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Review of the Capital Outlay Process and Deferred Maintenance in the Commonwealth

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Title: Review of the Capital Outlay Process and Deferred Maintenance in the Commonwealth


1
Review of the Capital Outlay Process and Deferred
Maintenance in the Commonwealth
  • Implementation Committee
  • April 18, 2005

2
APA Reports
  • Review of the Commonwealths
  • Capital Outlay Process
  • November 2004
  • Review of Deferred Maintenance
  • in the Commonwealth
  • December 2004

3
Capital Outlay Review
  • The Auditor of Public Accounts initiated the
    Capital Outlay Review due to concerns raised by
    agencies and institutions of higher education
    about the capital outlay process.
  • Lengthy process
  • Too many change orders
  • Too many scope adjustments

4
Capital Project Life Cycle
5
Planning vs. Project Approval
  • Issue Funding is committed to an entire project
    based on a conceptual design. Detailed planning,
    which provides more accurate cost estimates,
    occurs after approval and financing resulting in
    change orders and scope adjustments
  • Recommendation Implement a two-phased approach
    to capital project approval to provide more
    accurate project cost estimates prior to granting
    construction approval and financing.

6
Project and Appropriation Monitoring
  • Issue There is no comprehensive reporting of
    progress or funding status on approved projects.
  • Recommendation Require the Appropriations Act
    to show unexpended appropriations for each
    project and require agencies to report whether
    capital projects are On Time and On Budget.

7
Total Life Cycle Costing
  • Issue Total Life Cycle Costing occurs during
    preliminary planning making it less effective.
  • Recommendation Require agencies and
    institutions to provide a Total Life Cycle
    Costing determination based on final approved
    designs for all capital construction.

8
BCOMs Role Unclear
  • Issue BCOMs role in the capital outlay process
    is often confused with General Services role as
    the Capital Square area project manager.
  • Recommendation General Services should work
    with BCOM to define its roles and duties. This
    should include consideration of whether BCOM
    should provide only limited oversight on
    projects, assume a traditional role of project
    manager, or have some other responsibilities.

9
Deferred Maintenance Review
  • The 2004 Special Session of the General Assembly
    directed the Auditor of Public Accounts to
    conduct a review to determine the amount of
    deferred maintenance and the ongoing major
    maintenance needs of the Commonwealth. This
    review includes an interim report issued in
    December 2004 and a final report due in December
    2005.

10
Interim Study Objectives
  • Establish a statewide definition of deferred
    maintenance.
  • Review statewide and agency specific maintenance
    practices.
  • Determine what maintenance systems exist in the
    Commonwealth and which agencies currently track
    deferred maintenance and perform facility
    condition assessments.
  • Determine the need for an RFP for a new system or
    whether the Commonwealth has an existing system
    that can be used.
  • Research and evaluate funding options and best
    management practices used by other governmental
    entities.
  • Recommend an interim and long-term plan for
    reducing the backlog of deferred maintenance and
    preventing the backlog from occurring in the
    future.

11
Final Study Objectives
  • Establish the data needed to determine the
    deferred maintenance backlog and develop an RFP
    for a Facility Condition Assessment System to
    collect this information.
  • Develop a methodology for phasing in the
    implementation of the Facility Condition
    Assessment System.
  • Develop policies and procedures for the initial
    and future collection and maintenance of
    information maintained in the Facility Condition
    Assessment System by agencies and institutions.
  • Audit the information agencies and institutions
    report in the Facility Condition Assessment
    system and determine the deferred maintenance
    backlog, prioritize problems, and propose
    deferred maintenance funding methods for the
    future.

12
Study Activities
  • Established a Task Force of agencies and
    institutions.
  • Surveyed 85 agencies and institutions about
    facility maintenance practices.
  • Visited Task Force member agencies to obtain an
    understanding of facility maintenance operations,
    budget, and systems used.
  • Researched and evaluated practices used by
    federal, state, and local governments to address
    deferred maintenance.
  • Developed a timeline and plan of action.

13
Commonwealths Buildings
  • Over 11,000 buildings valued at more than 12.6
    billion
  • Buildings range in age from new to over 100 years
    old.
  • Buildings are in a constant state of
    deterioration.
  • Many buildings are at or past the time for major
    renovation or replacement.

14
Deferred Maintenance
  • Definition
  • Facility owner leaves unperformed planned
    maintenance, repairs, replacement, and renewal
    projects due to a lack of resources or perceived
    low priority and deferral of the activity results
    in a progressive deterioration of the facility
    condition or performance.

15
Definitions
  • Operational maintenance is the day-to-day
    operations of a facility to maintain its
    functionality.
  • Continuous maintenance is the preserving of
    facilities and their components from failure or
    deterioration, which is necessary to realize its
    originally anticipated useful life.
  • Capital renewal is the planned repair and
    replacement of facility systems and components
    having a life less than the life of the facility
    so the systems and components will last as long
    as the anticipated life of the facility.
  • Capital improvement and renovation is the
    rebuilding or restoring of facilities through
    additions or alterations so they more efficiently
    and effectively meet programmatic needs.

16
Lack of Accountability
  • The General Assembly and the Governor cannot
  • adequately plan for future maintenance and
    capital
  • needs because
  • The Commonwealth does not have a complete
    inventory of all of its buildings and their
    condition.
  • The Commonwealth does not require agencies to
    have a master plan.
  • The Commonwealth does not consider total life
    cycle costs of a building in the final design
    process.

17
Lack of Accountability
  • The Commonwealth does not have an established
    condition level at which agencies must maintain
    their facilities.
  • The Commonwealth does not provide agencies
    policies or guidance on how to maintain
    facilities.
  • There is no accountability or consistency in the
    budgeting or accounting process for operating
    maintenance.
  • Budgets are not based on need.
  • Facility maintenance funding and expenses are not
    separately tracked and account for.

18
Maintenance Reserve Program
  • The program is not functioning as originally
    intended.
  • It should fund capital renewal projects.
  • Agencies are using maintenance reserve funds for
    operating and capital maintenance activities.
  • The project validation process focuses on
    individual projects and their dollar value rather
    than whether the project is worthwhile given the
    overall condition, age, and functionality of the
    entire facility .

19
Maintenance Reserve Program
  • Agencies use the maintenance reserve allocation
    on any validated project, not necessarily in
    priority order.
  • Agencies must obligate maintenance reserve
    allocations within the biennium appropriated and
    therefore cannot accumulate the allocations over
    time.
  • This results in agencies not repairing and
    replacing roofs and other priority projects first
    because they are more costly and time consuming
    to execute.

20
Determining Maintenance Needs
  • Agencies rarely perform facility condition
    assessments to determine needs.
  • Agencies determine needs and identify
    deficiencies through unstructured methods.
  • In the past, the Commonwealth has not adequately
    funded identified needs, so agencies often
    identify only the needs for which they believe
    they can get funding.
  • As a result, the Commonwealth does not know what
    all of its maintenance and renewal needs are.

21
Operating Maintenance Budget
  • The maintenance budget is not based on need it
    is often based on prior year expenses plus an
    increase.
  • Because operating maintenance funding is
    relatively consistent, it does not provide
    agencies with a method to plan and fund
    continuous maintenance activities that experience
    fluctuations in timing.
  • Operating maintenance is not separately funded,
    except in higher education, therefore the funding
    is susceptible to management directing it to
    other activities.

22
General Services Rental Rates
  • These rates are insufficient to allow General
    Services to provide adequate maintenance for the
    buildings in Capital Square.
  • General Services, with JLARC approval, sets these
    rates to cover costs but not to provide funding
    to ensure maintenance of buildings at a
    satisfactory level.

23
Demolish or Sell
  • The Commonwealth appears to believe that
    buildings have an infinite life.
  • The Commonwealth does not require agencies to
    analyze the benefits of replacing old buildings
    with newer, more efficient buildings versus
    continuing to repair and renovate the building.
  • Factors to consider
  • Cost of the construction and future operating
    costs
  • Economic impact of moving or operating more
    efficiently
  • Ability of the building to meet the current and
    future programmatic needs of the agency

24
Life Cycle Analysis
  • A structured approach or methodology to establish
    a facilitys anticipated expenses for each stage
    in its life.
  • The Commonwealth does not properly or adequately
    use life cycle analysis during the life of a
    building.
  • The Commonwealth currently only considers life
    cycle analysis during the initial design phase of
    a capital project.
  • Life cycle analysis should occur during the final
    design phase and once the building reaches the
    point when it is time to replace major systems
    but no later than when the cumulative cost of the
    needed repairs reach 60 percent of the current
    replacement value of the building.

25
Recommendations
  • Define and require Master Planning.
  • Implement a complete asset management system that
    integrates the financial aspect of purchasing an
    asset with the stewardship and custody
    responsibilities that come with ownership.
  • Require agencies to perform facility condition
    assessments periodically.

26
Recommendations
  • Require life cycle costing during the final
    design phase of a capital project and when a
    buildings major systems are ready for
    replacement.
  • Establish a facility condition level policy and
    maintenance standards for Commonwealth-owned
    buildings.
  • Require agencies to establish maintenance
    programs that comply with the facility condition
    level policy and maintenance standards in order
    to be eligible to receive maintenance funding.

27
Recommendations
  • Budget and account for maintenance funding
    separately and hold agency management accountable
    for the maintenance budget and condition of its
    buildings.
  • Revamp the budget process as it relates to
    facility maintenance, renewal, and renovation.
  • General Services should establish rental rates
    that will provide adequate funding for operating
    and continuous maintenance services and capital
    renewal activities. JLARCs approval should
    ensure that this occurs.

28
Interim Solution
  • Provide for an increase in accountability for
    maintenance funding.
  • Provide a method to accumulate and protect
    funding and separate the cost of operational and
    continuous maintenance activities.
  • Acknowledge that operational and continuous
    maintenance activities are operating costs and
    will come from assessed fees or collected
    revenues where available.
  • Fund capital renewal maintenance with increased
    restrictions and monitoring.

29
Interim Solution
  • Establish the Operating and Continuous
    Maintenance Reserve Fund
  • A non-reverting, reserve fund established at each
    agency and institution to accumulate funds to
    carry out all operating and continuous
    maintenance activities.
  • Allows accumulation of funds to pay for more
    expensive continuous maintenance projects.
  • Funded through the operating budget, which could
    include assessed fees, collected revenues, or
    general fund appropriation.

30
Interim Solution
  • Capital Renewal Maintenance
  • Recommend directing funding for the maintenance
    reserve program towards capital renewal
    activities that meet the following criteria
  • Projects that involve major building systems must
    have a useful life of at least ten years once
    completed.
  • The useful life of the project must not be more
    than the remaining life of the building to which
    it relates.
  • The total cost of all needed work on the building
    must be less than 60 of the buildings current
    replacement value .
  • Projects must be for buildings that have a
    facility condition assessment so that the
    effectiveness of the project can be evaluated
    against the overall condition of the building.

31
Long-Term Funding Options
  • Reserve Fund
  • A fund to set aside money for a specific use,
    such as capital maintenance.
  • Capital Reserve Fund
  • A reserve fund that ties the payments into the
    reserve fund to the timing of debt service
    payments that funded the original construction of
    the building.
  • Revolving Fund
  • A fund into which there is an initial large
    deposit. Then the fund makes loans for a
    specific purpose, such as capital maintenance,
    and users pay back the loan over a period of
    time.

32
Long-Term Recommendation
  • Establish the Operating and Continuous
    Maintenance Reserve Fund as described in the
    interim solution
  • Establish a Capital Preservation and Renewal
    Reserve Fund to replace the Maintenance Reserve
    Program
  • A non-reverting, reserve fund to retain funds to
    carry out all capital preservation and renewal
    activities. Deposits should occur annually at
    the same time as the debt service payments. The
    fund represents the present value of the
    anticipated capital renewal activities for the
    life of the facilities and its components.
  • The source of funding will be the same as the
    funding for the original construction of the
    building.

33
APA Project Status
  • We have contracted with Vanderweil Facility
    Advisors, Inc (VFA) to provide a hosted Facility
    Inventory and Condition Assessment System
    (VFA.facility).
  • Task Force agencies will perform a combination of
    detailed facility condition assessments and life
    cycle costing analysis to populate the new
    system.
  • APA will audit, analyze, and prioritize the
    collected information to determine the deferred
    maintenance needs for the Task Force agencies.
  • Issue Final Report by December 2005.
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