further, because the  materials in Phases 2 through 4 are the same as in Phase 1, AOC  officials expect that the process of approving the construction contractor’s  use of these materials should proceed faster in these later phases and  enable construction to progress more efficiently.

AOC Had Consistently Estimated the Cannon Project Cost to be $753 Million, But Recently Increased Its Estimate

In 2009, we reported that AOC expected to request approximately $753  million for the Cannon project. At the time, AOC expected the project to  be in five phases over 5 years. Because the project was in an early  development stage at that time, we said:  that AOC’s estimate should not be considered sufficiently accurate for  funding purposes,  that the cost and scope were likely to change, and  that it would be important for AOC to continue to refine the project’s  scope and cost estimate to provide Congress with the information it  needed to make decisions about the project.

When we next reported on the Cannon project in 2014, AOC had  completed most of the planning and design and was preparing to award  the contract for construction, which was to begin in January 2015. As  part of our 2014 review of AOC’s cost estimating policies and guidance,  we compared AOC’s cost estimate for the Cannon project—still $753  million—to our leading practices for developing high-quality, reliable cost  estimates. We found the AOC’s cost estimate reflected several, but not  all, of our leading practices. In particular, we found that AOC’s estimate  included ground rules and assumptions; provided a reasonable  explanation of the basic estimation methodologies; and integrated  separately produced estimates from AOC’s architect, construction  manager, and construction contractor to enable a reasonably accurate  assessment of estimated costs. Further, we found AOC had conducted a  cost risk and uncertainty analysis in accordance with a key leading  practice. This analysis concluded that based on AOC’s inputs and  assumptions, there was a high probability (over 90 percent) that actual  costs would be equal to or less than AOC’s $753 million estimate. This  estimate included contingency factors to account for risks and  uncertainties. However, our review of AOC’s guidance for developing cost  estimates found that the guidance did not provide documented reasons  explaining how the actual contingency amounts were developed. In  addition, we found that the method AOC used to model the project’s risks  in its cost risk and uncertainty analysis (1) resulted in an unusually narrow  range of estimated costs and (2) provided managers limited ability to  understand the effects of individual risks. We recommended that AOC  improve its cost-estimating process, such as by incorporating leading  practices we identified as lacking for cost estimating into its cost- estimating guidance and policies. AOC has since implemented our  recommendations.

In January 2018, while Phase 1 of the Cannon project was in progress,  AOC updated its analysis of risks by undertaking a study (termed an  integrated cost-schedule risk analysis) to determine the potential effects  of these risks on the project’s cost and schedule. Updating risk analyses  and their effect on project cost estimates is consistent with leading  practices for developing both a high-quality, reliable cost estimate and  schedule. AOC’s 2018 analysis arrived at the same conclusion as its  2014 analysis—that the estimated $753 million total project cost was  adequate and that there was a high probability (over 80 percent) that  actual costs would be equal to or less than the $753 million estimate.  However, this analysis was qualified on the assumption that AOC and  project stakeholders are able to adequately mitigate risks identified  through the analysis. Additionally, the analysis indicated that inaccurate  estimates of costs for risk mitigations, currently unknown risks, and  optimistic assumptions about the impact of risk mitigations on the  project’s cost and schedule could affect the project’s total cost.

As noted previously, the project is experiencing cost pressures from the  greater-than-anticipated risks and ineffective mitigations stemming from  unforeseen conditions, design issues, and scope changes. In June 2019,  AOC reported that it expects that the cost to complete the Cannon project  will increase by 10 to 15 percent over its initial estimate of $753 million,  resulting in a final cost between approximately $828 million and $866  million. AOC reported that the following key factors affect the project’s  cost:

Phase 1 completion costs. While Phase 1 work has been substantially  completed, AOC has yet to settle all outstanding change proposals.  AOC reported that the cost to complete Phase 1 is greater than it  initially planned and that it will not know the final cost for this phase  until it completes negotiations of the cost of unsettled change  proposals.

Phase 2 modifications. While Phase 2 work has begun, AOC is  awaiting the contractor’s proposal on the costs to address the  requirements outlined in four “design bulletins” issued by AOC that, in  part, describe changes to the project’s scope based on lessons  learned in Phase 1. AOC estimates that the contract modifications  described by the design bulletins will increase the cost of Phase 2.

Phase 3 and 4 modifications. AOC expects that it will award these  future phases of the project at higher amounts than it initially planned  based, in part, on the estimated cost of incorporating the additional  work described in the design bulletins.

In August 2019, AOC began updating its integrated cost-schedule risk  analysis, with the aim of more accurately determining the extent to which  the project’s costs are increasing and its estimated cost at completion. By  updating the analysis, AOC should be better able to make informed  decisions as construction progresses. Further, updating the analysis  should enable AOC to more precisely estimate the Cannon project’s cost  at completion and better position AOC to make a more accurate budget  request to Congress for remaining costs.

Chairperson Lofgren, Ranking Member Davis, and Members of the  Committee, this concludes my prepared statement. I would be pleased to  respond to any questions that you may have at this time.

If you or your staff has any questions concerning this testimony, please  contact Terrell Dorn at (202) 512-6923 or dornt@gao.gov. Contact points  for our Offices of Congressional Relations and Public Affairs may be  found on the last page of this statement. In addition to the contacts  named above: Michael Armes (Assistant Director); George Depaoli  (Analyst-in-Charge); Geoffrey Hamilton; Malika Rice; Kelly Rubin; Steve  Schluth; and Amelia Michelle Weathers made key contributions to the  testimony. Other staff who made contributions to the reports cited in the  testimony are identified in the source products.

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The Architect of the Capitol is renovating the 111-year-old Cannon House Office Building. This testimony discusses the 10-year project as it nears its halfway mark.

Before renovations began, we reported that the agency had followed many of our leading practices for cost estimating. However, as the renovations progressed, unforeseen conditions and scope changes caused costs to increase.

In August 2019, the agency began updating its cost-schedule risk analysis to account for the greater-than-anticipated risks and to provide a revised estimate of the project’s cost at completion.