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DEFERRED MAINTENANCE REPORTING FOR FEDERAL FACILITIES: Meeting the Requirements of Federal Accounting Standards Advisory Board Standard Number 6, as Amended
3
Methodological Issues and Alternative Approaches for Calculating Deferred Maintenance for Facilities
FASAB Standard Number 6, as amended, specifies two methods that can be used to calculate deferred maintenance for all classes of property, plant, and equipment: condition assessment surveys or a total life-cycle cost method. The standard states that “other methods” may be used but stipulates that the other methods must be identical or similar to the total life-cycle cost method or condition assessment surveys (FASAB, 1996). It is the federal agency management's discretion to determine which method to use.
As noted in Chapter 2 , developing definitions to apply to classes of assets with substantial variations in character, life cycle, complexity, and use can be problematic when applying them to a particular class of asset. Similarly, specifying methodologies for deferred maintenance reporting for different classes of assets can be problematic. An additional consideration is the level of resources required to implement these methodologies that will depend, in part, on the methodology itself and also on the availability of data. When data are available, the costs of implementation can be minimized. However, when the specified data are not available, the cost of gathering the data can be high, and this raises cost-benefit issues.
Methodologies based on condition assessment surveys and total life-cycle cost are appropriate and valid for deferred maintenance reporting for facilities. However, several concerns were raised by the committee regarding specific aspects of FASAB Standard Number 6, as amended. One concern was that the standard implies or could be interpreted to imply that condition assessment survey data should be available for all facilities in an agency's inventory and that such data should be updated annually. In practice, the availability of condition assessment data varies from agency to agency. Data collection procedures also vary; typically, those agencies that have instituted comprehensive condition assessment survey programs reinspect facilities on a cycle of every 3 to 5 years or longer. A second concern was that the data elements required by the standard for the total life-cycle cost method are not reflective of facilities management practices and limit the use of this methodology for deferred maintenance reporting for facilities.
This chapter focuses on issues related to methodologies for deferred maintenance reporting for facilities and describes additional approaches that are similar to condition
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DEFERRED MAINTENANCE REPORTING FOR FEDERAL FACILITIES: Meeting the Requirements of Federal Accounting Standards Advisory Board Standard Number 6, as Amended
3
Methodological Issues and Alternative Approaches for Calculating Deferred Maintenance for Facilities
FASAB Standard Number 6, as amended, specifies two methods that can be used to calculate deferred maintenance for all classes of property, plant, and equipment: condition assessment surveys or a total life-cycle cost method. The standard states that “other methods” may be used but stipulates that the other methods must be identical or similar to the total life-cycle cost method or condition assessment surveys (FASAB, 1996). It is the federal agency management's discretion to determine which method to use.
As noted in Chapter 2 , developing definitions to apply to classes of assets with substantial variations in character, life cycle, complexity, and use can be problematic when applying them to a particular class of asset. Similarly, specifying methodologies for deferred maintenance reporting for different classes of assets can be problematic. An additional consideration is the level of resources required to implement these methodologies that will depend, in part, on the methodology itself and also on the availability of data. When data are available, the costs of implementation can be minimized. However, when the specified data are not available, the cost of gathering the data can be high, and this raises cost-benefit issues.
Methodologies based on condition assessment surveys and total life-cycle cost are appropriate and valid for deferred maintenance reporting for facilities. However, several concerns were raised by the committee regarding specific aspects of FASAB Standard Number 6, as amended. One concern was that the standard implies or could be interpreted to imply that condition assessment survey data should be available for all facilities in an agency's inventory and that such data should be updated annually. In practice, the availability of condition assessment data varies from agency to agency. Data collection procedures also vary; typically, those agencies that have instituted comprehensive condition assessment survey programs reinspect facilities on a cycle of every 3 to 5 years or longer. A second concern was that the data elements required by the standard for the total life-cycle cost method are not reflective of facilities management practices and limit the use of this methodology for deferred maintenance reporting for facilities.
This chapter focuses on issues related to methodologies for deferred maintenance reporting for facilities and describes additional approaches that are similar to condition
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DEFERRED MAINTENANCE REPORTING FOR FEDERAL FACILITIES: Meeting the Requirements of Federal Accounting Standards Advisory Board Standard Number 6, as Amended
assessment surveys and the total life-cycle cost method that could be used to meet federal financial accounting objectives for operating performance and stewardship.
CONDITION ASSESSMENT SURVEYS
FASAB Standard Number 6, as amended, defines condition assessments as “periodic inspections of PP&E to determine their current condition and estimated cost to correct any deficiencies.” Elsewhere, condition assessments have been defined as the “process of systematically evaluating an organization 's capital assets in order to project repair, renewal, or replacement needs that will support the mission or activities they were designed to serve” (Rugless, 1993).
Condition assessment surveys, as the name implies, are effective for determining the current condition of a facility and its components and in identifying deficiencies. Condition assessment surveys generally utilize trained personnel who inspect each facility and make a determination regarding the facilities' physical condition, how the facility is performing, and if any maintenance and/or repair deficiencies are present (NRC, 1998). The trained personnel may be government employees, private-sector personnel under contract to the agency, or a combination of both.
The use of condition assessment survey (CAS) programs by federal agencies is reviewed in Stewardship of Federal Facilities: A Proactive Strategy for Managing the Nation's Public Assets (NRC, 1998). In the early 1990s the Department of Energy (DOE) and later the Department of Defense (DoD) undertook programs to develop and implement CAS programs across their infrastructures. Both departments focused on developing comprehensive processes that included detailed inspection standards, inspector training programs, automated data collection devices, and the ability to aggregate information at multiple levels based on location and organization. The DOE CAS was designed as an industry-based system of standards to develop deficiency-based capital maintenance and repair costs for use in managing DOE assets.
The DoD program was originally intended to be implemented department wide. However, after pilot testing of a system, the implementation costs were determined to be too high to deploy it across all services. Within DoD individual services developed their own systems. The Air Force Commanders' Facility Assessment Program was designed to link facility condition to mission requirements to ensure that resources for maintenance, repair, and minor construction are allocated to the most critical mission needs of field commanders. The U.S. Army 's Installation Status Report system was designed to assist installations in articulating their infrastructure needs to the Department of the Army and to allow the department to develop funding requests to Congress (NRC, 1998). For these agencies and for others that may have implemented comprehensive condition assessment survey programs, the necessary data may be available to meet the requirements of FASAB Standard Number 6, as amended.
In reviewing condition assessment practices, the committee that authored the Stewardship study noted that the use of condition assessments by federal agencies is increasing. Federal agencies with such programs have generally developed them independently to meet their specific needs within financial and staff constraints; consequently, the level of sophistication varies widely. However, one of the committee's findings was that, based on available information, “condition assessment programs, as currently practiced in federal agencies, are labor intensive, expensive to maintain, and time consuming. In theory, condition assessment surveys provide
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excellent information as a basis for facilities management practices and maintenance and repair budget requests. In practice, the data are usually not provided in a time frame or format that is useful for cost-effective facilities management” (NRC, 1998).
There are several reasons for this finding. Federal agencies can have hundreds or even thousands of facilities. The costs incurred in conducting condition assessment surveys will vary significantly, depending on the complexity, the depth and breath, and the level of the inspection. For example, an inspection could be a relatively simple walk through of a facility to identify deficiencies that are easily visible. Or an inspection could be a detailed diagnostic inspection by specialized personnel who look at the performance of mechanical, electrical and other internal systems.
Information obtained from Federal Facilities Council (FFC) sponsor agencies participating in this study indicates that the costs of condition assessments can range from 3¢ to 35¢ or more per square foot, depending on the type and location of the facility, type of inspection, and qualifications of the inspectors, among other factors. Thus, assessing the condition of a 200,000 square foot facility could range from $6,000 to $70,000 or more, depending on building type (warehouse versus research facility), system complexity, location, level of inspection, and other factors. Multiplied over hundreds or thousands of buildings, the costs can quickly outstrip agency budgets for maintenance and repair. Thus, “tradeoffs occur between the amount of data collected, the frequency at which it is collected, the quality of the data, and the cost of the entire process, including data entry and storage ” (Sanford and McNeil, 1997). In practice, therefore, when federal agencies conduct condition assessment surveys for an entire inventory of facilities it is typically done on a cycle of every 3 to 5 years or longer. Federal agencies may also conduct condition assessment surveys for specific facilities in specific circumstances, for example, when looking to acquire or dispose of a facility, change tenants, or take on a new program or mission.
TOTAL LIFE-CYCLE COST METHOD
The second method specifically identified by FASAB Standard Number 6, as amended, to calculate deferred maintenance is total life-cycle cost. This method is defined by the standard as an acquisition or procurement technique that considers operating, maintenance, and other costs in addition to the acquisition cost of assets (FASAB, 1996). Standard Number 6, as amended, states that since life-cycle costing results in a forecast of maintenance expense, these forecasts may serve as a basis against which to compare actual maintenance expenses and estimate deferred maintenance (FASAB, 1996). Required data elements for this methodology include the original date of maintenance forecast, the dollar amount of maintenance defined by the professionals who designed, built, or manage property, plant, and equipment as required maintenance for the reporting period, and the dollar amount of maintenance activity performed, among others.
Life-cycle costing for facilities is most commonly used early in the acquisition process to facilitate decision making about the types of materials, systems, and other components to be incorporated and to estimate total operation and maintenance costs over the life cycle of the building. Given the age of many federal facilities, it is unlikely that agencies could identify the original date of maintenance forecast (if one was ever done) or any changes to the forecast. Other data required by the FASAB standard, in particular the amount of maintenance performed, would
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also be difficult to provide with any level of accuracy or consistency because this type of information is not typically tracked for facilities. However, variations on life-cycle costing methodologies have been developed. Some of these are described below as potential alternative approaches that could be used by federal agencies to meet the objectives of FASAB Standard #6, as amended.
OTHER POTENTIAL APPROACHES TO DEFERRED MAINTENANCE REPORTING FOR FACILITIES
One of the overall objectives of federal financial accounting is to “provide a framework for assessing the existing financial reporting systems of the federal government and for considering how new accounting standards might help to enhance accountability and decision-making in a cost-effective manner” (FASAB, 1993). Alternative approaches for reporting deferred maintenance and repairs for facilities are described below. All involve some form of life-cycle costing, condition assessment survey data, or a combination of the two. For those agencies that do not have comprehensive condition assessment survey information available, one or more of these approaches may provide a cost-effective method for calculating deferred maintenance and repairs to comply with FASAB Standard Number 6, as amended.
Alabama Commission on Higher Education Model
A 1986 article by Cushing Phillips, Jr., “Facilities Renewal: The Formula Approach,” describes a method for estimating the amount of money required for facilities renewal for a college or university or other type of facilities inventory. Facilities renewal is defined as “the complete reworking of a building (or facility), including the expected useful life equal to that of a new facility.” The primary interest of the agency developing the methodology was to generate values for total renewal allowance and total renewal backlog as the basis for budget recommendations for annual operating budgets and capital budgets.
At the time the formula was developed, the author was working for the Alabama Commission on Higher Education. Alabama's public colleges and universities had a “heavy backlog of deferred maintenance,” due in part to “rapid expansion and short operating and maintenance appropriations” (Phillips, 1986). Most of the institutions had “less than adequate data as to the actual amounts and the projects making up this backlog” and “had not made recent or complete maintenance inspections or evaluations of their plants” (Phillips, 1986). The author notes that:
Even if we were able to obtain valid and certifiable estimates of the amount and cost of needed repair and renovation on each campus, we still would have only a “snap-shot” of our problem. It is entirely possible that mechanical failures or unanticipated roof problems next year would invalidate our conclusions. In short, unless we were able to obtain annual (or at the least biennial) reports from each campus showing current inspection results, we would have difficulty presenting a current and defensible statement of needs to the Governor and the Legislature. (Phillips, 1986)
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In this environment the author developed a methodology to “recognize the aging of our facilities by reserving some part of their replacement value each year against their future need for renewal. ” This approach produces an estimate of the annual renewal allowance, defined as the amount of funding to be earmarked each year to offset the aging during that year. An overall renewal backlog is defined as “the value of the unmet renewal requirement represented in the present plant in current dollars” (Phillips, 1986).
In this methodology, facilities are categorized by type, and major systems are categorized as either 25- or 50-year systems. 1 Systems or elements that require reworking at intervals of substantially less than 25 years are excluded “as being more suitable for renewal using maintenance and operation funds” (Phillips, 1986). Estimated replacement costs in dollars per gross square foot, adjusted for regional price differentials, are determined and totaled for all 25-and 50-year systems by category of facility. To recognize that the effects of aging “increase the likelihood of expensive (even terminal) breakdowns,” the distribution of renewal estimates is skewed in the direction of the older facilities. This is done by apportioning to each year of the age of a building a fraction of the system replacement cost, which is determined by dividing the age by the sum of the years of its maximum age: 325 for the 25-year systems and 1,275 for the 50-year systems. “Thus, the annual facility renewal allowance, i.e., the amount which should be set aside each year for facility renewal, for a 10-year old building, is the sum of 10/325 of the replacement cost of the 25-year systems and 10/1275 of the replacement costs of the 50-year systems” (Phillips, 1986).
The total facility renewal backlog is the sum of each year's renewal allowance from the time of completion of the building to the present. The total facility renewal backlog is determined by multiplying the replacement costs of the 25-year systems by the sum of the years from 1 to the current age of the building, dividing it by 325, multiplying the replacement costs of the 50-year systems by the sum of the years and dividing it by 1,275 and then adding the two numbers. The same types of calculations are performed for individual facilities and then totaled for the entire inventory (Phillips, 1986). A separate methodology is applied to buildings in which some or all of the major systems have been partly or completely renovated.
Stanford University Model
A different approach for estimating facility renewal needs was developed at Stanford University in 1980 and described in a paper entitled “Before the Roof Caves In: A Predictive Model for Physical Plant Renewal” (APPA, 1982). It is a mathematical approach that predicts the cost and time of facilities renewal based on building subsystem life cycles and costs.
In the Stanford University model, facilities are first analyzed in terms of their subsystems, defined as major components or systems such as mechanical, plumbing, electrical, elevators, roofs, and so forth, that have a significant impact on facility wear-out and resulting replacement/renewal costs. An estimate of the life cycle is then made for each subsystem. Buildings with similar uses and subsystems are grouped into categories such as laboratories, housing, offices, and so forth. Average replacement costs are then estimated for each subsystem in dollars per square foot for each category of facility. Facilities are then further classified into 5-
1
Fifty-year systems include exterior walls, partitions, conveying systems, specialties, fixed equipment, plumbing and fire protection, and electrical; 25-year systems include roofing, heating, air conditioning and ventilation (Phillips, 1986).
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year cohorts by the date of construction or most recent major renovation. For each cohort the total square footage of the buildings is identified. Projections are then developed for each 5-year cohort of each facilities type as to when specific subsystems will require replacement and the associated cost. The projected replacement costs are then summed across all subsystems and facility categories to estimate the total facility renewal needs during each 5-year period. Because the projections generally show a highly cyclical pattern of expenditures, a moving average is used. “According to the basic theory of the model, the difference between actual expenditures made and facilities renewal needs (over any period of time) should be approximately equal to the increase in deferred maintenance needs over that same period of time ” (Biedenweg and Cummings, 1997). This approach is not unlike the total life-cycle cost method defined in FASAB Standard Number 6, as amended, in which forecasts of maintenance may serve as the basis to compare actual maintenance expenses and to estimate deferred maintenance.
To determine the validity of this model for predicting facilities renewal needs, in 1995 Stanford University tested the original published predictions in two ways. First, the forecast for annual facilities renewal expenditures was compared with actual budgeted expenditures for facilities renewal over a 10-year period. Second, “the accumulated shortfall between the predicted and actual expenditures over that period was then compared with cost estimates of deferred maintenance prepared by the building-by-building inspection performed by an independent contractor” (Biedenweg and Cummings, 1997).
The initial testing resulted in only a 2 percent difference between the numbers. The degree of similarity was so high, in fact, that the authors of the paper believed it to be “an anomaly and differences of ten to twenty percent are more likely outcomes. However, the similarity did support the reasonableness of the approach and the viability of the model as a forecasting tool, and further analysis, by subsystem, was performed.” The analysis identified a number of adjustments that could improve the model's performance, including modifications/additions of certain subsystem categories and “an acknowledgement that facility obsolescence due to program reasons also needs to be considered. ”
In this review the authors concluded that the experience at Stanford University demonstrates the “model can provide accurate estimates of both deferred maintenance and future plant renewal needs.” Key features of the approach include:
An executive-level view of facilities renewal that is grounded in sound theory and industry standards. This statistical approach accurately predicts both current deferred maintenance and future facilities renewal needs.
Recognition that renewal expenditures must vary from year to year based on the actual construction history of campus buildings.
The ability to distinguish between different types of buildings and the systems that support those buildings.
Identification of individual facilities and subsystems that are likely to be most in need of renewal.
The capability of including facility obsolescence (due to program reasons) in long-range planning.
A model that is tailored to individual circumstances and that is relatively easy to maintain (Biedenweg and Cummings, 1997).
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Applied Management Engineering Model
Management of the Facilities Portfolio: A Practical Approach to Institutional Facility Renewal and Deferred Maintenance describes a time- and condition-based approach to deferred maintenance reporting developed by Applied Management Engineering (AME, 1991). The approach provides a comprehensive process of identification, costing, and prioritization of short-and long-range facility maintenance and repair requirements, recommended critical management indicators and reporting tools, and a detailed approach to capital planning and budgeting. The goal is to achieve a clearly defined equilibrium for all facility assets and maintenance of their functional and financial value over the long term through steady and predictable reinvestment based on facility condition, age and complexity (EMR, 2000).
The AME approach requires a comprehensive condition assessment of all assets that identifies long- and short-term maintenance and repair requirements, their estimated costs, and their relative priorities for accomplishment. The priority ranking is based on assigned condition codes and an indication of when the deficiency should be corrected. The study provides formulas for the projection of maintenance and repair backlogs and for the funding required to eliminate the backlog. The backlog projection uses the current backlog, the current replacement value and inflation rate, factors for backlog and physical deterioration, and average inventory growth and planned funding to project the backlog for any future year (EMR, 2000). The methodology involves a combination of time- and condition-related data; it is complex, and requires a significant amount of data and continuous condition assessment surveys.
University of Virginia Model
A condition-based approach used by the University of Virginia (UVA) is described in “How to Inspect Your Facilities and Still Have Money Left to Repair Them” (Syme and Oschrin, 1996). UVA began its program in 1980 as a formal assessment inspection program to document the condition of each of its 600 buildings, of which 390 were at least 30 years old, 235 were at least 50 years old, and 57 were 100 or more years old. One of the primary purposes of the program was to identify the dollar value of the maintenance backlog. Initially, inspections focused only on maintenance deficiencies as defined by the budget process, that is, deficiencies that could be funded out of maintenance accounts. Deficiencies were defined as “the repair of an existing building, or any of its permanent components or systems, back to their original condition.” Inspections were done on a four-to-six-year cycle for the majority of facilities, and over time the inspection data were entered into a computerized database. Annual reports were published that showed “the replacement value of each of our [UVA's] buildings, the estimated dollar value of the deficiencies we [inspectors] found, and the resulting Facilities Condition Index (deficiency value divided by replacement value)” (Syme and Oschrin, 1996). This system became the model for an effort to produce similar data on all the institutions of higher education in the Commonwealth of Virginia.
In time the model evolved such that inspectors are looking not only at deficiencies that are strictly maintenance items but also “renewal deficiencies” related to modernization, code compliance, and hazardous material abatement.
As noted in the article:
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The true cost of maintaining the physical plant is not only replacing ceiling tile, painting and replacing mechanical systems. Our experience has shown that the renovation of an older facility or the replacement of an HVAC [heating, ventilation, and air conditioning] system in a 40-year-old facility will always lead to costs over and above those originally anticipated. Whether any grandfather clauses are tripped or not, prudent facilities managers will take those opportunities to perform additional upgrades such as the installation of a sprinkler system, smoke alarm system, or telecommunications cabling. Additionally, they will be required to comply with newer code issues such as ADA [Americans with Disabilities Act] or will be required to remove asbestos or lead from their facility. Including these additional items as deficiencies gives a more accurate accounting of the condition of the physical plant than the FCI [Facility Condition Index] by itself (Syme and Oschrin, 1996).
In the modified system, deficiencies are separated into maintenance and renewal deficiencies, each with its own index. The FCI (maintenance deficiencies divided by current replacement value) and the Facility Renewal Index (FRI) (renewal deficiencies divided by current replacement value) are added together to produce the Facility Assessment Index (FAI).
FCI + FRI = FAI
The inspection process has three parts: data collection, data entry, and report generation. Inspections include a review of previous inspection reports, plans, work orders, and warranties; visual inspection of the facility; consultations with building occupants, users, and facilities management personnel. Data are entered into the database. Each record in the database is tagged with a year from 0 to 100 representing the estimated year in which a repair should be made. A tag of 0 means the repair should be done within the year. Tagging the repairs allows for managers to plan for and prioritize maintenance and repairs.
The database automatically calculates estimated costs based on user-defined costs and cost factors. Facilities managers can tell whether current funding will satisfy their need to maintain their physical plant in good condition (Syme and Oschrin, 1996).
DoD Facilities Sustainment Model
The Facilities Sustainment Model (FSM), prepared by DoD's Office of the Deputy Under Secretary (Installations), is designed to forecast the funding requirements for sustainment of an inventory of facilities (Janke, 2000). As a life-cycle cost model, FSM generates an annual funding requirement to sustain an inventory over a normal life cycle. FSM is grounded in standard facility-specific benchmarks, is tied to the inventory that must be sustained, and is applicable throughout DoD.
The FSM identifies the cost to “sustain” facilities, the outcome of regular maintenance and repair activities. Facilities sustainment under FSM means “maintenance and repair activities necessary to keep an inventory of facilities in good working order. ” The full definition 2 used by
2
Facilities sustainment: maintenance and repair activities necessary to keep an inventory of facilities in good working order. It includes regularly scheduled inspections, preventive maintenance tasks, and service calls and emergency responses. Activities also include major repairs or replacement of facility components (usually accomplished by contract) that are expected to occur periodically throughout the life cycle of facilities. This includes such work as regular roof replacement, refinishing of wall surfaces, ceilings and flooring, and repairing and replacement of heating and cooling systems. It does not include certain restoration, modernization, and environmental compliance costs, which are funded elsewhere. Other tasks associated with facilities operations (such as custodial services, grass cutting, landscaping, waste disposal, and the provision of central utilities) also are not included.
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DoD excludes activities that are sometimes considered “maintenance” (such as grass cutting) as well as some repair activities that go beyond sustainment (such as restoration of a facility destroyed by fire or repairs done solely to implement a new standard).
To use FSM the following are needed: a standard classification of facilities into categories with common units of measure; a standard per-unit sustainment cost for each category of facility; a real property inventory with accurate unit quantities, locations, and projections; and an area cost factor and inflation table. For per-unit sustainment cost factors, DoD obtained standard, off-the-shelf, commercial cost factors wherever possible.3
Computation of a sustainment requirement is as follows:
Requirement = Facility Quantity × Unit Cost Factor × Area Cost Factor × Inflation Factor
The sustainment requirement formula is run for each category of facility at each location, and the results are summed to the desired level (or view) of the data. For DoD, FSM can provide a sustainment cost by installation, major command, state or country, military service, or for the department as a whole.
To determine whether sustainment requirements are being met, two additional tools are necessary: (1) a “table of responsibilities” that allocates responsibility for sustainment to a suborganization and funding source and (2) a budget category that matches the sustainment definition for each responsible organization and funding source combination.
Table of Responsibilities
Facility quantities (and hence sustainment requirements) must be allocated to the subcomponent organization and funding source that has sustainment responsibility. This process produces a matrix like the one below, where the columns represent funding sources, the rows represent responsible organizations, and the cells are filled in with facility sustainment requirements generated by FSM:
Funding Sources
Responsible Organization
1
2
3
4
n
A
B
C
n
3
DoD Facilities Cost Factor Handbook, April 2000, Office of the Deputy Under Secretary (Installations).
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Budget Categories
Ideally, for each cell in the responsibilities matrix there is a budget line item to which the FSM requirement can be compared. The difference between FSM-generated requirements and annual sustainment funding represents deferred sustainment of facilities. There are two limitations to consider: (1) FSM addresses only deferral of work that meets the definition of sustainment and (2) FSM does not assist in calculating a pre-existing “compounded ” backlog.
FSM can be used to compute the amount of sustainment deferred annually but cannot be used to compute deferral of costs outside the definition of sustainment. DoD has created a second budget category—termed Facilities Restoration and Modernization—which complements Facilities Sustainment by identifying “beyond sustainment” requirements. Typically these are modernization projects, minor construction projects, or large repair projects that restore a facility to acceptable status.
FSM provides a method to compute annual deferral but does not attempt to provide a way to compound successive deferrals into a multiyear backlog. Although FSM could be used to compute deferral over a 3-year period, for example, it does not assist in determining how much of what was deferred remains in the backlog at the end of 3 years.
When sustainment is not accomplished, sustainment activities do not automatically roll over to become repair backlogs—if this year's oil change is not done, it doesn't need to be done twice next year. The incremental loss of facility life for delaying the sustainment will eventually show up in a restoration requirement, perhaps sooner than expected. But it is not automatic unless the lack of sustainment results in an immediate failure and new restoration requirement.
To be comprehensive, two separate accounting entries are required. The first entry would be “deferred sustainment” and would be the annual amount of regular maintenance and repairs (i.e., sustainment) not funded. FSM provides a way to compute this number.
The second entry would reflect unfunded restoration requirements, most (but not all) of which result from deferred sustainment. The unfunded restoration requirement is generated separately and is not a direct rollover from deferred sustainment. As an option, unfunded “modernization” projects could be added if desired. To be clear, this entry might be labeled “Backlog of Restoration and Modernization” rather than “Backlog of Repair” since not all projects in this backlog would be repairs.
NASA Backlog of Maintenance and Repair Model
A potential approach to reporting deferred maintenance is called the National Aeronautics and Space Administration (NASA) Backlog of Maintenance and Repair (BMAR) Model for purposes of this report. It is based on a white paper developed by Mr. Charles B. Pittinger, Jr., P.E., in NASA's headquarters office. The BMAR Model is based on parametric estimates and is intended to produce a macro-level estimate of deferred maintenance. The model is based on the following premises: (1) condition assessment surveys performed for systems (not individual components) and for the entire facility (overall system average); (2) generalized condition levels; (3) limited number of systems to assess; and (4) parametric estimating based on current replacement value (CRV).
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In this approach, personnel knowledgeable in facility assessment would evaluate a building's condition using an inspection process that entailed, at a minimum, a walk through of a facility. The BMAR Model could be applied over an entire inventory of facilities by sampling of general type of building (i.e., office, warehouse) not on a building-by-building basis. Condition assessment levels and repair costs as a percentage of CRV could be applied as outlined below:
Generalized Condition Level 17
Repair Cost
5
New; only normal preventive maintenance required.
1% of CRV
4
Some repairs needed; overall system generally functional.
20% of CRV
3
Many repairs needed; limited functionality or availability.
50% of CRV
2
May be functional but obsolete or does not meet codes.
100% of CRV
1
Not operational or unsafe.
100% of CRV
Major Systems
Percentage of Facility CRV
Architectural
5
Roof
10
Electrical
15
Plumbing
15
HVAC
25
Structural
30
100
Site
100
Utility systems
100
The site and utility systems represent features outside the building line, that is, parking lots, curbs, and utilities, and would therefore be considered as separate systems.
To determine a dollar amount for maintenance and repair backlog, the major system percentage CRV is multiplied by the repair cost (as a percentage of CRV) as designated by the generalized condition level. These amounts are then summed, and the total is multiplied by the CRV of the building. Facility management can use this figure and may choose to include costs
17
The condition levels and percentage of repair costs and the percentage of CRV would be determined on an agency-by-agency basis. This example is not intended to represent any system or industry standard now in use and is just an assumption for illustrative purposes. Development of standards around distribution of estimated costs would require further study. The standards would also vary by general class of facility, such as hospitals, office buildings, or warehouses.
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for the site and utility system numbers in calculating the total amount of deferred maintenance and repair.
If the site and utility system numbers are not included, the following formula may apply:
BMAR = [Sum (MS%)*(RC%)] CRV
Where: MS% = major system percentage of CRV; RC% = repair cost percentage of CRV, as designated by the generalized condition level; and CRV = current replacement value of the building.
If site and utility system numbers are included, the site percentage of facility CRV is multiplied by the repair cost (as a percentage of CRV), as designated by the generalized condition level. This number is then multiplied by the CRV of the site work. The utility system percentage of facility CRV is multiplied by the repair cost (as a percentage of CRV), as designated by the general condition level. This number is then multiplied by the CRV. The amounts for systems, site, and utility systems are summed. The final number is the dollar amount of deferred maintenance.
BMAR = [(Sum (MS%)*(RC%)) CRV] + [(RCS%)*(SWCRV)] + [(RCUS%)*(RCUSCRV)]
Where: MS% = major system percentage of CRV; RC% = repair cost percentage of CRV, as designated by the generalized condition level; CRV = CRV of the building; RCS% = repair cost percentage of CRV, as designated by the generalized condition level of the site work; SWCRV= CRV of the site work; RCUS% = repair cost percentage of CRV, as designated by the generalized condition level of the utility systems; and USCRV = CRV of the utility systems.
Hypothetical Example for One Facility
Office and laboratory facility – 15 years old. The building has a new roof and excellent interior finishes. The electrical systems, plumbing systems, and structure are adequate. The airconditioning and heating systems have been problematic since new, and the occupants are unhappy with the temperatures and air changes.
CRV= $4,500,000 for the building
Exterior utility systems are considered as a separate facility.
Condition Assessment:
System
Level
% CRV
% Facility
Architectural
5
(0.01)
(0.05)
0.0005
Roof
5
(0.01)
(0.10)
0.0010
Electrical
4
(0.20)
(0.15)
0.0300
Plumbing
4
(0.20)
(0.15)
0.0300
HVAC
3
(0.50)
(0.25)
0.1250
Structural
4
(0.20)
(0.30)
0.0600
0.2465
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Site
4
(0.20)
(1)
0.2000
Utility systems (exterior)
Not Applicable in this Example
%
CRV
Systems
0.2465 *
$4,500,000 = $1,109,250
Site
0.2000 *
$250,000 = $50,000
$1,159,250 for deferred maintenance
In this methodology, condition levels are tied to a fixed percentage of a facility's current replacement value. Facility systems values are tied to a fixed percentage of the overall facility CRV, which would not exceed 100 percent. The intent is to provide a model for quickly generating information for deferred maintenance reporting.
NASA Dryden Flight Research Center Statistical Model
This approach is based on a procedure developed by Mr. Gregory Spencer, Chief of the Maintenance, Operation and Logistics Branch at NASA 's Dryden Flight Research Center in California (EMR, 2000). The methodology uses an updated facilities inventory and a recently completed baseline condition assessment of all facilities and equipment to develop simplified condition codes and current replacement costs for all inventory items. Condition information for all equipment is kept up-to-date during the scheduled maintenance process that requires technicians to annotate work orders with the condition observed during execution of the maintenance tasks. Because recurring maintenance is scheduled on a one year interval, or less, the status of equipment is considered “real time”.
Implementation of a computerized maintenance management system (CMMS) is a requirement for this methodology. The CMMS database identifies all equipment and includes job plans, frequencies of maintenance, replacement costs, and condition data (a code from 1-5 is used identifying condition ranging from failed to excellent).
A random sample of inventory items in each of five standard condition codes is selected. A detailed estimate of repair costs is determined for each item; this cost is then divided by the item's replacement cost, providing a weighted factor for each item. The factors are then averaged for all selected inventory items in each condition code, and the average is multiplied by the total replacement cost for all inventory items in that condition code. This figure provides an approximation of the backlog of maintenance and repair (BMAR) costs for all items in that condition code; the figures for each condition code are then summed to give a total BMAR estimate for the entire physical plant.
For agencies with large inventories, using random sampling and extrapolation may be helpful in generating an approximation of the cost of the backlog of maintenance and repair. To use this method effectively, however, an agency's facilities condition inventory must be kept up to date; to do so in a efficient manner is resolved by noting condition by technicians performing maintenance versus the traditional “end to end” condition assessment.
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DEFERRED MAINTENANCE REPORTING FOR FEDERAL FACILITIES: Meeting the Requirements of Federal Accounting Standards Advisory Board Standard Number 6, as Amended
BMAR Algorithm
For every condition code a statistical weight is assigned based on random sampling. BMAR is equal to the sum of all equipment replacement costs multiplied by respective statistical weights.
BMAR=SUMj=1,5{SUMk=1,n{(CCF)j (RC)k}}
where: SUM is the summation function
CCF is the condition code factor (weight)
RC is the replacement cost
n = the total pieces of equipment for the condition code
Example Calculation of BMAR
Parameters: Assume a 300 item inventory; total replacement cost = $1,000,000; 4 item statistical sample.
Inventory #
Repair Cost
Replace Cost
Repair/Replace
7
100
10000
0.10
43
500
2000
0.25
115
300
4000
0.075
267
200
3000
0.066
Total replacement cost = $1,000,000
Condition Code Factor (CCF)= (0.1+0.25+0.075+0.066)/4=0.123
BMAR = (Total Replacement Cost)(CCF)= ($1,000,000)(0.123)=$123,000
NASA Simplified BMAR Model Using Real Property Data
The Dryden Flight Research Center has proposed a less complex model that does not require the use of a CMMS. Instead, it uses real property records common to all agencies. In this model, statistical sampling by facility type is used to determine the backlog of maintenance and repair. The backlog is determined by using a random sample of facilities in an agency's inventory and concentrating on a specified number of major systems, for example, structural, mechanical, and electrical. A weighted average is calculated for the net condition code, and the backlog is then assumed to be an exponential function of condition.
Simplified BMAR Algorithm
A statistical weight (CCF) is assigned based on random facility sampling. BMAR is equal to the sum of all facility replacement costs multiplied by the CCF.
BMAR={SUM k=1,n{(CCF) (CRV)k}
where: SUM is the summation function
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CCF is the condition code factor
CRV is the replacement cost of the facility
n = the number of facilities in the real property database
Condition Code 18
5
Excellent; no work required.
4
Good; less than 10 percent of components need repair.
3
Fair; more than 30 percent of components need repair.
2
Poor; greater than 30 percent of components need repair.
1
Unserviceable; failed system overall.
System Weights 19
40% Structural
30% Mechanical
30% Electrical
The condition code factor is assumed to be a decaying exponential function as the cost to repair increases dramatically with deteriorating condition:
CCF = k1e { [k2 (1 − NCC)]}
Where: k1, k2 = constants, assumed to be 1; exp = “e” or 2.718.
and
NCC= Net Condition Code (sum of condition codes times system weights for each sample facility averaged for sample size)
Sample Calculation
Parameters: Assume an inventory of 100 facilities, $100M total current replacement value, and a 1 building sample.
Mechanical assessment: Failing heating units, aging unreliable chillers. Condition Code = 3
Electrical assessment: 2 systems need replacement. Condition Code = 4
Net Condition Code (NCC)=((3 × 0.4)+(4 × 0.3)+(3 × 0.3))/1=3.3
CCF=exp(1-3.3)=0.10 (10%)
Where: k1, k2 are assumed 1 for this example
BMAR=($100M)(0.10)=$10M
18
The condition code factors and parametric weights are provided for illustrative purposes only. Each agency would need to develop its own set of condition code factors/parametric weights.
19
The condition codes for system weights are provided for illustrative purposes only. Each agency would need to develop its own set of conditions codes.
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DEFERRED MAINTENANCE REPORTING FOR FEDERAL FACILITIES: Meeting the Requirements of Federal Accounting Standards Advisory Board Standard Number 6, as Amended
SUMMARY
One objective of federal financial reporting is to produce uniform and consistent information that will be valuable to Congress, decision makers, agency officials and the public and to produce that information cost effectively. FASAB Standard Number 6, as amended, is intended to provide uniform and consistent information on property, plant, and equipment, including dollar amounts of deferred maintenance and repairs. The standard allows agency management some flexibility in determining how to calculate and report deferred maintenance by specifying that agencies can use condition assessment surveys, a total life-cycle cost method or other methods identical or similar to condition assessment surveys and total life-cycle costing.
Condition assessment surveys are recognized as a valid method for identifying and reporting maintenance and repair needs for facilities. The committee supports the inclusion of this methodology in FASAB Standard #6, as amended. However, concerns were raised that the standard implies or could be interpreted to imply that condition assessment survey information should be available for all facilities in an inventory and that such information should be updated annually. In practice, the availability of condition assessment survey data varies from agency to agency. Some agencies conduct condition assessments on a limited basis or for specific buildings in specific circumstances. Agencies that have instituted inventory-wide condition assessment programs typically reinspect facilities on cycle of every 3 to 5 years or longer.
Chapter 3 describes a number of methodologies for reporting deferred maintenance and repairs that are similar to condition assessment surveys and the total life-cycle cost method or combine elements of the two. Statistical approaches or methodologies for facilities renewal like those described for the Alabama Commission on Higher Education, Stanford University, the University of Virginia, and the Department of Defense are typically developed for planning and budgeting purposes. Dollar amounts for deferred maintenance are extrapolated by comparing forecasts for needed maintenance and repairs and actual expenditures; deferred maintenance is estimated as the difference between the two. As such, the methodologies are based on a time standard, not on specifically identified deficiencies. Backlog of maintenance and repair becomes a dollar figure that is the difference between a benchmark budget for maintenance and repair activities based on the projected life of systems and facilities and actual expenditures for maintenance and repair activities. However, as shown by the Stanford University model test, these types of methodologies can be effective in generating an estimated dollar amount for deferred maintenance and repairs. Allowing federal agencies greater flexibility in choosing methodologies, including statistical sampling, to report deferred maintenance for facilities may help to better align the objectives and methodologies of federal financial reporting.
REFERENCES
AME (Applied Management Engineering). 1991. Managing the Facilities Portfolio: A Practical Approach to Institutional Facility Renewal and Deferred Maintenance. Washington, D.C. : National Association of College and University Business Officers.
Biedenweg, R. 1982. Before the Roof Caves In: A Predictive Model for Physical Plant Renewal. APPA Newsletter , Association of Physical Plant Administrators, Part 1 (July 1982), Part 2 (August 1982). Alexandria, VA : Association of Physical Plant Administrators (APPA).
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Biedenweg, R. , and Alan Cummings. 1997. Before the Roof Caves In, Part II: A Predictive Model for Physical Plant Renewal. Alexandria, VA : Association of Higher Education Facilities Officers (APPA).
EMR (Enviro-Management & Research, Inc.). 2000. Final Summary Report. Survey of NASA Backlog of Maintenance and Repair. Arlington, VA : EMR.
FASAB (Federal Accounting Standards Advisory Board). 1993. Objectives of Federal Financial Reporting. Statement of Federal Financial Accounting Concepts, Number 1. Online: www.financenet.gov/financenet/fed/fasab/pdg/sffac-1.pdf .
FASAB. 1996. Accounting for Property Plant, and Equipment. Statement of Recommended Accounting Standards, Number 6. Online: http://www.financenet.gov/financenet/fed/fasab/concepts.htm .
Janke, J. 2000. Presentation on the Department of Defense Facilities Sustainment Model by Jay Janke, Office of the Secretary of Defense (Installations) before the Federal Facilities Council Standing Committee on Operations and Maintenance, National Research Council, Washington, D.C., January 19.
NRC (National Research Council). 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.
Phillips, Cushing, Jr. 1986. Facilities Renewal: The Formula Approach. Alexandria, VA : Association of Physical Plant Administrators.
Rugless, J. 1993. Condition assessment surveys. Facilities Engineering Journal 21(3) : 11-13.
Sanford, K. , and Sue McNeil. 1997. Data Modeling for Improved Condition Assessment. p. 287-296 in Infrastructure Condition Assessment: Art, Science, and Practice. Mitsuru Saito , ed. New York : American Society of Civil Engineers.
Syme, Preston T. , and Jay Oschrin. 1996. How to Inspect Your Facilities and Still Have Money Left to Repair Them. Alexandria, VA : Association of Higher Education Facilities Officers (APPA).
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