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DEFERRED MAINTENANCE REPORTING FOR FEDERAL FACILITIES: Meeting the Requirements of Federal Accounting Standards Advisory Board Standard Number 6, as Amended
2
Definitional Issues and Potential Revisions
FASAB Standard Number 6, as amended, is intended to apply to a broad class of property, plant, and equipment, including buildings, vehicles, weapons systems, and stewardship land. These classes of assets have life cycles ranging from a few to 50 or more years and substantial variations in characteristics, complexity, and uses. In the case of facilities, some of these assets may be historic in nature. By developing definitions intended to apply to several classes of assets, difficulties arise in applying them to specific categories. Thus, one difficulty for agencies in complying with FASAB Standard Number 6, as amended, as it applies to facilities (real property) has been the use of terms that are not widely used in the facilities management field, that are defined very broadly, or that do not reflect how facility maintenance and repair programs and practices are implemented in federal agencies.
ISSUES
Maintenance
Maintenance is defined by FASAB Standard Number 6, as amended, as:
the act of keeping fixed assets in acceptable condition. It includes preventive maintenance, normal repairs, replacement of parts and structural components, and other activities needed to preserve the asset so that it continues to provide acceptable services and achieves its expected life. Maintenance excludes activities aimed at expanding the capacity of an asset or otherwise upgrading it to serve needs different from, or significantly greater than, those originally intended (FASAB, 1996).
This definition of maintenance treats repairs as a subset of maintenance. In facilities management literature and general practice, maintenance and repairs are treated as separate activities with different objectives. For example, maintenance has been
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DEFERRED MAINTENANCE REPORTING FOR FEDERAL FACILITIES: Meeting the Requirements of Federal Accounting Standards Advisory Board Standard Number 6, as Amended
2
Definitional Issues and Potential Revisions
FASAB Standard Number 6, as amended, is intended to apply to a broad class of property, plant, and equipment, including buildings, vehicles, weapons systems, and stewardship land. These classes of assets have life cycles ranging from a few to 50 or more years and substantial variations in characteristics, complexity, and uses. In the case of facilities, some of these assets may be historic in nature. By developing definitions intended to apply to several classes of assets, difficulties arise in applying them to specific categories. Thus, one difficulty for agencies in complying with FASAB Standard Number 6, as amended, as it applies to facilities (real property) has been the use of terms that are not widely used in the facilities management field, that are defined very broadly, or that do not reflect how facility maintenance and repair programs and practices are implemented in federal agencies.
ISSUES
Maintenance
Maintenance is defined by FASAB Standard Number 6, as amended, as:
the act of keeping fixed assets in acceptable condition. It includes preventive maintenance, normal repairs, replacement of parts and structural components, and other activities needed to preserve the asset so that it continues to provide acceptable services and achieves its expected life. Maintenance excludes activities aimed at expanding the capacity of an asset or otherwise upgrading it to serve needs different from, or significantly greater than, those originally intended (FASAB, 1996).
This definition of maintenance treats repairs as a subset of maintenance. In facilities management literature and general practice, maintenance and repairs are treated as separate activities with different objectives. For example, maintenance has been
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DEFERRED MAINTENANCE REPORTING FOR FEDERAL FACILITIES: Meeting the Requirements of Federal Accounting Standards Advisory Board Standard Number 6, as Amended
defined as the “upkeep of property and equipment, i.e., work necessary to realize the originally anticipated useful life of a fixed asset.” In contrast, repair involves “work to restore damaged or worn-out property to a normal operating condition” (NRC, 1998). Thus, the continuing deferral of routine maintenance may lead to more serious deficiencies and the need for repairs.
As noted in Chapter 1 , an effective and proactive facilities management program combines several strategies that address different aspects and components of maintenance and repair and have different objectives. These strategies may include preventive maintenance, programmed or planned major maintenance, predictive testing and inspection, routine repairs and replacements, emergency service calls, and run-to-failure (FFC, 1996; NRC, 1998).
Deferred Maintenance
FASAB Standard Number 6, as amended, defines deferred maintenance as “maintenance that was not performed when it should have been or was scheduled to be and which, therefore, is put off or delayed for a future period”. The reader must go back to the definition of maintenance to see that repairs are included as a subset of maintenance. This structure sets up the possibility that agencies would account for deferred maintenance but not deferred repairs. The intent of the standard would be clearer if this definition were amended to refer specifically to repairs.
Acceptable or Useable Condition
FASAB Standard Number 6, as amended, contains some minor inconsistencies in its definitions. For example, in the text, maintenance is described as the “act of keeping fixed assets in acceptable condition.” In the glossary of terms, maintenance is described the “act of keeping fixed assets in useable condition.” The terms acceptable or useable condition are not defined because the standard allows agencies the flexibility to establish their own standards for what constitutes acceptable or useable condition based on a facility's use, type, and its relationship to mission.
Economic Life, Useful Life, Expected Life
FASAB Standard Number 6, as amended, defines economic life as “the period during which a fixed asset is capable of yielding services of value to its owner (see ‘useful life').” Useful life is defined as “the normal operating life in terms of utility to the owner.” Standard Number 6, as amended, also uses the term expected life in the definition of maintenance but does not define it.
Facilities managers refer to the economic life or service life (or lives) of buildings and their major systems, for example, mechanical, electrical, heating, ventilating, air conditioning, depending on the context. Looking at facilities as an aggregation of components is important because different elements (walls, roofs, foundations, windows,
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DEFERRED MAINTENANCE REPORTING FOR FEDERAL FACILITIES: Meeting the Requirements of Federal Accounting Standards Advisory Board Standard Number 6, as Amended
plumbing, and so forth) wear out at different rates and require different levels of maintenance and repair.
Elsewhere, economic life has been defined as “the period of time over which costs are incurred and benefits or disbenefits are delivered to an owner; an assumed value sometimes established by tax regulations or other legal requirements or accounting standards and not necessarily related to the likely service life of a facility or [its] subsystems” (NRC, 1991). Service life, in contrast, has been defined as “the period of time over which a building, component, or subsystem provides adequate performance; a technical parameter that depends on design, construction quality, operations and maintenance practices, use, and environmental factors” (NRC, 1991). The term expected life did not appear in the facilities management literature reviewed for this study.
Using a descriptive term such as expected, useful, service, or economic life, or a phrase such as “achieves its expected life” implies a timeframe of finite duration, such as 30 years. Using a finite time period may be appropriate for tax depreciation purposes for privately owned buildings. However, in the federal government, facilities are routinely used for many years beyond their economic or useful life, a practice that results in higher maintenance and repair costs. A significant proportion of the existing facilities inventory is more than 40 to 50 years old; many buildings are still in use 100 or more years after they were constructed with no expectation of replacement or disposal. Budget procedures, lack of funding, and other factors make it difficult to replace or dispose of buildings. As a consequence, some federal facilities are surplus and others are used long after any standard projections of expected, service, economic, or useful life, even if they are obsolete and are more costly to operate than a new one would be.
Federal facilities are also routinely renovated to serve new functions, which may be quite different than their original use. (In these cases, the projection of economic or useful life would be recalculated.) In practice, federal facilities usually receive some level of maintenance and repair as long as they are being used for some function, whether or not it is the original function and whether or not the facility is functionally obsolete.
Inadequate funding for facilities maintenance and repair programs is a long-standing, well-documented issue (NRC, 1998). Federal agencies do not receive the funding required to keep all facilities in acceptable operating condition. Consequently, they must prioritize the investment of the maintenance and repair funds they do receive. Because facilities are generally used in support of a particular program or mission of an agency, maintenance and repair activities are directed toward keeping a facility in a condition to effectively support the mission rather than achieving a specific number of years of use. An exception might be historical assets that are being kept as a public trust but which have no direct impact on the performance of an agency' s mission.
In reviewing FASAB Standard Number 6 as it relates to deferred maintenance reporting for facilities (not necessarily to vehicles, land, or weapons systems), the committee concluded that it is important to recognize that maintenance and repair funds are limited. They are typically invested in facilities on a priority basis to effectively support agency programs and missions rather than to achieve a specific number of years of use or life.
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DEFERRED MAINTENANCE REPORTING FOR FEDERAL FACILITIES: Meeting the Requirements of Federal Accounting Standards Advisory Board Standard Number 6, as Amended
POTENTIAL REVISIONS
FASAB Standard Number 6, as amended, is intended to address both maintenance and repair programs for facilities and other classes of assets, with significantly different characteristics, uses, and life cycles. As noted above, the committee has suggested potential revisions for consideration that would more closely reflect current federal practices as they relate to facilities. They would also provide facilities managers with the flexibility necessary to apply a government-wide standard to agencies having a wide variety of missions, different accounting systems, and different maintenance and repair practices. Suggested revisions to the definitions that would address the noted deficiencies could read as follows:
Maintenance and repairs. Maintenance and repairs are activities directed toward keeping fixed assets in a condition to effectively support the mission. Activities include preventive maintenance, repairs, replacement of parts and structural components, and other activities needed to preserve the asset so that it continues to support the mission. Maintenance and repairs exclude activities aimed at expanding the capacity of an asset or otherwise upgrading it to serve needs different from or significantly greater than its current use. 1
Deferred maintenance and repairs. Maintenance and repairs that were not performed when they should have been or were scheduled to be and which, therefore, were put off or delayed for a future period.
REFERENCES
FASAB (Federal Accounting Standards Advisory Board) . 1996 . Accounting for Property, Plant, and Equipment . Statement of Recommended Accounting Standards, Number 6 . Online: http://www.financenet.gov/financenet/fed/fasab/concepts.htm .
FFC (Federal Facilities Council) . 1996 . Budgeting for Facilities Maintenance and Repair Activities . Washington, D.C. : National Academy Press .
NRC (National Research Council) . 1991 . Pay Now or Pay Later: Controlling Cost of Ownership from Design Throughout the Service Life of Public Buildings . Building Research Board . Washington, D.C. : National Academy Press .
NRC . 1998 . Stewardship of Federal Facilities. A Proactive Strategy for Managing the Nation's Public Assets . Board on Infrastructure and the Constructed Environment . Washington, D.C. : National Academy Press .
1
One reviewer of this report took issue with the change to “effectively support the mission.” The concern was that it would be difficult to compute maintenance and repair requirements without reference to the life of a building and its components. A second reviewer suggested that the last sentence read “maintenance and repairs exclude activities aimed at materially changing capability, capacity, or extending its useful life.”
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