PAY NOW OR PAY LATER: CONTROLLING COST OF OWNERSHIP FROM DESIGN THROUGHOUT THE SERVICE LIFE OF PUBLIC BUILDINGS

Building Research Board

Committee on Setting Federal Construction Standards to Control Building Life-Cycle Costs

National Research Council

NATIONAL ACADEMY PRESS
Washington, D.C.
1991



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Pay Now or Pay Later: Controlling Cost of Ownership from Design Throughout the Service Life of Public Buildings PAY NOW OR PAY LATER: CONTROLLING COST OF OWNERSHIP FROM DESIGN THROUGHOUT THE SERVICE LIFE OF PUBLIC BUILDINGS Building Research Board Committee on Setting Federal Construction Standards to Control Building Life-Cycle Costs National Research Council NATIONAL ACADEMY PRESS Washington, D.C. 1991

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Pay Now or Pay Later: Controlling Cost of Ownership from Design Throughout the Service Life of Public Buildings NOTICE: The project that is the subject of this report was approved by the Governing Board of the National Research Council, whose members are drawn from the councils of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. The members of the committee responsible for the report were chosen for their special competences and with regard for appropriate balance. This report has been reviewed by a group other than the authors according to procedures approved by a Report Review Committee consisting of members of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. The National Academy of Sciences is a private, nonprofit, self-perpetuating society of distinguished scholars engaged in scientific and engineering research, dedicated to the furtherance of science and technology and to their use for the general welfare. Upon the authority of the charter granted to it by the Congress in 1863, the Academy has a mandate that requires it to advise the federal government on scientific and technical matters. Dr. Frank Press is president of the National Academy of Sciences. The National Academy of Engineering was established in 1964, under the charter of the National Academy of Sciences, as a parallel organization of outstanding engineers. It is autonomous in its administration and in the selection of its members, sharing with the National Academy of Sciences the responsibility for advising the federal government. The National Academy of Engineering also sponsors engineering programs aimed at meeting national needs, encourages education and research, and recognizes the superior achievements of engineers. Dr. Robert M. White is president of the National Academy of Engineering. The Institute of Medicine was established in 1970 by the National Academy of Sciences to secure the services of eminent members of appropriate professions in the examination of policy matters pertaining to the health of the public. The Institute acts under the responsibility given to the National Academy of Sciences by its congressional charter to be an adviser to the federal government, and upon its own initiative, to identify issues of medical care, research, and education. Dr. Samuel O. Thier is president of the Institute of Medicine. The National Research Council was established by the National Academy of Sciences in 1916 to associate the broad community of science and technology with the Academy's purposes of furthering knowledge and of advising the federal government. Functioning in accordance with general policies determined by the Academy, the Council has become the principal operating agency of both the National Academy of Sciences and the National Academy of Engineering in providing services to the government, the public, and the scientific and engineering communities. The Council is administered jointly by both Academies and the Institute of Medicine. Dr. Frank Press and Dr. Robert M. White are chairman and vice chairman, respectively, of the National Research Council. This report was prepared as part of the technical program of the Federal Construction Council (FCC). The FCC is a continuing activity of the Building Research Board, which is a unit of the Commission on Engineering and Technical Systems of the National Research Council. The purpose of the FCC is to promote cooperation among federal construction agencies and between such agencies and other elements of the building community in addressing technical issues of mutual concern. The FCC program is supported by 14 federal agencies: the Department of the Air Force, the Department of the Army, the Department of Commerce, the Department of Energy, the Department of the Navy, the Department of State, the General Services Administration, the National Aeronautics and Space Administration, the National Endowment for the Arts, the National Science Foundation, the U.S. Postal Service, the U.S. Public Health Service, the Smithsonian Institution, and the Department of Veterans Affairs. Funding for the FCC program was provided through the following agreements between the indicated federal agency and the National Academy of Sciences: Department of State Contract No. 1030-621218; National Science Foundation Grant No. MSM-8902669, under master agreement 8618641; and U.S. Postal Service grant, unnumbered. Library of Congress Catalog Card No. 90-64382 International Standard Book Number 0-309-04481-2 Additional copies of this report are available from: National Academy Press 2101 Constitution Avenue, NW Washington, DC 20418 S 331 Printed in the United States of America

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Pay Now or Pay Later: Controlling Cost of Ownership from Design Throughout the Service Life of Public Buildings BUILDING RESEARCH BOARD (1989–1990) Chairman RICHARD T. BAUM, Consultant, Jaros, Baum and Bolles, New York, New York Members LYNN S. BEEDLE, University Distinguished Professor of Civil Engineering and Director, Council on Tall Buildings and Urban Habitat, Lehigh University, Bethlehem, Pennsylvania GERALD L. CARLISLE, Secretary-Treasurer, International Union of Bricklayers & Allied Craftsmen, Washington, D.C. NANCY RUTLEDGE CONNERY, Consultant, Woolwich, Maine RAY F. DeBRUHL, Executive Vice President, Davidson and Jones Corporation, Raleigh, North Carolina C. CHRISTOPHER DEGENHARDT, President, EDAW, Inc., San Francisco, California DAVID R. DIBNER, Vice President and Principal Architect, Sverdrup Corporation, Arlington, Virginia ELISHA C. FREEDMAN, Regional Manager, Boyer, Bennett & Shaw, Inc., and Executive-in-Residence, University of Hartford, Hartford, Connecticut DONALD G. ISELIN, USN, Retired, Consultant, Santa Barbara, California GEORGE S. JENKINS, Consultation Networks, Inc., Washington, D.C. RICHARD H. JUDY, Consultant, Miami, Florida

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Pay Now or Pay Later: Controlling Cost of Ownership from Design Throughout the Service Life of Public Buildings FREDERICK KRIMGOLD, Associate Dean for Research and Extension, Virginia Polytechnic Institute and State University, Alexandria HAROLD J. PARMELEE, President, Turner Construction Company, New York, New York LESLIE E. ROBERTSON, Director, Design and Construction, Leslie E. Robertson Associates, New York, New York JAMES E. WOODS, William E. Jamerson Professor of Building Construction, College of Architecture and Urban Studies, Virginia Polytechnic Institute and State University, Blacksburg APRIL L. YOUNG, CRA Coordinator, First American Metro Corporation, McLean, Virginia Staff ANDREW C. LEMER, Director HENRY A. BORGER, Executive Secretary, Federal Construction Council PETER H. SMEALLIE, Director, Geotechnical Board PATRICIA M. WHOLEY, Staff Associate JOANN V. CURRY, Senior Secretary LENA B. GRAYSON, Senior Secretary

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Pay Now or Pay Later: Controlling Cost of Ownership from Design Throughout the Service Life of Public Buildings COMMITTEE ON SETTING FEDERAL CONSTRUCTION STANDARDS TO CONTROL BUILDING LIFE-CYCLE COSTS Chairman EDWARD COHEN, Managing Partner, Ammann and Whitney, Consulting Engineers, New York, New York Members GREGORY B. COLEMAN, Vice President, American Consulting Engineers Council Research and Management Foundation, Washington, D.C. NORMAN G. DELBRIDGE, JR., Engineer Consultant, Springfield, Virginia W. RONALD HUDSON, Professor, Department of Civil Engineering, University of Texas, Austin ROBERT E. JOHNSON, Associate Professor, College of Architecture and Urban Planning, University of Michigan, Ann Arbor ALEXANDER I. OUMOV, AIA Germantown, Tennessee JAMES G. PALMBORG, Operations and Maintenance Division, Embassy Task Group, Sverdrup Corporation, Arlington, Virginia GARY L. REYNOLDS, Director of Facilities Management, Facilities Planning and Management, Iowa State University, Ames VICTOR E. SANVIDO, Assistant Professor, Department of Architectural Engineering, Pennsylvania State University, University Park GAYLAND B. WITHERSPOON, FAIA, Associate Dean, College of Architecture, Clemson University, Clemson, South Carolina

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Pay Now or Pay Later: Controlling Cost of Ownership from Design Throughout the Service Life of Public Buildings JAMES E. WOODS, William E. Jamerson Professor of Building Construction, College of Architecture and Urban Studies, Virginia Polytechnic Institute and State University, Blacksburg Friend of the Committee PAUL V. DOBROW, Value Engineering Manager, Embassy Task Group, Sverdrup Corporation, Arlington, Virginia Federal Construction Council Liaison Representatives CAMERON ARNEGARD, HQ USAF/LEEDE, Bolling Air Force Base, Washington, D.C. ROBERT C. BUMBARY, AIA, Director, Technical Support Services, Office of Facilities, Department of Veterans Affairs, Washington, D.C. TERREL EMMONS, AIA, Director, Design Support Office, Naval Facilities Engineering Command, Department of the Navy, Alexandria, Virginia WILLIAM G. ESCHMANN II, PE, Program Manager, Office of Maintenance Management Equipment, U.S. Postal Service, Washington, D.C. PETER E. GURVIN, Director, Building Design and Engineering Division, U.S. Department of State, Washington, D.C. WILLIAM H. LEWIS, Program Manager, National Aeronautics and Space Administration, Washington, D.C. JACK METZLER, General Engineer, Office of Project and Facilities Management, U.S. Department of Energy, Washington, D.C. GARY RADTKE, PE, Division of Facilities Planning and Construction, Office of Environmental Health and Engineering, Rockville, Maryland LARRY SCHINDLER, Civil Engineer, HQUSACE (CEMP-EC), Office of the Chief of Engineers, Department of the Army, Washington, D.C. FRED SUHM, Value Engineering Officer, U.S. Department of State, Washington, D.C. GORDON WILCOX, PE, Chief, Facilities Management, Aberdeen Area, IHS, Aberdeen, South Dakota TOM WILLIAMS, Senior Architect, Facilities Standards and Technology Division, General Services Administration, Washington, D.C. CHARLES YANCEY, Structural Research Engineer, National Institutes of Standards and Technology, Gaithersburg, Maryland Public Facilities Liaison Representatives RICHARD W. BLAES, Chief of Maintenance, Department of Facilities and Services, Montgomery County, Rockville, Maryland ROBERT J. BOEREMA, Director, Division of Building Construction, Department of General Services, State of Florida, Tallahassee, Florida

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Pay Now or Pay Later: Controlling Cost of Ownership from Design Throughout the Service Life of Public Buildings ROBERT L. WOODWARD, Division of Building Construction, Department of General Services, State of Florida, Tallahassee, Florida BUCK KATT, Division of Design and Construction, Office of Administration, State of Missouri, Jefferson City, Missouri KEITH D. KELLY, Department of General Services, State of Maryland, Baltimore, Maryland RONALD L. THOMPSON, Department of General Services, Division of Engineering and Building, Commonwealth of Virginia, Richmond, Virginia Advisers to the Committee ALASTAIR G. LAW, MMP International, Inc. HAROLD E. MARSHALL, National Institute of Standards and Technology Project Staff ANDREW C. LEMER, Director PETER H. SMEALLIE, Executive Secretary, Public Facilities Council PATRICIA M. WHOLEY, Staff Associate JOANN V. CURRY, Senior Secretary

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Pay Now or Pay Later: Controlling Cost of Ownership from Design Throughout the Service Life of Public Buildings PREFACE This report is one of several produced by recent studies of committees working—under the auspices of the Building Research Board—on issues related to the use of public assets. Preceding generations have made substantial investments in our public buildings and other facilities that comprise the essential physical infrastructure for our society and, even in times of fiscal stringency, we continue to make new investments. Yet we are coming to recognize that the procedures by which we manage these valuable assets, as well as how we decide where and when to invest, may be serving us poorly. We have seen in recent years a mounting public concern about "America in ruins" and our economy's "fragile foundations," but we have been unable to take effective national action. The Board believes that more effective management of the public's assets is an area of strategic importance to the nation, an area in which improvements can be made through practical action by committed government officials, professionals, and private citizens working at local, state, and federal levels. We hope that work such as that reported here will help to assure that these improvements are effective. Andrew C. Lemer, Ph.D. Director, Building Research Board

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Pay Now or Pay Later: Controlling Cost of Ownership from Design Throughout the Service Life of Public Buildings EXECUTIVE SUMMARY A building is an investment made by owners in anticipation of the shelter and services it will provide to the people and activities it will house. With proper management of this investment, returns may continue for hundreds of years, but failure to recognize the continuing costs of ownership can lead to premature loss of services and deterioration of the building and high costs for the building's users. Some materials and building systems are particularly reliable or durable and repay their higher initial costs with savings in future operating and maintenance efforts. Other materials or systems may be selected because their lower initial costs meet the limits of available construction budgets and, with proper use, are likely to deliver entirely satisfactory service. Sometimes safety, security, or aesthetic concerns warrant both higher initial and future costs. Designers and owners of buildings recognize that there are many such choices and trade-offs among initial construction costs, recurring operations and maintenance (O&M) costs, and building performance. Decisions about a building's design, construction, operation, and maintenance can, in principle, be made such that the building performs well over its entire life cycle and the total costs incurred over this life-cycle are minimized. In practice, defining and controlling this life-cycle cost are difficult. The future behavior of materials and mechanical and electrical systems is uncertain, as are the future uses of the building, the environmental conditions to which it may be exposed, and the financial and economic conditions that influence relationships between present and future costs. Unexpected use of the building, unusual events such as storms or earthquakes, poor construction practices, changes of ownership, budgetary constraints, or financial conditions may alter the strategy for minimizing life-cycle cost. Finding the best course of action and assuring that it is followed are challenges that continue as long as a

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Pay Now or Pay Later: Controlling Cost of Ownership from Design Throughout the Service Life of Public Buildings building is in use, challenges that life-cycle cost analysis can help decision makers to meet. Life-cycle cost analysis is an economic evaluation tool for choosing among alternative building investments and operating strategies by comparing all of the significant differential costs of ownership over a given time period in equivalent economic terms. An effective life-cycle cost analysis depends on having a reasonable range of possible alternatives that are likely to deliver equally satisfactory service to owners and users over a given service life. For projects whose scale does not warrant explicit development of design alternatives, design criteria and guide specifications can help assure that principles of life-cycle cost analysis are reflected in specific designs. Substantial obstacles to implementing life-cycle cost control in practice include (1) failure of designers to include life-cycle cost goals in their design criteria; (2) failure of owners or managers with short-term responsibility for a building to consider effectively the longer-term impact of their decisions on the building's O&M requirements; (3) general desire of many decision makers to minimize their initial expenditures in order to increase return on investment, meet budgetary restrictions, or both; and (4) lack of data and accepted industry standards for describing the maintenance effect and operational performance of building components. Managers from federal, state, and local government agencies encounter these obstacles in legislative budget procedures; procurement regulations that limit design specificity to enhance competition; and administrative separation of responsibilities for design, construction, and maintenance. Several decades of experience with highways, and more recently bridges, suggest that improved life-cycle cost management for public buildings can be achieved through development and application of systematically structured and comprehensive life-cycle cost data bases, education and training of professionals and technical staff involved in all stages of the building's life-cycle, and research to develop reliable tools to forecast building performance. A strong and long-term commitment will be required to overcome the obstacles to effective life-cycle cost management of public buildings. In the near term, design criteria may be a practical tool available for controlling life-cycle costs, but over the longer term there is a broader range of actions that each agency responsible for these buildings should take: Formally recognize control of life-cycle cost as an essential and effective element of the agency's mission. Include explicit assessment of design alternatives that influence life-cycle cost as an element of the scope of work and fees of agency designers. Assure that value engineering programs and construction contract incentives and other procurement mechanisms demonstrate savings in expected life-cycle cost rather than construction cost only. Direct designers to document clearly their design decisions made to control life-cycle cost and the subsequently expected operating consequences for each facility.

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Pay Now or Pay Later: Controlling Cost of Ownership from Design Throughout the Service Life of Public Buildings Implement cross-training and staff exchange of design and operations and maintenance management personnel to assure that life-cycle cost management principles and understanding of how life-cycle cost is controlled at all stages in the facility's service life are applied in practice. Establish a life-cycle cost management system to maintain O&M data and design decisions in a form that supports operations and maintenance management and feedback of O&M experience to future facility designs. Assign accountability for maintenance and repair at the highest levels in the agency. Responsibilities should include effective use of maintenance and repair funds and other actions required to validate prior decisions on facility life-cycle cost. Assure that adequate resources are available to implement life-cycle cost management decisions.

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Pay Now or Pay Later: Controlling Cost of Ownership from Design Throughout the Service Life of Public Buildings CONTENTS 1   Introduction   1 2   Life-Cycle Cost and Its Control   5     Why Consider Life-Cycle Cost?   6     Important Assumptions   7     Life-Cycle Cost Management   10     Relationship of Planning and Design Criteria and Life-Cycle Cost   12 3   Obstacles to Life-Cycle Cost Control   15     Data and Procedural Obstacles   15     Institutional Obstacles   16     Management Obstacles   19 4   Government Facilities and Life-Cycle Costs Control   23     Government Policies Recognizing Life-Cycle Costs and Analysis   23     Government Policies Conflicting Life-Cycle Cost Control   25     Improving the Likelihood of Success: The Case of Highway Pavement and Bridge Management   27 5   Controlling Life-Cycle Cost of Ownership   31     Using Guide Criteria to Achieve Life-Cycle Cost Control   32

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Pay Now or Pay Later: Controlling Cost of Ownership from Design Throughout the Service Life of Public Buildings     Recommendations for Broader Action   32     Conclusion: The Payoffs   37     Appendixes     A   Glossary   39 B   Biographical Sketches of Committee Members and Staff   43 C   Overview of Life-Cycle Cost Analysis Procedure   47 D   Issues Addressed by a Building Life-Cycle Cost Management System   53

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Pay Now or Pay Later: Controlling Cost of Ownership from Design Throughout the Service Life of Public Buildings PAY NOW OR LATER: CONTROLLING COST OF OWNERSHIP FROM DESIGN THROUGHOUT THE SERVICE LIFE OF PUBLIC BUILDINGS

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