Background Globalization of Drug Manufacturing Drugs sold in the United States—including active pharmaceutical ingredients (APIs) and finished dosage forms—are manufactured throughout the world. According to FDA, as of August 2019 about 70 percent of establishments manufacturing APIs and more than 50 percent of establishments manufacturing finished drugs for the U.S. market were located overseas. As of March 2019, FDA data showed that India and China had the most manufacturing establishments shipping drugs to the United States, with about 40 percent of all foreign establishments in these two countries. (See fig. 1.) Types of Inspections FDA is responsible for overseeing the safety and effectiveness of all drugs marketed in the United States, regardless of where they are manufactured. Drugs manufactured overseas must meet the same statutory and regulatory requirements as those manufactured in the United States. FDA’s Center for Drug Evaluation and Research (CDER) establishes standards for the safety, quality, and effectiveness of, and manufacturing processes for, over-the-counter and prescription drugs. CDER requests that FDA’s Office of Regulatory Affairs (ORA) inspect both domestic and foreign establishments to ensure that drugs are produced in conformance with applicable laws of the United States, including current good manufacturing practice (CGMP) regulations. FDA investigators generally conduct three main types of drug manufacturing establishment inspections: preapproval inspections, surveillance inspections, and for-cause inspections, as described in table 1. At times, FDA may conduct an inspection that combines both preapproval and surveillance inspection components in a single visit to an establishment. FDA uses multiple databases to select foreign and domestic establishments for surveillance inspections, including its registration database and inspection database. Because the establishments are continuously changing as they begin, stop, or resume marketing products in the United States, CDER creates a monthly catalog of establishments. The establishments in the catalog are prioritized for inspection twice each year. In our 2008 report we found that, because of inaccurate information in FDA’s databases, the agency did not know how many foreign drug establishments were subject to inspection. For example, some establishments included in FDA’s registration database may have gone out of business and did not inform FDA that they had done so, or they did not actually manufacture drugs for the U.S. market. In our report, we noted that some foreign establishments may register because, in foreign markets, registration may erroneously convey an “approval” or endorsement by FDA, when in fact the establishment may never have been inspected by FDA. We recommended that FDA take steps to improve the accuracy of this registration information. In our 2010 and 2016 reports we found that FDA had taken steps to improve the accuracy and completeness of information in its catalog of drug establishments subject to inspection, such as using contractors to conduct site visits to verify the existence of registered foreign establishments and confirm that they manufacture the products that are recorded in U.S. import records. To prioritize establishments for surveillance inspections, CDER applies a risk-based site selection model to its catalog of establishments to identify those establishments (both domestic and foreign) that, based on the characteristics of the drugs being manufactured, pose the greatest potential public health risk should they experience a manufacturing defect. This model analyzes several factors, including inherent product risk, establishment type, inspection history, and time since last inspection, to develop a list of establishments that FDA considers to be a priority for inspection. Through this process, CDER develops a ranked list of foreign and domestic establishments selected for inspection that is submitted to ORA. To be efficient with its resources, ORA staff may shift the order of establishments to be inspected on CDER’s prioritized list based on geographic proximity to other planned inspection trips, according to FDA officials. FDA Inspection Workforce Investigators from ORA and, as needed, ORA laboratory analysts with certain expertise are responsible for inspecting drug manufacturing establishments. FDA primarily relies on three groups of investigators to conduct foreign inspections: ORA investigators based in the United States, who primarily conduct domestic drug establishment inspections but may sometimes conduct foreign inspections. Members of ORA’s dedicated foreign drug cadre, a group of domestically based investigators, who exclusively conduct foreign inspections. Investigators assigned to and living in the countries where FDA has foreign offices, who include both staff based in the foreign offices full time and those on temporary duty assignment to the foreign offices. FDA began opening offices around the world in 2008 to obtain better information on the increasing number of products coming into the United States from overseas, to build relationships with foreign stakeholders, and to perform inspections. FDA full-time foreign office staff are posted overseas for 2-year assignments. FDA staff can also be assigned to the foreign offices on temporary duty assignments for up to 120 days. In fiscal year 2019, there were full-time and temporary duty drug investigators assigned to FDA foreign offices in China and India. Post-Inspection Activities FDA’s process for determining whether a foreign establishment complies with CGMPs involves both CDER and ORA. During an inspection, ORA investigators are responsible for identifying any significant objectionable conditions and practices and reporting these to the establishment’s management. Investigators suggest that the establishment respond to FDA in writing concerning all actions taken to address the issues identified during the inspection. Once ORA investigators complete an inspection, they are responsible for preparing an establishment inspection report to document their inspection findings. Inspection reports describe the manufacturing operations observed during the inspection and any conditions that may violate U.S. statutes and regulations. Based on their inspection findings, ORA investigators make an initial recommendation regarding whether regulatory actions are needed to address identified deficiencies using one of three classifications: no action indicated (NAI); voluntary action indicated (VAI); or official action indicated (OAI). Inspection reports and initial classification recommendations for regulatory action are to be reviewed within ORA. For inspections classified as OAI—where ORA identified serious deficiencies—such inspection reports and classification recommendations are to be reviewed within CDER. CDER is to review the ORA recommendations and determine whether regulatory action is necessary. CDER also is to review inspection reports and initial classification recommendations for all for-cause inspections, regardless of whether regulatory action is recommended by ORA. According to FDA policy, inspections classified as OAI may result in regulatory action, such as the issuance of a warning letter. FDA issues warning letters to those establishments manufacturing drugs for the U.S. market that are in violation of applicable U.S. laws and regulations and may be subject to enforcement action if the violations are not promptly and adequately corrected. In addition, warning letters may notify foreign establishments that FDA may refuse entry of their drugs at the border or recommend disapproval of any new drug applications listing the establishment until sufficient corrections are made. FDA may take other regulatory actions if it identifies serious deficiencies during the inspection of a foreign establishment. For example, FDA may issue an import alert, which instructs FDA staff that they may detain drugs manufactured by the violative establishment that have been offered for entry into the United States. In addition, FDA may conduct regulatory meetings with the violative establishment. Regulatory meetings may be held in a variety of situations, such as a follow-up to the issuance of a warning letter to emphasize the significance of the deficiencies or to communicate documented deficiencies that do not warrant the issuance of a warning letter. The Number of Foreign Inspections Declined in Recent Years, and the Majority of Such Inspections Identified Deficiencies Total Number of FDA Foreign Drug Inspections Has Decreased Since Fiscal Year 2016 after Several Years of Increases In December 2019, we found that from fiscal year 2012 through fiscal year 2016, the number of FDA foreign drug manufacturing establishment inspections increased but then began to decline after fiscal year 2016. In fiscal year 2015, the total number of foreign inspections surpassed the number of domestic inspections for the first time. However, from fiscal year 2016 through 2018, both foreign and domestic inspections decreased—by about 10 percent and 13 percent, respectively. FDA officials attributed this decrease to vacancies in the number of investigators available to conduct inspections (which we discuss later in this testimony statement) and to inaccurate data used to select establishments for inspection in fiscal years 2017 and 2018. Despite steps taken to improve the accuracy and completeness of FDA data on foreign establishments, in December 2019, we found that the data challenges we identified in our 2008 report continue to make it difficult for FDA to accurately identify establishments subject to inspection. Specifically, since 2017, FDA had pursued an initiative to inspect approximately 1,000 foreign establishments that lacked an inspection history. As of November 2019, officials said all of these establishments had either been inspected or were determined not to be subject to inspection because it was determined they did not actually manufacture drugs for the U.S. market, or had not recently shipped drugs to the United States. However, officials told us that this effort contributed to the decline in the number of foreign inspections conducted because of how data inaccuracies affected the process for selecting establishments for inspection. Specifically, after selecting uninspected foreign establishments for inspection, FDA determined that a sizeable percentage of these establishments were not actually subject to inspection (e.g., about 40 percent of those assigned to the China Office in fiscal years 2017 and 2018). These foreign establishments were thus removed from the list for inspection for the given year. FDA officials told us that the next highest priority establishments identified through the risk- based model to replace those establishments were domestic establishments. As a result, the number of foreign establishments actually inspected decreased. As part of our ongoing work, we plan to examine the accuracy and completeness of information FDA maintains about foreign establishments and the application of its risk-based site selection process. We further found that FDA continued to conduct the largest number of foreign inspections in India and China, with inspections in these two countries representing about 40 percent of all foreign drug inspections from fiscal year 2016 through 2018. (See table 2.) In addition to India and China, the rest of the countries in which FDA most frequently conducted inspections has generally been the same since our 2008 report. Since we last reported on this issue, FDA announced in March 2020 that, due to COVID-19, it was postponing most inspections of foreign manufacturing establishments. Only inspections deemed mission-critical would still be considered on a case-by-case basis. According to the announcement, while the pandemic has added new complexities, FDA has other tools to ensure the safety of the U.S. drug supply. For example, FDA announced that it was evaluating additional ways to conduct its inspectional work that would not jeopardize public safety and would protect both the establishments and the FDA staff. Such ways, according to FDA, could include reviewing the compliance histories of establishments, using information shared by foreign regulatory partners, and evaluating establishment records in lieu of an onsite inspection. In addition, the FDA Commissioner’s May 11, 2020 press statement stated that while FDA’s regulatory oversight is vital to the long-term health of America, product safety and quality are ultimately the establishment’s responsibility. Most firms, according to FDA, strive to reliably provide quality products and maintain the integrity of the supply chain. However, the lack of foreign inspections removes a critical source of information about the quality of drugs manufactured for the U.S. market. It is not clear when FDA will resume regular inspections. The agency originally announced the postponement would last through April 2020. However, on May 11, 2020, it stated that the postponement would continue. According to FDA, the agency continues to closely monitor the global situation. FDA stated that it remains in contact with its foreign regulatory counterparts and would work with the Centers for Disease Control and Prevention to develop a process that would govern how and where to return to on-site facility inspections as conditions improve. Most Foreign Inspections Were for Surveillance In December 2019, we found that each year from fiscal year 2012 through 2018 at least 50 percent of FDA’s foreign inspections were surveillance inspections. In contrast to preapproval inspections, surveillance inspections are used to ensure drugs already on the market are manufactured in compliance with FDA regulations. In recent years, the proportion of foreign surveillance inspections has increased. As figure 2 shows, in fiscal year 2012, 56 percent of foreign inspections were surveillance-only inspections; in contrast, from fiscal year 2016 through 2018, about 70 percent of foreign inspections were surveillance-only, which was comparable to the percentage for domestic inspections during that period. This is a significant increase from the 13 percent of foreign inspections that were surveillance-only when we made our 2008 recommendation that FDA inspect foreign establishments at a comparable frequency to their domestic counterparts (85 percent of which were surveillance-only at that time). In our December 2019 testimony, we also reported that FDA implemented changes to its foreign drug inspection program since our 2008 report that may have contributed to the increase in surveillance inspections. Prior to 2012, FDA was required to inspect domestic establishments that manufacture drugs marketed in the United States every 2 years, but there was no similar requirement for foreign establishments. As a result, and as we reported in 2008, foreign inspections were often preapproval inspections driven by pending applications for new drugs. FDA thus conducted relatively few surveillance-only inspections to monitor the ongoing compliance of establishments manufacturing drugs that were already on the market, with just 13 percent of foreign inspections conducted for surveillance purposes at the time of our 2008 report. However, in 2012, the Food and Drug Administration Safety and Innovation Act eliminated the 2-year requirement for domestic inspections, directing FDA to inspect both domestic and foreign establishments on a risk-based schedule determined by an establishment’s known safety risks, which was consistent with our 2008 recommendation. FDA Identified Deficiencies during the Majority of Foreign Inspections In December 2019, we found that from fiscal year 2012 through 2018, FDA identified deficiencies in approximately 64 percent of foreign drug manufacturing establishment inspections (3,742 of 5,844 inspections). This includes deficiencies necessitating a classification of VAI, or the more serious OAI, as described in the text box. Based on their inspection findings, FDA investigators make an initial recommendation regarding the classification of each inspection: No action indicated (NAI) means that insignificant or no deficiencies were identified during the inspection. Voluntary action indicated (VAI) means that deficiencies were identified during the inspection, but the agency is not prepared to take regulatory action, so any corrective actions are left to the establishment to take voluntarily. Official action indicated (OAI) means that serious deficiencies were found that warrant regulatory action. About 59 percent of domestic inspections (3,702 out of 6,291) identified deficiencies during this time period. (See fig. 3.) This proportion is similar to what we found when we last looked at this issue in 2008, when FDA identified deficiencies in about 62 percent of foreign inspections and 51 percent of domestic inspections from fiscal years 2002 through 2006. Our December 2019 analysis showed that serious deficiencies identified during foreign drug inspections classified as OAI—which represented 8 percent of inspections from fiscal year 2012 through 2018—include CGMP violations such as those related to production and process controls, equipment, records and reports, and buildings and facilities. For example: Failure to maintain the sanitation of the buildings used in the manufacturing processing, packing, or holding of a drug product (21 C.F.R. § 211.56(a) (2019)). At an establishment in India producing finished drug products, the investigator reported observing a live moth floating in raw material used in the drug production, and that the facility staff continued to manufacture the drug products using the raw material contaminated by the moth, despite the investigator pointing out its presence. Failure to perform operations relating to the manufacture, processing, and packing of penicillin in facilities separate from those used for other drug products (21 C.F.R. § 211.42 (d) (2019)). At an establishment in Turkey that manufactured penicillin and other drugs, the investigator reported that the manufacturer had detected penicillin outside the penicillin manufacturing area of the establishment multiple times. According to FDA, penicillin contamination of other drugs presents great risk to patient safety, including potential anaphylaxis (even at extremely low levels of exposure) and death. Some investigators who conduct foreign inspections expressed concern with instances in which ORA or CDER reviewers reclassified the investigator’s initial inspection classification recommendations of OAI to the less serious classification of VAI. FDA Continued to Face Challenges Filling Vacancies among Staff Conducting Foreign Inspections In December 2019, we found that FDA’s foreign inspection workforce had staff vacancies, which FDA officials said contributed to the recent decline in inspections. As previously mentioned, FDA used multiple types of staff resources to conduct foreign drug inspections—including ORA investigators based in the United States, members of ORA’s dedicated foreign drug cadre based in the United States, and investigators assigned to FDA’s foreign offices. However, we found that each of these groups had current vacancies. At the time of our December testimony, FDA officials told us that the agency was trying to fill vacancies in each of these groups, but the lower staff numbers may limit FDA’s ability to conduct more foreign inspections. ORA investigators based in the United States. This group of investigators conducted the majority of foreign inspections; about 76 percent of foreign inspections in fiscal year 2018 involved an ORA investigator based in the United States who conducts both foreign and domestic inspections. FDA officials said that the more experienced investigators from this group are expected to conduct three to six foreign inspections per year, and investigators hired using generic drug user fees are expected to inspect nine to 12 foreign establishments per year. As of June 2019, there were 190 investigators eligible to conduct foreign drug inspections, but officials said that as of November 2019, the agency had an additional 58 vacancies in this group. At the time of our December 2019 testimony, officials said that the agency was in the process of hiring 26 ORA investigators based in the United States to fill these vacancies, with 32 vacancies remaining. FDA officials attributed the vacancies to multiple factors: investigator retirements, investigator movement to other parts of FDA, and the need to hire to additional investigator positions using generic drug user fees. Officials also said that a reorganization within ORA led to a reduced number of investigators who conduct drug manufacturing establishment inspections. While FDA had recently filled several of the vacancies, officials told us that new investigators are not typically used for foreign inspections until they have been with the agency for 2 to 3 years. ORA dedicated foreign drug cadre. About 15 percent of foreign inspections in fiscal year 2018 involved an investigator from ORA’s dedicated foreign drug cadre—a group of ORA investigators based in the United States who exclusively conduct foreign inspections. FDA officials said that members of the cadre are expected to conduct 16 to 18 foreign inspections each year. According to FDA, the cadre had 20 investigators in 2012 and 15 investigators in 2016. However, the cadre had only 12 investigators as of November 2019, out of 20 available slots. At the time of our December 2019 testimony, FDA officials told us that the agency was attempting to fill these positions from the current ORA investigator pool, but officials were not confident that all 20 slots would be filled. Investigators assigned to FDA’s foreign offices. Approximately 7 percent of foreign inspections in fiscal year 2018 involved investigators from FDA’s foreign offices. The investigators conducting these inspections were those based in the China and India foreign offices—the countries where most drug inspections occur—and also included those investigators on temporary duty assignment to these offices. According to FDA officials, these investigators are expected to conduct 15 foreign inspections each year. We have noted high vacancy rates for these foreign offices in past reports. While these vacancy rates have decreased over time, vacancies persist. As of November 2019, FDA’s China office had three of 10 drug investigator positions vacant (a 30 percent vacancy rate), while FDA’s India office had two of six drug investigator positions vacant (a 33 percent vacancy rate). In our December 2019 testimony, we reported that FDA had taken steps to address vacancies in the foreign offices but continued to face challenges. In our 2010 report, we recommended that FDA develop a strategic workforce plan to help recruit and retain foreign office staff. FDA agreed with our recommendation and released such a plan in March 2016, but the long-standing vacancies in the foreign offices raise questions about its implementation. FDA officials told us that one challenge in recruiting investigators for the foreign offices is that well- qualified investigators for those positions need foreign inspection experience. For example, an official in FDA’s India office told us that foreign inspections can be challenging, and the India office does not have the resources to develop or train new investigators. Therefore, it is important to recruit investigators who have experience conducting foreign inspections, and such investigators are recruited from ORA. Thus, vacancies in the other two groups of investigators can influence the number of staff available to apply for positions in the foreign offices. Further, according to FDA officials, after employees have accepted an in- country position, the agency can experience significant delays before they are staffed in the office due to delays in processing assignments. For example, an official in FDA’s India office said that investigators need to complete a week-long security training program and must obtain the security clearance needed to work at the U.S. Embassy, which is where FDA’s foreign office is located. However, the official told us that there are limited availabilities for that training, and background checks for security clearances can take time. According to this official, FDA investigators did not usually receive first priority for the training. FDA estimated that it can take as little as 1 month to over 2 years for an investigator to clear background and medical checks and arrive at a foreign office. For example, an investigator in FDA’s China office told us that as a result of these requirements and other issues, it took nearly 2 years for the investigator to arrive at the office after FDA had accepted the investigator’s application. According to FDA’s own strategic workforce plan for the foreign offices, these types of delays have resulted in staff changing their decision after accepting a position in the foreign offices. Persistent Challenges Unique to Foreign Inspections Raised Questions about Their Equivalence to Domestic Inspections In December 2019, we found that FDA continues to face unique challenges when inspecting foreign drug establishments that raise questions about whether these inspections are equivalent to domestic inspections. Specifically, based on our interviews with drug investigators in the dedicated foreign drug cadre and in FDA’s foreign offices in China and India, we identified four challenge areas related to conducting foreign inspections, which are described below. Of the four challenge areas identified, three areas—preannouncing inspections, language barriers, and lack of flexibility—were also raised in our 2008 report. Preannouncing Inspections. As we reported in 2008, the amount of notice FDA generally gives to foreign drug establishments in advance of an inspection is different than for domestic establishments. Drug establishment inspections performed in the United States are almost always unannounced, whereas foreign establishments generally receive advance notice of an FDA inspection. According to FDA officials, FDA is not required to preannounce foreign inspections. However, they said the agency generally does so to avoid wasting agency resources, obtain the establishment’s assistance to make travel arrangements, and ensure the safety of investigators when traveling in country. In our December 2019 testimony, we found that FDA does conduct some unannounced foreign inspections, particularly if the investigators conducting the inspection are based in FDA’s foreign offices. However, FDA officials told us that FDA does not have data on the frequency with which foreign drug inspections are unannounced, nor the extent to which the amount of notice provided to foreign establishments varies. According to FDA officials, this is because FDA does not have a data field in its database to systematically track this information. However, the officials estimated that the agency generally gives 12 weeks of notice to establishments that investigators are coming when investigators are traveling from the United States. While investigators in FDA’s China and India offices do conduct unannounced or short-notice inspections, these staff do not perform most of the inspections in these countries. (See table 3.) Our work indicated that preannouncing foreign inspections can create challenges and raises questions about the equivalence to domestic inspections. Of the 18 investigators we interviewed, 14 said that there are downsides to preannouncing foreign inspections, particularly that providing advance notice gives foreign establishments the opportunity to fix problems before the investigator arrives. For example, when an inspection is preannounced, it gives establishments time to clean up their facility and update or generate new operating procedures ahead of the inspection. However, establishments are expected to be in a constant state of compliance and always ready for an FDA inspection, and several investigators told us seeing the true day-to-day operating environment for an establishment is more likely during an unannounced inspection. Of the 18 investigators we interviewed for our December 2019 testimony, 12 said that unannounced inspections are generally preferable to preannounced inspections. One investigator told us that, although they believed the best way to ensure industry compliance to CGMPs was for establishments to not know when FDA is coming for an inspection, there was no data that would allow the agency to evaluate whether unannounced inspections were better than preannounced inspections. In addition, some investigators told us that it was still possible to identify serious deficiencies during preannounced inspections. For example, investigators could still identify issues by looking at the firm’s electronic records, including time-stamped data relating to the creation, modification, or deletion of a record. Three investigators also told us that in some cases there could be benefits to announcing inspections in advance. For example, for preapproval inspections, announcing the inspection in advance gives the establishment time to organize the documentation and staff needed to conduct the inspection. Language Barriers. Work for our December 2019 testimony indicated that language barriers—which we first reported as a challenge to conducting foreign inspections in our 2008 report—can add time to inspections and raise questions about the accuracy of information FDA investigators collect and thus about the equivalence to domestic inspections. FDA generally does not send translators on inspections in foreign countries. Rather, investigators rely on the drug establishment to provide translation services, which can be an English-speaking employee of the establishment being inspected, an external translator hired by the establishment, or an English-speaking consultant hired by the establishment. Of the 18 investigators that we interviewed, 14 said that language barriers can be a challenge to conducting foreign inspections and were especially challenging in parts of Asia, including China and Japan. Seven investigators told us this issue was less of a challenge for inspections conducted in other foreign countries, including India and countries in Europe, because workers at establishments in these countries were more likely to speak English, and documentation was also more likely to be in English. Investigators told us that compared to domestic inspections, it can be more challenging and take longer to complete typical inspection- related activities, such as reviewing documentation or interviewing employees, if the investigator needed to rely on translation. Fourteen of the 18 investigators we interviewed said that there can be concerns related to relying on establishment staff and independent translators. Specifically, 11 investigators told us there can be uncertainties regarding the accuracy of the information being translated, particularly when investigators rely on the translation provided by an employee of the establishment being inspected. For instance, one investigator said that there was more risk of conflict of interest if the establishment used its own employees to translate. Another investigator said that they went to a drug establishment in China that told FDA it had English-speaking employees to translate the inspection, but that was not the case, and the investigator had to use an application on their phone to translate the interviews. In addition, the firm representative providing the translation may be someone who does not have the technical language needed, which can make it harder to communicate with firm staff and facilitate the inspection. One investigator told us that the independent translators hired by firms were sometimes consultants and, in those instances, it can seem like the consultants are coaching the firm during the inspection. FDA officials told us that when they conduct unannounced for-cause inspections in China, investigators bring locally employed staff who work in FDA’s China office to act as translators. The investigators we interviewed said that in such instances, they valued knowing that the translation they were getting was accurate. However, FDA does not have the resources to provide locally employed staff on every inspection, according to an FDA official. Lack of Flexibility. Work for our December 2019 testimony indicated that, as we first reported in 2008, the overseas travel schedule can present unique challenges for FDA’s domestically based investigators— including both ORA investigators and members of the dedicated foreign dug cadre—who conduct the majority of foreign inspections. Eight of the 12 dedicated foreign drug cadre investigators that we interviewed for our December 2019 testimony told us that there is little flexibility to extend foreign inspections conducted by domestically based investigators, because the inspections they conduct on an overseas trip are scheduled back-to-back in 3-week trips that may involve three different countries. This raises questions about their equivalence to domestic inspections. For instance, extending one inspection would limit the amount of time the investigator has to complete their other scheduled inspections, some investigators told us. In addition, eight investigators told us that domestically based staff are generally unable to extend the total amount of time spent on an overseas trip—one investigator told us that an investigator would have to find something really bad to justify an extension. In contrast, FDA officials told us that inspections conducted by in-country investigators in China or India, and domestic inspections in the United States, are generally scheduled one at a time and can thus more easily be extended if the investigator needs additional time to pursue potential deficiencies. However, in-country investigators are not involved in the majority of inspections conducted in China or India. Three investigators from the dedicated foreign drug cadre told us that when they travel overseas, they adjust their inspection approach to help ensure they finish foreign inspections on time. For example, one investigator told us that an investigator may start the inspection in an area of the establishment that was noted as having issues during the last inspection. However, one investigator said that sometimes it is not possible to cover everything in depth during a foreign inspection. Another investigator told us that they focus on identifying the most serious issues during a foreign inspection, and that less serious issues can be identified in the establishment inspection report for reference in the next inspection. Five investigators also noted that they work long hours during their inspection to ensure they can complete the needed work. While FDA may assign more than one investigator to an inspection to complete needed work, one investigator said that FDA does not usually assign more than one person to an inspection because investigators are expected to have the experience to conduct inspections by themselves. FDA data show that from fiscal years 2012 through 2018, the majority of both foreign and domestic inspections were conducted by one person— 77 percent and 66 percent, respectively. Post-Inspection Classification Process. According to FDA officials, starting in fiscal year 2018, FDA implemented a new post-inspection classification process: when an ORA investigator recommends an OAI classification following an inspection, ORA compliance is required to send that inspection report to CDER for review within 45 calendar days from the inspection closeout. Among other things, the process was intended to help ensure FDA can communicate inspection results to domestic and foreign establishments within 90 days of the inspection closeout, as committed to under the Generic Drug User Fee Amendments of 2017(GDUFA II). FDA officials told us that the changes also required an additional ORA review for foreign inspection reports to align that process with the process for domestic inspection reports. Although the 45-day reporting time frame for potential OAI classifications is a requirement for both domestic and foreign inspections, adding the additional level of review within ORA effectively shortened the amount of time investigators have to document findings for foreign inspections. Our work indicated that the post-inspection reporting time frames can create challenges for domestic investigators who conduct foreign inspections and raise questions about the equivalence to domestic inspections. Eight of the 18 investigators we interviewed for our December 2019 testimony said shortening the time for completing reports and adding a level of review has made it more challenging to meet reporting requirements, especially if serious deficiencies are identified during the inspection. Investigators told us that for a potential OAI inspection, they now need to send the inspection report to their supervisor for endorsement within 10 days of the closeout of a foreign inspection, regardless of when the investigator’s next inspection is scheduled for, or whether the investigator has to travel from overseas back to the United States after the inspection. For example, if a domestic investigator finds serious deficiencies on the first inspection of an overseas trip—thus indicating an initial OAI classification—the investigator needs to write and send the related inspection report to the ORA supervisor for endorsement before returning home from the 3-week overseas trip to meet the required time frame. One investigator told us that, as a result of the time pressures, post-inspection reports may be less thorough, and that some inspection observations could be better supported if investigators had more time to write the reports. In conclusion, foreign manufacturing establishments continue to be a critical source of drugs for millions of Americans, and FDA inspections are a key tool to ensure the quality of these drugs. Over the years since we first examined this issue, FDA has made significant changes to adapt to the globalization of the pharmaceutical supply chain and has greatly increased the number of inspections it conducts of foreign establishments. However, we found in December 2019 that the agency faced many of the same challenges overseeing foreign establishments that we identified over the last two decades. These included inspector vacancies and unique challenges when inspecting foreign drug establishments that raised questions about the equivalence of those inspections to domestic inspections. Since then, the outbreak of COVID- 19 has added a layer of complexity. It also further highlights the global nature of our pharmaceutical supply chain. Chairman Grassley, Ranking Member Wyden, and Members of the Committee, this completes my prepared statement. I would be pleased to respond to any questions that you may have at this time. GAO Contact and Staff Acknowledgments If you or your staff have any questions about this testimony, please contact Mary Denigan-Macauley, Director, Health Care at (202) 512-7114 or DeniganMacauleyM@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. GAO staff who made key contributions to this testimony are William Hadley (Assistant Director); Derry Henrick (Analyst-in- Charge); Katherine L. Amoroso; George Bogart; Zhi Boon; Rebecca Hendrickson; John Lalomio; Gail-Lynn Michel; Laurie Pachter; and Vikki Porter. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.


Background AOC is responsible for the maintenance, operation, and preservation of the buildings that comprise the U.S. Capitol complex, as shown in figure 1. AOC is organized into the following 10 jurisdictions, each of which is funded by a separate appropriation: (1) Capitol Building, (2) Capitol Grounds and Arboretum (hereafter the Capitol Grounds), (3) Capitol Police Buildings, Grounds, and Security (hereafter the Capitol Police), (4) Capitol Power Plant, (5) House Office Buildings (hereafter the House), (6) Library Buildings and Grounds (hereafter the Library), (7) Planning and Project Management (PPM), (8) Senate Office Buildings (hereafter the Senate), (9) Supreme Court Building and Grounds, and (10) U.S. Botanic Garden (hereafter the Botanic Garden). PPM provides consolidated services to all of AOC’s jurisdictions, such as long-range facility planning, historic preservation, and architectural and engineering design services. In addition, PPM manages systems that span jurisdictions including electrical distribution and emergency generators. PPM is also the parent organization of the Division, which provides construction and facility management support to all of AOC’s jurisdictions. Established in the 1970s, the Division’s mission is to “support AOC jurisdictions serving their Congressional and Supreme Court clients by providing high quality construction and craftsmanship with seamless flexibility, best value, and extraordinary customer service, while protecting our national treasures.” The Division’s operations are funded through a mix of appropriations and project funding from the jurisdictions. Specifically, according to AOC officials, the agency’s appropriation for Capital Construction and Operations provides the salaries and expenses of up to 13 permanent staff. The salaries and expenses of the remaining staff, as well as other costs (such as materials) are covered by the project funding the Division receives from the jurisdictions. According to AOC officials, essentially, the jurisdictions hire the Division to execute work on their behalf, and the Division charges the jurisdictions for its expenses. As a result, the number and type of temporary employees the Division employs at any given time is directly related to the projects it is performing for the jurisdictions. As of October 2018, of the Division’s 162 employees, 12 were permanent employees responsible for executive management and administrative functions. The remaining 150 were temporary employees—124 trade workers and 26 construction support employees—that it hired under temporary (e.g., 13- or 24-month) appointments. The trade workers include electricians, plumbers, masons, woodcrafters and carpenters, cement finishers, sheet metal mechanics, painters and plasterers, hazardous material abaters and insulators, laborers, and warehouse and material handlers. The construction support employees include personnel who perform activities such as construction management, purchasing, and timekeeping. The Division’s temporary employees are eligible for benefits. By law, AOC is generally required to provide all temporary employees with “the same eligibility for life insurance, health insurance and other benefits” to temporary employees who are hired for periods exceeding one year. The benefits AOC’s temporary employees receive may differ from what other federal temporary employees in the executive branch receive since these benefits vary depending on the type of temporary appointment and the employing agency, among other things. For example, employees serving under an appointment limited to 1 year or less are generally not eligible for the Federal Employees’ Group Life Insurance program. As previously stated, the Division pays for the salaries and expenses of its temporary employees with project funding from the jurisdictions. That project funding covers both the Division’s direct and indirect costs. Direct costs are those directly attributed to and expended on a project, such as labor (i.e., trade workers) and materials. In contrast, indirect costs are necessary costs that are not directly attributable to a specific project, such as employee leave and training, as well as salaries for construction support employees, such as supervisors and purchasing agents. To pay for its indirect costs, the Division charges the jurisdictions what it calls an “indirect rate.” As of October 2018, the Division’s indirect rate was 0.85. The Division applies this rate to every direct labor-hour associated with a project it executes for the jurisdictions. For example, for a trade worker with a hypothetical hourly cost of $45, the Division charges the jurisdictions about $83, as shown in figure 2. For more information on the Division’s direct and indirect costs, see appendix II. Jurisdictions Used the Division for a Wide Range of Projects, Citing Flexibility and Capacity as Key Factors, and Were Generally Satisfied with the Division’s Services Jurisdictions Used the Division for a Wide Range of Projects Based on our analysis of the Division’s data for projects completed during fiscal years 2014 through 2018, the jurisdictions used the Division to varying degrees for projects that ranged widely in terms of cost, complexity, and duration. Cost: There was a wide range in the nominal cost of individual projects the Division completed during fiscal years 2014 through 2018. The smallest individual project cost about $1,100 in 2017 dollars to perform hazardous materials testing in the Ford Office Building for the House jurisdiction in fiscal year 2016. Larger projects may be done in phases and when combined can cost millions of dollars. For example, in 2015 the Division completed a lighting project at the James Madison Building for the Library jurisdiction in two phases at a total cost of about $9.8 million in 2017 dollars. Complexity: During this period, the Division’s projects ranged from work involving one type of activity or trade to work involving several phases or many trades. For example, the Capitol Power Plant jurisdiction used the Division for paint projects and a door replacement. Other projects included the construction of a lactation suite at the Ford House Office Building. For this 4-month project, the Division performed carpentry, electrical work, hazardous materials abatement, and other tasks in order to demolish an existing women’s restroom and build a lactation suite with an adjacent, smaller women’s restroom (see fig. 3). Duration: During this period, the jurisdictions used the Division for projects that varied from quick turnaround projects that took a few days to complete to longer, multi-year projects. Most (about 88 percent) of the projects were completed within one year, while about 4 percent were completed between 1 and 2 years, and about 8 percent took 2 or more years to complete. For example, the Senate jurisdiction used the Division for an elevator repair project in 2016 at the Russell Office Building that took one day to complete while smoke detector upgrades in the James Madison Building for the Library jurisdiction took over 5 years and were completed in 2014. We also identified several examples of projects that the Division did for jurisdictions in phases. Sometimes the duration of the phases were less than one year but when combined the work spanned multiple years. For example, the Division built additional office spaces for staff displaced by the House jurisdiction’s renovation of the Cannon Office Building. Each phase of the work was completed within one year, but the work spanned almost 2 years from November 2014 to August 2016. The extent to which each of the jurisdictions used the Division also varied. Based on our analysis of the Division’s data and discussions with the jurisdictions, the Library, House, and Senate jurisdictions were the primary users of the Division during fiscal years 2014 through 2018, comprising more than 90 percent of the total work by cost for completed projects, as shown in figure 4. The Division completed projects exceeding $1 million for each of these jurisdictions. Jurisdiction Officials Cited the Division’s Flexibility and Capacity as Factors That Influence Decisions to Use the Division While jurisdictions have the option to use their own staff or a contractor for projects, jurisdiction officials said they consider a range of factors when determining whether to use the Division. They most frequently cited the Division’s flexibility in responding to scheduling and scoping changes and the jurisdictions’ own internal capacity to execute a project. They less frequently cited other factors, such as the availability of appropriations. Flexibility Schedule: Jurisdiction officials said the Division provided scheduling flexibility at no extra charge compared to using outside contractors. According to jurisdiction officials, when projects require a great deal of flexibility, the jurisdictions may be more likely to choose the Division over a contractor because the Division can start and stop work as needed and can work nights or on weekends if necessary to keep a project on schedule without charging extra fees. For example, work on projects may need to be stopped or delayed for a variety of reasons, such as for security purposes if there is a protest near the worksite, or during a presidential visit. Jurisdiction officials also noted that the Division can typically mobilize faster than a contractor, a consideration that can be an important factor in determining whether to use the Division. For example, jurisdiction officials noted that the Division’s employees can begin work faster than an outside contractor because they have employee identification badges that authorize access to most buildings across the Capitol complex without an escort. 'Contractors must obtain a badge prior to accessing a work site and require escorts in instances when they do not have an AOC or site- specific badge, and the process of obtaining a badge adds time to when a contractor can begin work. As another example, jurisdiction officials also told us that using a contractor requires that AOC develop full design specifications for a project, a process that takes time and resources. In contrast, the Division can execute work without full design specifications. For example, Capitol Power Plant officials told us they used the Division for renovations to their Administration Building because, according to the officials, the Division started the work sooner, without design specifications and thereby completed the project faster than a contractor likely could have. Capitol Power Plant officials explained that the work— which included new carpet and painting—was agreed upon with the Division without spending time developing detailed design specifications that would have been required to obtain a contractor for the work. Scope Changes: According to jurisdiction officials, the Division is typically more flexible than a contractor when dealing with issues that arise from unforeseen site conditions or changes to a project’s scope. For example, during the construction of the lactation suite discussed above, the Division uncovered lead paint in the walls, requiring the work to stop until the lead paint was removed. According to officials, contractors typically charge for making changes to a project’s scope, such as removing hazardous materials uncovered during construction or associated delays. The Division does not charge for making changes or associated delays. This flexibility is because the Division charges based on direct labor hours spent on a project, meaning its expenses are charged as they are incurred. Accordingly, while a project’s costs may increase if more labor is charged to a project, the Division also has the option of having its employees work on other projects if work on a particular project has to stop. Jurisdiction officials told us that the Division also works with the jurisdictions to save money on projects. According to officials, such savings were the case during a 2-year project that the Division completed at the Library jurisdiction’s Jefferson Building in 2018 with a cost of $3.5 million in 2017 dollars. The project involved reversing the direction of doors in high-occupancy areas to allow for more orderly evacuation of occupants in the event of an emergency, as shown in figure 5. It also involved replacing some of the building’s historic doors and associated hardware with replicas that meet modern safety standards. Officials told us the Division helped the jurisdiction save about $1.2 million (in current dollars) during the course of the project by identifying less expensive materials for the project than originally planned for. Internal staff: Jurisdiction officials also told us that they use the Division for projects when they lack the internal capacity to do so. Most of the jurisdictions have some trade workers, such as electricians and plumbers, on staff to handle their daily operations and maintenance needs. Jurisdictions may execute smaller projects with their own employees but may use the Division for projects beyond routine maintenance work that their own employees cannot fit into their schedules. For example, officials with the Senate jurisdiction told us that they have staff capable of performing cabinetry work but have used the Division in the past for cabinetry work so that their staff could focus on more routine maintenance work. Senate jurisdiction officials also told us that they primarily use their own staff for construction work, but will use the Division as an option to supplement their staff when the volume of the Senate jurisdiction’s own workload is higher than what can be handled internally. Skill and equipment: Jurisdictions may use the Division if they lack the skills or equipment to execute a particular project. Officials from five of the jurisdictions told us that they have staff within their jurisdiction who can execute small projects involving hazardous materials, such as lead paint abatement under 2 square feet in size. Larger projects have additional abatement requirements, and the jurisdictions have used the Division for these projects. As another example, the Capitol Grounds jurisdiction used the Division in 2016 to install the annual Christmas tree on the Capitol lawn because the jurisdiction lacked the necessary equipment to do so. The Botanic Garden jurisdiction, which does not employ any masons, used the Division for a project at its Conservatory in 2016 because of the Division’s masonry expertise. Officials with the Senate jurisdiction also cited the Division’s masonry expertise among other factors, such as the Division’s familiarity with the jurisdiction’s buildings, in selecting the Division to repair the steps at the Russell Senate Office Building in 2017, as shown in figure 6. Availability of appropriations: Jurisdiction officials told us that they might not use the Division if the work cannot be completed by the time the jurisdiction’s appropriations expire. Specifically, because the jurisdictions pay for the Division’s services as work is executed rather than upfront when the work is initiated, the jurisdictions must ensure that work by the Division can be completed before their appropriations expire. Jurisdiction officials told us that as a result, the Division may not be a realistic option when using 1-year appropriations near the end of the fiscal year. In contrast, when using a contractor, jurisdictions may obligate fixed period appropriations prior to the end of the fiscal year for work that will continue into the following fiscal year. Cost: Most jurisdiction officials said that a project’s cost was not a key factor they considered when determining whether to use the Division for a project. When the jurisdictions are considering using a contractor they are not required to obtain cost estimates from the Division first and generally do not do so. As a result, comprehensive information on the relative costs of using the Division compared to a contractor was not available. However, in cases where the jurisdictions told us they did obtain estimates from both the Division and a contractor, they said the cost to use the Division was sometimes more expensive than a contractor and sometimes less expensive, as illustrated in the following examples. Officials with the Supreme Court Building and Grounds jurisdiction told us they used the Division to install a new heating, ventilation, and air-conditioning system in one of its buildings after it obtained an estimate from a contractor. According to officials, the project required specialized skills that the Division’s trade workers did not have. However, once they received the contractor’s estimate, the jurisdiction officials determined it was cheaper to pay for the Division’s employees to get trained to do the project than using a contractor. Officials with the Senate jurisdiction told us they obtained cost estimates for lead abatement work from both the Division and a contractor several years ago. According to officials, the contractor’s estimate was less than that of the Division because the contractor proposed using different equipment for the project than the Division, and the jurisdiction used the contractor for the abatement. Jurisdiction Officials Reported They Were Generally Satisfied with the Division’s Services; A Few Suggested Making Changes to Its Operations The jurisdiction officials we interviewed said they were generally satisfied with the Division’s services, including the quality of its work, and were particularly satisfied with the flexibility the Division offers. Officials from seven of the nine jurisdictions we interviewed also told us they would not suggest making changes to how the Division currently operates. Officials from two of the jurisdictions suggested the organizational and cost-allocation changes discussed below. According to Division officials, implementing those suggestions would have implications for its operations and structure, and would require additional research and evaluation to determine if they are feasible. Transfer positions from the Division to its parent organization, PPM: Officials from one jurisdiction suggested that the Division could lower its indirect rate by transferring payroll responsibility for some supervisory positions, such as its construction or safety managers, from the Division to PPM. As discussed above, because the Division does not receive an appropriation for the salaries and expenses of its temporary construction support employees, it pays for those costs by charging the jurisdictions for direct labor hours and also an “indirect rate.” Division officials told us that payroll responsibility for some construction support positions could be transferred to PPM and that this transfer would reduce the Division’s indirect rate because that rate increases by about 1.1 percent for each employee captured in the rate. Because PPM is the parent organization of the Division, this step would not reduce the total costs of projects to AOC as an organization; rather, it would transfer the responsibility for paying certain costs from the jurisdictions to PPM. According to AOC officials, this could have several effects. First, PPM would need to find a way to fund those positions, which would likely require an increase in its appropriations to cover additional positions. Second, transferring supervisory positions to PPM could mean those personnel could be tasked to support other AOC-wide efforts, rather than supervising and managing the day-to-day execution of the Division’s projects. Similarly, Division officials told us that transferring supervisory positions or support personnel such as purchasing agents to PPM could reduce the Division’s flexibility, such as its ability to hire additional supervisors or support personnel if its workload increases in the future. Make the Division’s indirect rate variable: Officials with that same jurisdiction suggested that the Division consider making its indirect rate (which as of October 2018 was a fixed rate of 0.85) a variable rate. Under a variable rate approach, projects would have different rates depending on their needs. For example, a project requiring only labor would be charged one rate, but a project requiring labor and additional services, such as the purchasing of materials, would be charged a higher rate. According to Division officials, charging the jurisdictions varying rates depending on the extent to which a project utilizes the Division’s resources could reduce the cost for some jurisdictions but increase it for others since the Division must charge enough to recover all of its costs. Division officials told us AOC evaluated this option in 2017 but decided against it. AOC determined that making the Division’s indirect rate variable would result in increased administrative burden because the Division would have to determine which projects and workhours would be variable and which would not. It would then need to track and assess them differently for each project. Provide additional on-site supervisors for complex multi-trade projects: For most projects, the Division provides supervisors who manage the day-to-day execution of multiple projects. However, jurisdictions have the option to pay, as a direct cost, for dedicated, on- site supervisors to oversee and manage their projects exclusively. Officials with one jurisdiction suggested that the Division make it standard practice for complex, multi-trade projects to have a dedicated, on-site supervisor. Division officials told us that having a dedicated, on-site supervisor works best for complex, multi-trade projects such as the East Phase of the House jurisdiction’s 13-month, $15 million child care center project that the Division completed in December 2018 (see fig. 7). According to Division officials, having dedicated, on-site supervisors day and night during construction enabled the project to remain on schedule and below budget because the supervisors were responsible for overseeing all construction activities and could immediately address questions or concerns that arose, thereby resulting in increased efficiency and cost savings. Division officials told us that while the project’s scope increased during execution, the Division was able to work additional nights and weekends to meet the project’s deadline. Even with additional scope, Division officials estimated that they have saved the House jurisdiction about $500,000 (in current dollars) on the project through increased oversight and by identifying areas of cost savings, such as purchasing less expensive lighting fixtures than called for in the design. The Division Has Taken Steps to Strategically Manage Its Workforce but Does Not Have a Formalized Process for Collecting Some Information Uncertainties Make Anticipating the Division’s Workforce Needs Challenging The variability of the Division’s workload makes anticipating the necessary size (number of employees) and composition (mix of trades and number of employees within each trade) of its workforce challenging. AOC has reported to Congress that the primary drivers behind the size and composition of the Division’s workforce have been project demand and the availability of funding. As previously discussed, the Division’s workload is driven by projects the jurisdictions hire it to perform. Without projects to execute for the jurisdictions, the Division does not have funding to pay the salaries and expenses of most of its employees. Accordingly, the size of the Division’s workforce expands and contracts in response to the jurisdictions’ demand for work. For example, over the last 5 fiscal years, the size of the Division’s trade workforce has fluctuated between a high of 191 in fiscal year 2016 and a low of 121 in fiscal year 2018. During that period, the number of employees the Division employed within each trade also fluctuated. Several factors contribute to the variability of the Division’s workload and make determining its future workforce needs challenging. First, officials told us that the Division has no control over whether the jurisdictions use the Division for their projects. Second, even if a jurisdiction decides to use the Division, Division officials told us that projects are notional or uncertain until that jurisdiction signs a project agreement, among other things. Third, even with a signed agreement, jurisdictions can reduce a project’s scope or cancel it all together, a situation that can leave the Division searching to find work for the trade workers it planned to use for the project. Finally, differing project priorities also come into play, as both Division officials and representatives from three of the jurisdictions acknowledged that some projects and work for certain jurisdictions are a higher priority than others. According to officials, when priority or emergency projects arise, the timing and work for ongoing projects can be affected as trade workers are shifted to the priority or emergency. In some cases, the on-going project may continue at a slower pace with fewer workers and in other cases all work might be stopped for a period of time. The Division Has Taken Steps to Anticipate Its Workforce Needs but Lacks a Formalized Process for Collecting Information on the Jurisdictions’ Construction Priorities Over the last several years the Division has made efforts to strategically manage its workforce to help ensure that it has the right number and composition of employees to meet the jurisdictions’ needs. Our prior work has identified certain practices that, when implemented, can help federal agencies strategically manage their human capital. These practices include: (1) involving managers and stakeholders in decision-making, (2) basing workforce decisions on current needs and future projections, (3) having strategies to address workforce gaps, and (4) monitoring progress. As discussed below, we found that the Division has taken steps that generally align with those practices. However, it does not have a formalized process for collecting information that it uses to project future workforce needs, and we note that several of the steps it has taken date to the time of the March 2017 layoffs or more recently. Involve managers and stakeholders in decision-making: The Division has taken steps to involve AOC’s management, including the superintendents of the jurisdictions, in managing its workforce given the variability of its workload. According to Division officials, its staff are in frequent contact with the jurisdictions and meet periodically with the jurisdictions to discuss the status of ongoing and future projects. The officials said that Division staff meet bi-weekly with the larger jurisdictions—such as the Senate, House, and Library—and monthly or as needed with others as well as with PPM on a weekly basis to discuss the status of projects and workforce needs. According to Division officials, this regular communication with the jurisdictions is their primary and most important method of identifying and addressing workload issues or concerns. Jurisdiction officials echoed the Division’s comments, noting that they are in frequent contact with staff from the Division or as needed. Base workforce decisions on current needs and future projections: Over the last several years, the Division has taken steps to improve how it collects and tracks information from the jurisdictions upon which to base its future workforce projections. Prior to 2015, the Division used a paper- based process to collect information on the jurisdictions’ work requests and tracked information on a spreadsheet. In 2015, the Division implemented a software tool called the Construction Division Management System (CDMS) to streamline that process, making it easier for the jurisdictions to submit requests for work. For example, using CDMS, the Division can now electronically collect information for ongoing projects from the jurisdictions, such as change orders and schedule updates, and the jurisdictions can electronically submit requests for cost or schedule information for future projects. According to Division officials, Construction Managers, who are familiar with the resource needs of individual projects, are responsible for updating and validating the information in CDMS—typically bi-weekly—and the information in CDMS is available to the jurisdictions to review and verify. More recently, in July 2017, the Division hired a scheduler to develop resource-loaded schedules for ongoing projects. This involves assigning labor, materials, equipment, and other resources to a project’s schedule. According to Division officials, currently, the Division develops resource- loaded schedules for about 70 percent of its workload as the projects that comprise its remaining workload are too small or short-term for such schedules. In addition, in October 2017, the Division began collecting additional information on the jurisdictions’ construction priorities through a monthly data call. As part of this data call, which the Division performs via email, the Division requests updated information from the jurisdictions on their current projects, such as the expected start date or whether minor tasks remain, and the status of potential future projects. Using the information the Division collects from the jurisdictions, officials told us it then forecasts its workload and workforce needs out over the succeeding 12 months. According to officials, those projections are an “art, not a science,” because of the uncertainties surrounding the Division’s workload. However, the Division has not formalized the process it uses to collect information about the jurisdictions’ construction priorities. Specifically, we found that the Division lacks a written set of procedures for the monthly data call discussed above to help ensure that staff understand who is responsible for collecting information, what information should be collected, and when that information should be collected. This lack of procedures led to a situation in July 2018 where, according to officials, the Division did not conduct that data call but has since set calendar reminders for key staff in an effort to help ensure they do not miss it again. While setting such reminders may have some benefit now, it does not ensure that others within AOC will execute that data call in the future. Formalized processes, such as written procedures, can help ensure that steps an agency is taking can be implemented in a predictable, repeatable, and accountable way. Such procedures are also a key component of internal control designed to provide reasonable assurance that an organization’s operations are effective and efficient. AOC officials agreed that a more formalized process for collecting information about the jurisdictions’ construction priorities could help ensure the data is collected consistently. It would also better position AOC management to ensure that the Division’s process will be implemented consistently and that the jurisdictions understand what information is expected of them. It could also provide reasonable assurance to AOC management and Congress that the Division is taking the steps necessary to manage its workload and basing its workforce projections on the most current information available. Have strategies to address workforce gaps: The Division has a number of strategies it can employ if the size and composition of its workforce are not aligned with its workload requirements. For example, officials told us the Division can utilize direct-hire authority to quickly fill positions if there is a shortage of employees with specific skillsets to meet the jurisdictions’ needs. Officials told us employees may also work overtime to meet the jurisdictions’ needs if the Division’s workload projections do not show a need to hire additional employees. In instances where there is a lack of work, officials told us the Division has the options of not renewing the appointments of its temporary employees; helping affected employees in finding positions in jurisdictions to the extent practicable; or, if necessary, lay off affected employees, as it did in March 2017. Division officials told us they are also exploring additional strategies to help address potential instances where the size and composition of its workforce are not aligned with its workload requirements moving forward. One potential strategy involves using the Division to help address AOC’s backlog of deferred maintenance and capital renewal, which AOC estimated in 2017 was about $1.4 billion. Another potential strategy involves working with the jurisdictions to establish more large projects that provide a stable amount of work over a period of time. An example of a recent such project is the East Phase of the O’Neill Child Care Center project. According to Division officials, around 25–30 trade workers worked at the site at any given time, providing stability and work for multiple trades. When work on other projects was delayed or did not materialize, the Division was able to move the trade workers to the child care project. Monitor progress: Over the last several years the Division has taken steps to monitor the accuracy of its workload and workforce projections by discussing its projections with AOC management, including the Architect of the Capitol and the superintendents of the jurisdictions, each month. According to officials, the Division began these monthly briefings for AOC’s management in December 2016, when its workload decreased due to the completion of work related to the renovation of the Cannon Office Building. During these briefings, Division staff provide the Architect of the Capitol and the superintendents with information on the Division’s active, committed, and potential projects over the next several months. According to Division officials, these briefings provide an opportunity to discuss with AOC’s management any issues or concerns they have with the Division’s workload. The Division employed the practices described above in the months leading up to the March 2017 layoff of the 30 temporary employees. Division officials told us that 5 to 6 months prior to March 2017, they anticipated a potential decline in the Division’s workload and worked with the jurisdictions to identify potential projects that the Division could execute, but sufficient additional projects did not materialize. During this process, the Division involved PPM, the jurisdictions, and AOC’s management, among others. The efforts to minimize the number of employees affected by any layoffs included identifying job openings within the jurisdictions that employees could apply for. According to officials, one employee was hired by the Senate jurisdiction, another by the Capitol Grounds jurisdiction, and a third by the Office of the Chief Administrative Officer in the House, prior to the layoff. During the course of our review, we observed that the Division employed these strategies. Specifically, Division officials told us that they anticipated there might be a potential decline in the Division’s workload in early 2019. The Division raised this potential with AOC’s management during the summer of 2018, and officials told us the issue was resolved once the House and Library jurisdictions identified several projects that the Division could execute beginning in 2019. AOC’s Appointment and Subsequent Lay Off of Temporary Employees in March 2017 Followed Applicable Practices and Policy AOC’s authority to appoint and remove its employees is governed by title 2 of the U.S. Code and AOC has established various practices and policy related to their terms of employment. We found that AOC generally followed its practices when it appointed 30 temporary employees and adhered to its policy when it subsequently laid them off in March 2017. AOC Generally Followed Its Practices in Appointing and Renewing the Terms of Employment for Temporary Employees Our review of the appointment letters for 27 of the 30 temporary employees laid off in March 2017 found that the letters specified that the position was temporary and was for a term not-to-exceed 13-months. We also found that 10 of the 27 appointment letters included language stating that the position was dependent on the availability of work or funding. As part of our review, we met with five of the nine employees that AOC rehired following the March 2017 layoffs, all five employees told us that they were aware of the temporary nature of their positions and of the fact that they could be laid off at any time due to lack of work. Human capital officials told us that in April 2017, they developed a standard appointment letter to communicate the terms of employment for temporary employees more consistently. This letter includes language explaining that temporary appointments may be terminated at any time due to a lack of work, lack of funds, or failure to meet management’s expectations. For a copy of AOC’s standard appointment letter for temporary employees, see appendix III. AOC may renew the employment of temporary employees at the end of their 13-month appointment based on project needs and the availability of funding, according to human capital officials. We found that the 13 month appointments for 26 of the 30 temporary employees were routinely renewed prior to their March 2017 layoff. Of the 26 temporary employees, 12 had been employed from 13 months to 5 years, 9 had been employed from 6 to 10 years, and 5 had been employed for more than 10 years. The remaining four had been employed for less than 13 months. Human capital officials told us that there is no limitation on the number of times an employee’s appointment may be renewed. To ensure that employees serving under temporary appointments understand the terms of their employment, human capital officials told us that since March 2014 employees who have had their appointments renewed sign a standard Extension of Temporary Appointment form. This form states the position is temporary, may be shorter or longer than 13 months, and may end at any time. For a copy of this extension form, see appendix IV. AOC Generally Followed Applicable Policy When Laying Off the Division’s Temporary Employees AOC’s layoff policy allows the Director of PPM, as delegated by the Architect of the Capitol, to lay off the Division’s temporary employees for lack of work, lack of funds, or failure to meet management’s expectations. The policy does not specify which factors AOC should consider in selecting employees to be laid off, thereby allowing the agency discretion in this area. Our review of the layoff letters for the 30 temporary employees laid off in March 2017 confirmed that AOC communicated to the employees that the layoff was due to a lack of work. In this particular situation, the Division officials said they determined the number of temporary employees needed to carry out its projected workload and considered two factors equally: (1) the employees’ performance and skillset and (2) the employees’ ability to work independently and as part of a team. Human capital officials told us that AOC’s offices of Employee and Labor Relations and its General Counsel reviewed the Division’s request, and found no human-capital or legal concerns. The human capital officials drafted letters notifying the 30 employees of their layoff, effective upon receipt. Division supervisors provided the letters to employees at the start of their shifts on March 21, 2017. Figure 8 provides summary information by trade on the 30 temporary employees that AOC laid off in March 2017. At the time of the March 2017 layoff, AOC did not have a policy that required the Division to notify the Division’s temporary employees of an impending layoff. Human capital officials told us that they did not provide the Division’s temporary employees with advance notice of their layoff because of concerns that such advance notice could result in an unproductive and disruptive work environment. In terms of notifying relevant employee unions, human capital officials said they provided 12- hour advance notification of the layoff to one employee union, in accordance with that union’s collective-bargaining agreement. The five rehired employees we interviewed told us they were caught off guard by the March 2017 layoffs. None of the 30 temporary employees filed grievances related to the layoff, according to human capital officials. Since the layoff, human capital officials told us they recognized that AOC did not have a consistent policy for providing advance notice of layoffs to temporary employees across AOC’s 10 jurisdictions. According to AOC’s Chief Human Capital Officer, some jurisdictions provided advance notice of layoffs to temporary employees while others did not. To provide consistency with such notification and in response to our inquiries, in October 2018 AOC issued guidance standardizing the notification period for temporary employees laid off due to lack of work or lack of funds across all jurisdictions. This guidance directs jurisdictions to provide all temporary employees with a notification period of 2-weeks prior to the effective date of being laid off for these reasons. It also provides jurisdictions the option to request administrative leave so that the temporary employee may stop work immediately and be paid during the two week notification period. Conclusions The Division was created to serve as a flexible option that the jurisdictions can use to meet the facility needs of their congressional and Supreme Court clients. By design, the Division can hire employees if there is demand for its services and lay off employees, as it did in March 2017, if there is insufficient demand or project funding to pay them. In recent years, the Division has taken steps to more strategically manage its workforce and minimize disruptions to that workforce in part by increasing its communication with the jurisdictions. However, formalizing the process the Division uses to collect information on the jurisdictions’ construction priorities, such as by providing staff with a written set of procedures, which specifies what is required of staff and when, could help ensure that those staff consistently collect and use the best information to make decisions about the appropriate number of employees and the mix of trades. Formalizing that process in this manner could also help the Division provide reasonable assurance to AOC management and Congress that it is taking the steps necessary to manage its workload and basing its workforce projections on the most current information available. Recommendation for Executive Action The Architect of the Capitol should formalize the process the Construction Division uses to collect information on the jurisdictions’ construction priorities each month, such as through developing written procedures. (Recommendation 1) Agency Comments We provided AOC with a draft of this report for review and comment. AOC responded with a letter in which it concurred with our recommendation and said it intended to address our recommendation later this year. AOC’s letter is reprinted in appendix V. AOC also provided technical comments, which we incorporated in the report as appropriate. We are sending copies of this report to the appropriate congressional committees and the Architect of the Capitol. In addition, the report is available at no charge on the GAO website at https://www.gao.gov. If you or your staff have any questions about this report, please contact us at (202) 512-2834 or rectanusl@gao.gov or (202) 512-7215 or gurkinc@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix VI. Appendix I: Objectives, Scope, and Methodology Our objectives were to: (1) describe how the Architect of the Capitol’s (AOC) jurisdictions use the Construction Division (hereafter the Division) and the factors they reported considering when deciding whether to use the Division, (2) assess how the Division manages its workforce given the variability of its workload, and (3) assess whether AOC’s appointment and subsequent March 2017 layoff of temporary employees from the Division complied with applicable policy. To describe how the jurisdictions use the Division and the factors affecting this use, we obtained and analyzed data on projects the Division completed for the jurisdictions during fiscal years 2014 through 2018. We focused our discussion of these data to the cost, scope, and duration of projects and do not present information on the number of completed projects because of differences in how the jurisdictions identify projects. To assess the reliability of the Division’s data, we reviewed available documentation and interviewed agency officials. We determined that the Division’s project data were sufficiently reliable for the purposes of this report, which includes describing the type and cost of projects the Division completed for the jurisdictions over the last 5 fiscal years and identifying illustrative examples of those projects. For appropriate comparison, the costs of completed projects we present in our report have been adjusted for inflation and converted to 2017 dollars using the fiscal-year gross domestic product index, which is compiled by the U.S. Department of Commerce, Bureau of Economic Analysis. We attempted to obtain comparable data for projects where the jurisdictions used their own employees or a contractor, but these data were not readily available. With respect to the jurisdictions’ use of their own employees, the Capitol Building jurisdiction attempted to obtain this data for us, but the data that were available did not include the cost of all labor spent on projects. Further, according to AOC, the jurisdictions do not capture data on employees’ time spent on construction work so this data also included projects that were considered routine maintenance. With respect to the jurisdictions’ use of contractors, the data that were available also included purchase card transactions, among other unrelated costs. According to AOC, identifying just the contract costs of the jurisdictions’ construction projects would require that AOC conduct significant research and review every transaction associated with its contracts. To provide illustrative examples, we visited the sites of six projects that the Division was executing at the time of our review. To select these projects, we asked the agency to provide us with projects that would enable us to understand the nature of the work the Division performs for the jurisdictions. In addition to the 4 projects the agency provided, we selected 2 additional sites based on projects that were discussed during our interviews. During our visits, we met with Division officials and representatives from the jurisdictions to discuss the projects in detail. We visited the following projects: an abatement and insulation project at the Russell Senate Office repairs to the drainage system at the Russell Senate Office Building, the replacement of doors at the Library of Congress, demolition and construction activities associated with the construction of a new lactation suite at the Ford House Office Building, demolition and construction activities associated with the construction of a new child care center at the O’Neill House Office Building, and the replacement of light poles across the U.S. Capitol complex. We also interviewed officials from the Division and AOC’s 10 jurisdictions, including their respective superintendents. Except Planning and Project Management, we asked the jurisdictions if they had any suggestions for changing the Division’s operations. We did not ask Planning and Project Management because the Division is a component of that jurisdiction. We then discussed with Division officials the potential implications of making those changes. We did not independently evaluate the implications of implementing the superintendents’ suggestions as part of this review. To assess how the Division manages its workforce, we reviewed pertinent documents, such as AOC’s August 2017 report to Congress on the Division, the Division’s Organization and Operating Plan, user guides for the Construction Division Management System, and prior GAO reports. We also obtained and analyzed payroll data for the Division for fiscal years 2014 to 2018 and interviewed Division officials. To assess the reliability of the Division’s data, we interviewed agency officials. We determined that the Division’s payroll data were sufficiently reliable for the purposes of this report, which includes describing the size and composition of the Division’s workforce over the last 5 fiscal years. We compared the Division’s efforts to manage its workforce to strategic human capital-management activities or practices identified in our prior work and standards for internal control in the federal government. To assess whether AOC’s layoff of temporary employees from the Division in March 2017 complied with applicable policy, we reviewed relevant federal laws and agency policy, such as the Separation of Non- Permanent Employees Policy Memorandum (AOC Order 316-1). We also reviewed pertinent personnel documents, such as appointment letters, layoff letters, and Standard Form 50 personnel documentation. We compared AOC’s policy with AOC’s implementation during the March 2017 layoff of 30 temporary employees. We did not independently verify AOC’s application of the criteria used to determine which employees to lay off in March 2017. In addition, we interviewed officials from both AOC’s Human Capital Management Division and the Division. As part of our work, we requested interviews with the nine temporary employees that AOC subsequently rehired and interviewed the five who responded in order to obtain their perspective on AOC’s processes for laying off temporary employees. This information is not generalizable to all rehired temporary employees. We conducted this performance audit from March 2018 to March 2019 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. Appendix II: The Construction Division’s Direct and Indirect Costs The Construction Division’s (hereafter the Division) costs include both direct and indirect costs. Direct costs are costs directly attributed to and expended on a project, such as labor (i.e., trade workers) and materials. Indirect costs are costs that cannot be directly attributed to a single project, such as costs associated with employee leave and training. Table 1 shows the components of the Division’s direct and indirect costs. To pay for its indirect costs, the Division charges the jurisdictions what it calls an “indirect rate” as part of the work it performs. As of October 2018, the Division’s indirect rate was 0.85. The Division applies this rate to every direct labor-hour associated with a project it performs for the jurisdictions. For example, a trade worker that the Division employs who has a hypothetical hourly cost of $45 also has an indirect cost of about $38. Accordingly, that trade worker’s total hourly cost, which the Division charges the jurisdictions, is about $83. The Division developed the methodology for its indirect rate in 2012, in consultation with the Architect of the Capitol’s (AOC) Chief Financial Officer and the jurisdictions, after it determined that its funding model at that time did not adequately recover costs that were not directly attributable to projects. According to the Division, the primary driver for developing this indirect rate was employee leave. Specifically, the Division’s employees earn about 11 hours of leave per pay period, and funds to cover that leave need to be recovered because they cannot be obligated and charged to a project at the time the leave is earned but prior to its being taken by the employee. The Division allocates its indirect costs among the jurisdictions, using statutory authorities available to the Architect of the Capitol. According to AOC officials, historically, the Division’s indirect rate was determined by staff within the Division. The rate was determined by looking at historical cost and project data over the two prior fiscal years. As of fiscal year 2019, AOC established a steering committee to determine the Division’s indirect rate. This committee is comprised of five members: AOC’s Chief Financial Officer, the Director of the Division, the superintendent of the House Office Buildings jurisdiction, and a superintendent from another large jurisdiction and a small jurisdiction. According to AOC officials, the Division’s indirect rate is now based on projected costs and projects for the current fiscal year, and this rate will be monitored and may be adjusted throughout the year to address potential gaps or overages in funding for the Division’s annual indirect costs. Appendix III: Architect of the Capitol’s Standard Temporary Appointment Letter Appendix IV: Architect of the Capitol’s Acknowledgement Form for the Extension of Temporary Appointment Appendix V: Comments from the Architect of the Capitol Appendix VI: GAO Contacts and Staff Acknowledgments GAO Contacts Staff Acknowledgments In addition to the contact above, key contributors to this report included Mary Crenshaw (Assistant Director); Maria Edelstein (Assistant Director); Melissa Bodeau; Sarah Cornetto; Patrick Dibattista; Camille M. Henley; Wesley A. Johnson; Efrain Magallan; Josh Ormond; Cheryl Peterson; Kelly Rubin; and Laurel Voloder.