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1 Introduction - Buildings and other constructed facilities represent a significant and on going investment of financial and natural resources. Nationally, in 1999, new construction and renovation of buildings was valued at $~.07 trillion or 12.3 percent of the gross domestic product. Annually, buildings account for nearly 40 percent of U.S. energy expenditures and produce more than 25% of greenhouse gas emissions (WBDG, 2000a). It has been estimated that construction debris accounts for more than half the volume of U.S. landfi~Is (WBDG, 2000~. The federal government owns approximately 500,000 facilities and their associated infrastructure worldwide (NRC, 19981. This facilities inventory represents a significant capital asset portfolio valued at more than $300 billion. Upwards of $20 Won Is spent annually on acquiring or substantially renovating federal facilities. In fiscal year (FY) 199S, the federal government used 349.4 trillion British thermal units (BTUs) for energy to power, heat, and coo] its buildings at a cost of approximately $3.5 billion (FEMP, 2000a).i Federal agencies collectively spend more than $500 million annually for water and sewer (FEMP, 2000b). Given the magnitude of the existing and ongoing facilities investment, identifying methods to build, manage, and operate buildings more effectively and efficiently can result in significant cost and resource savings for both public and private organizations. On June 3, 1999, Executive Order 13123, "Greening the Government Through Efficient Energy Management," was signed (see Appendix A). Its preamble states that with more than 500,000 buildings, the Federal Government can lead the Nation in energy efficient building design, construction, and operation. As a major consumer that spends $200 billion annually on products and services, the Federal Government can promote energy efficiency, water conservation, and the use of renewable energy products, and help foster markets for emerging technologies. Executive Order 13123 establishes goals for greenhouse gases reduction, energy efficiency improvement, industrial and laboratory facilities, renewable energy, petroleum, source energy, and water conservation. Section 401 instructs agencies to use ' Since 1985, federal agencies have reduced net energy consumption in buildings almost 26 percent, from 471.0 trillion BTUs. The cost of energy has also declined by more than 38 percent from 1985 when $5.6 billion (constant dollars) was spent for energy for federal buildings and facilities (FEMP, 2000a). - 5

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6 Sustainable Federal Facilities life-cycle cost2 analysis in "making decisions about their investments in products, services, construction, and other projects to lower the Federal Government's costs and to reduce energy and water consumption." In Section 403 d, Executive Order 13123 addresses sustainable development and the development of sustainable development principles. It states that agencies shall apply such "sustainable development] principles to the siting, design, and construction of new facilities. Agencies shall optimize life-cycle costs, pollution, and other environmental and energy costs associated with the construction, life-cycle operation, and decommissioning of the facility. A separate but related document is Executive Order 13101, "Greening the Government Through Waste Prevention, Recycling, and Federal Acquisition," signed September 14, 1998 (see Appendix B). Executive Order 13101 states that "consistent with the demands of efficiency and cost effectiveness, the head of each agency shall incorporate waste prevention and recycling in the agency's daily operations and work to increase and expand markets for recovered materials through greater Federal Government preference demand for such products." Environmentally preferable is defined to mean products or services that have a lesser or reduced effect on human health and the environment when compared with competing products or services that serve the same purpose. A third document is Executive Order 13 148, "Greening the Government Through Leadership in Environmental Management", signed on April 2l, 2000 (see Appendix C). The preamble states that the head of each Federal agency is responsible for ensuring that all necessary actions are taken to integrate environmental accountability into agency day-to-day decision-making and long-term planning processes, across all agency missions, activities, and functions. Consequently, environmental management considerations must be a fundamental and integral component of Federal Government policies, operations, planning, and management. The head of each Federal agency is responsible for meeting the goals and requirements of this order. PROBLEM STATEMENT AND STUDY OBJECTIVE The process for acquiring federal facilities is guided by a variety of laws, executive orders, policies, and regulations. This guidance is generally intended to provide for an open, competitive process, to achieve best value or lowest cost, and to meet a variety of social and economic objectives. Because this guidance has been developed from a variety of sources to meet a wide range of goals, conflicts among competing objectives can arise during the acquisition process, leading to tradeoffs that can 2 Life-cycle cost is defined as the sum of the present values of investment costs, capital costs, installation costs, energy costs, operating costs, maintenance costs, and disposal costs, over the lifetime of the project, product, or measure.

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Introduction 7 compromise the design and, consequently, the energy and environmental performance of federal facilities. Code of Federal Regulations (CFR), Title 10, Part 436, defines the analysis requirements, procedures, and Jules to be used by federal agencies for life-cycle costing, for energy related projects and investments. Life-cycle costing is defined in the CFR as "the total cost of owning, operating, and maintaining a building over its useful life (including its fuel and water, energy, labor, and replacement components) determined on the basis of a systematic evaluation and comparison of alternative building systems, except that in the case of leased buildings, the life-cycle costs shall be calculated over the effective remaining term of the lease." Since 1993' federal agencies and departments have been required to use value engineering "as a management tool' where appropriate, to ensure realistic budgets, — ——On - — ———O ~ - ~ I- $- l- 7 ~ 7 , Identity and remove nonessential capital and operating costs, and Improve and maintain optimum quality of program and acquisition functions." Value engineering is defined as an organized effort directed at analyzing the functions of systems, equipment, facilities, services, and supplies for the purpose of achieving the essential functions at the lowest life-cycle cost consistent with required performance, quality, reliability and safety. In the late 1990s, several sponsoring agencies of the Federal Facilities Council3 (FFC) began developing and implementing initiatives and policies related to sustainable development. Life-cycle costing and value engineering guidance were recognized as being supportive of sustainable development. Value engineering, in particular, can support sustainable development objectives when applied in the conceptual planning and design chases of the acquisition process. However a specific concern was raised that in L ~ ~ ~ ~ ~ ~ .. . . . . id. .. . . ,. . . . ~ . . . .. practice, value engineering is often applied In the later stages of design or construction when cost overruns occur. In looking for ways to reduce costs, a value engineering analysis may eliminate some of the technological features of the integrated facility design and compromise the sustainable development goals of the acquisition. In response to these concerns, the FFC decided to develop a framework to show how federal agencies can use value engineering and life-cycle costing to support sustainable development for federal facilities and meet the objectives of Executive Order 13 123. STUDY PROCESS This study was identified as a high-priority project for the calendar year 1999 FFC Technical Activities Program. An ad hoc task group of representatives from the FFC sponsor agencies was established to take the lead responsibility for conducting the study. The task group gathered and analyzed federal laws, executive orders, and policies and agency guidance related to sustainable development, life-cycle costing, and value 3 The Federal Facilities Council sponsor agencies are the U.S. Air Force, Air National Guard, U.S. Army, U.S. Department of Energy, U.S. Department of Interior, U.S. Navy, U.S. Department of State, U.S. Department of Veterans Affairs, Federal Bureau of Prisons, Food and Drug Administration, General Services Administration, Indian Health Service, Internal Revenue Service, National Aeronautics and Space Administration, National Institutes of Health, National Institute of Standards and Technology, National Science Foundation, Department of Defense, the Smithsonian Institution and the U.S. Postal Service. Additional information is available at http://www4.nationalacademies.org/cets/fic.nsf.

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8 Sustainable Fedleral Facilities engineering. The group met 14 times over a 19-month period to identify issues related to integration and implementation of these practices and to develop the Damework described in Chapter 3. The task group also developed a list of tools and resources related to sustainable development, value engineering, and life-cycle costing. The draft report was reviewed by the senior representatives of the FFC sponsors and members of the FFC Standing Committees on Design and Construction and Environmental Engineering. The final report was also reviewed by Jonathan Barnett and Max Bond, members of the Board on Infrastructure and the Constructed Environment. REPORT ORGANIZATION The next section identifies government-wide legislation, executive orders, and policies related to sustainable development, value engineering, and life-cycle costing, and describes how life-cycle costing can be used with value engineering. Chapter 2 provides information on the life cycles of facilities and describes a generalized process for federal facility acquisition and provides context for the task group's framework. Chapter 3 presents a framework for using value engineering with life-cycle costing to acquire sustainable facilities. Chapter 4 identifies issues related to implementing sustainable development. Chapter 5 identifies online resources related to sustainable development, value engineenng, performance measures, environmentally preferable products and lessons learned. The appendixes contain supporting materials. GOVERNMENT-WIDE GUIDANCE Sustainable Development Defining Sustainable Development An often cited definition of sustainable development is found in Our Common Future, a 1987 report produced by the United Nations World Commission on Environment and Development (UN, 1987~. This commission, more commonly known as the Brundtland Commission, defined sustainable development as a process of change in which the exploitation of resources, the direction of investments, the orientation of technological development, and institutional change are all in harmony and enhance both current and fixture potential to meet human needs and aspirations. In the commission's words, "Sustainable development meets the needs of the present without compromising the ability of future generations to meet their own needs." Nearly a decade later, the President's Council on Sustainable Developmen contributed a national vision for sustainable development in a report entitled Sustainable America: A New Consensus for Prosperity, Opportunity and a Healthy Environment for

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Introduction the Future (PCSD, 1996~. The report noted that here sustainable development means. 9 . maintaining economic growth while producing the absolute minimum of pollution, repairing the environmental damages of the past, using far fewer non-renewable resources, producing much less waste, and extending the opportunity to live in a pleasant and healthy environment to the whole population. A recent report The Practice of Sustainable Development (ULl, 2000) notes that "for builders and developers, moving toward sustainable development means designing projects and buildings that . . conserve energy and natural resources and protect air and water quality by minimizing the consumption of land, the use of other nonrenewable resources, and the production of waste, toxic emissions, and pollution; · make cost-effective use of existing and renewable resources such as infrastructure systems, underused sites, and historic neighborhoods and structures; · contribute to community identity, livability, social interaction, and sense of place; · widen access to jobs, affordable housing, transportation choices, and recreational facilities, and expand diversity, synergism, and use of renewable resources in the operation and output of the local economy". Laws and Executive Orders Several laws and executive orders form the primary basis for implementing sustainable development in federal facilities. . . The National Environmental Policy Act of 1969 (42 U.S.C. 4321-4347) as amended. Its purposes are to declare a national policy which will encourage productive and enjoyable hannony between man and his environment; to promote efforts which will prevent or eliminate damage to the environment and biosphere and stimulate the health and welfare of man; to enrich the understanding of the ecological systems and natural resources important to the Nation; and to establish a Council on Environmental Quality. The Pollution Prevention Act of 1990 (42 U.S.C. 13101-13109) declares it is the national policy of the United States that pollution should be prevented or reduced at the source whenever feasible; pollution that cannot be prevented should be recycled in an environmentally safe manner, whenever feasible; pollution that cannot be prevented or recycled should be treated in an environmentally safe manner, whenever feasible; and disposal or other release into the environment should be employed only as a last resort and should be conducted in an environmentally safe manner.

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10 Sustainable Federal Facilities Executive Order 13101, "Greening the Government Through Waste Prevention, Recycliing, and Federal Acquisition" (September 14, 1998) as set forth in Appendix B. states in its preamble that "consistent with the demands of efficiency and cost effectiveness, the head of each executive agency shall incorporate waste prevention and recycling in the agency's daily operations and work to increase and expand markets for recovered materials through greater Federal Government preference and demand for such products". Final guidance on environmentally preferable purchasing for executive agencies was published in the Federal Register on August 20, 1999 (Volume 64, Number 161~. Executive Order 13123, "Greening the Government Through Efficient Energy Management" (June 3, 1999) as set forth in Appendix A seeks to meet several goals. Greenhouse Gases Reduction. Through life-cycle cost-effective energy measures, each agency shall reduce its greenhouse gas emissions attributed to facility energy use by 30 percent by 2010 compared to such emissions levels in 1990. Energy Efficiency Improvement. Through life-cycle cost-effective measures, each agency shall reduce energy consumption per gross square foot of its facilities, excluding facilities covered in section 203 of this order, by 30 percent by 2005 and 35 percent by 2010 relative to 1985. No facilities will be exempt from these goals unless they meet new criteria for exemptions, to be issued by the Department of Energy. Industrial and Laboratory Facilities. Through life-cycle cost-effective measures, each agency shall reduce energy consumption per square foot, per unit of production, or per other unit as applicable by 20 percent by 2005 and 25 percent by 2010 relative to 1990. No facilities will be exempt from these goals unless they meet new criteria for exemptions, as issued by the DOE. Renewable Energy. Each agency shall strive to expand the use of renewable energy within its facilities and in its activities by implementing renewable energy projects and by purchasing electricity from renewable energy sources. In support of the Million Solar Roofs initiative, the Federal Government shall strive to install 2,000 solar energy systems at Federal facilities by the end of 2000, and 20,000 solar energy systems at Federal facilities by 2010. Petroleum. Through life-cycle cost-effective measures, each agency shall reduce the use of petroleum within its facilities. Agencies may accomplish this reduction by switching to a less greenhouse gas-intensive, nonpetroleum energy source, such as natural gas or renewable energy sources; by eliminating unnecessary fuel use; or by other appropriate methods. Where alternative filets are not practical or life-cycle cost-effective, agencies shall strive to improve the efficiency of their facilities.

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Introduction 11 Source Energy. The Federal Gove~nrnent shall strive to reduce total energy use and associated greenhouse gas and other air emissions, as measured at the source. To that end, agencies shall undertake life-cycle cost-effective projects in which source energy decreases, even if site energy use increases. In such cases, agencies will receive credit toward energy reduction goals through guidelines developed by DOE. Water Conservation. Through life-cycle cost-effective measures, agencies shall reduce water consumption and associated energy use in their facilities to reach the goals set under section 503(i)4 of this order. Where possible, water cost savings and associated energy cost savings shall be included in Energy Savings- Performance Contracts and other financing mechanisms. To implement Executive Order 13123, the Department of Defense and the General Services Administration were charged with developing sustainable desig principles. To that end, the following principles have been formulated (WBDG, 2000c): Siting: Optimize Site Potential Energy: Minimize Nonrenewable Energy Consumption Materials: Use Environmentally Preferable Products Water: Protect and Conserve Water Indoor Environmental Quality: Enhance Indoor Environmental Quality Operations and Maintenance: Optimize Operations and Maintenance Practices Executive Order 13148, "Greening The Government Through Leadership In Environmental Management," (April 22, 2000), as set forth in Appendix C, establishes goals for environmental management, environmental compliance; right-to-know and pollution prevention; release reduction for toxic chemicals; use reduction for toxic chemicals, hazardous substances and other pollutants; reductions in ozone-depleting substances; and environmentally and economically beneficial landscaping. Sustainable development is affected by the requirement that, "by December 3 I, 2005, each agency shall implement an environmental management system at all appropriate agency facilities based on facility size, complexity, and the environmental aspects of facility operations. The facility environmental management system shall include measurable environmental goals, objectives, and targets that are reviewed and updated annually." Value Engineering The value engineering approach is a strategic thinking process that involves the systematic and objective assessment of project component alternatives. Federal 4 Sec. 503. Within 1 year of this order, the Secretary of Energy, in collaboration with other agency heads, shall: (A establish water conservation goals for Federal agencies.

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12 departments and agencies are required to perform value engineering in accordance with Office of Management and Budget Circular A-131 (May 2l, 1993), reprinted in Appendix D and Public Law 104-106, Section 4306, Value Engineering for Federal Agencies, reprinted in Appendix E. Circular A-131 establishes a policy that "Federal agencies shall use Value engineering] as a management tool, where appropriate, to ensure realistic budgets, identify and remove nonessential capital and operating costs, and improve and maintain optimum quality of program and acquisition functions." Value engineering (also referred to as value analysis, value management, and value control) is defined as "an organized effort directed at analyzing the functions of systems, equipment, facilities, services, and supplies for the purpose of achieving the essential Unctions at the lowest life-cycle cost consistent with required performance, quality, reliability, and safety." Sustainable Federal Facilities OMB Circular A-13 ~ notes that value engineering is a "management too] that can be used alone or with other management techniques and methodologies to improve operations and reduce costs." Referenced techniques and methodologies include life- cycle costing, design-to-cost approaches, and concurrent engineering. Value engineering can also contribute to overall management objectives of "streamlining operations, improving quality, reducing costs, and can result in the increased use of environmentally sound and energy-efficient practices and materials." The circular provides agencies with the authority to define opportunity criteria to apply value management; these opportunities exist in programs, projects, systems, products, and services Public Law 104-106, Section 4306, Value Engineering for Federal Agencies, states that each agency shall establish and maintain cost-effective value engineering procedures and processes. The value engineering methodology emphasizes the return-on-investment aspect of decision making in terms of life-cycle costs to maintain or improve on desired levels of capability and performance during planning, acquisition, execution, and procurements. lt can be used to identify alternative ideas and solutions at any phase of acquisition or any phase of a building's life cycle. A team of value engineers may examine alternatives for improving value in the following ways: 1 2. 3. 4. 5. 6. 7. 8. 9. 10 Raise productivity Improve management Simplify work Eliminate overlap or duplication Reduce process time Conserve energy and water Reduce paperwork Install smart building systems Reevaluate service contracts Reorder cyclic and preventive maintenance . Additional benefits can result when value engineering is applied to a project plan and design, such as: Greater project team interaction

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Introduction 13 · Greater knowledge of costs and the resulting economic impact of various design · . c .eclslons · Increased monitoring and management of quality and cost throughout design To maximize results value engineering should be applied as early as possible before commitment of funds or approval of systems, services, or designs. However, an owner is sometimes faced with unexpected levels of operation and maintenance costs when budgeting for the start-up of a new building, facility, or installation. The value engineering methodology can also be used to address changes that may be needed after a building has been constructed. l~ife-Cycle Costing Life-cycle costing is a methodology used for facility acquisitions that employs a comprehensive economic analysis of competing alternatives. The analysis compares initial investment options and identifies least-cost alternatives for a project or acquisition over its serviceable or useful life span. Life-cycle costing examines the associated ownership costs of competing alternatives by discounting both the positive and negative cash flows throughout the facility's service life. Executive Order 13123 defines life-cycle costs as "the sum of the present values of investment costs, capital costs, installation costs, energy costs, operating costs, maintenance costs, and disposal costs, over the lifetime of the project, product, or measure." Section 401 states that "agencies shall use life-cycle cost analysis in making decisions about their investments in products, services, construction, and other projects to lower the Federal Government's costs and to reduce energy and water consumption. Where appropriate, agencies shall consider the life-cycle costs of combinations of projects, particularly to encourage bundling of energy efficiency projects with renewable energy projects. Agencies shall also retire inefficient equipment on an accelerated basis where replacement results in lower life-cycle costs." Code of Federal Regulations (Title 10 CFR, Part 436) defines the analysis requirements, procedures, and rules to be used by federal agencies for life-cycle costing. USING LIFE-CYCLE COSTING WITH VALUE ENGINEERING The concept of economic analysis, which is used in life-cycle costing, requires that comparisons be made between things similar in nature. In value engineering all alternatives can be compared using life-cycle costing because the alternatives for each project component are defined to satisfy the same basic function or set of functions. When the alternatives all satisfy the required fimction, then the best value alternative can be identified by comparing the first costs and life-cycle costs of each alternative. For many projects there is a viable sustainable development alternative or enhancement. Sustainable development may include more recycled material contents, require less energy or water usage, reduce construction waste, increase natural lighting, or include other opportunities that contribute to an optimal facility. The value engineering

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14 Sustainable Federal Facilities methodology can provide for the identification of alternatives, sustainable or eco-efficient -on -A r- design features, and traditional design features, on an equal playing field for comparison. Comparison of alternatives, or the process for identifying the best value alternative, is accomplished using life-cycle costing along with f~rst-cost estimates. Life-cycie costing will in most cases be able to accurately estimate the first-cost and the full life-cycle cost differentials of each alternative. At this point tradeoffs and decisions can be made to balance environmental performance with total cost (i.e., initial, recurring, and nonrecurring) reliability, safety, and functionality. When all alternatives are compared equally (i.e., "apples to apples"), sustainable development technology and integration can then be fully evaluated for performance in the acquisition process. REFERENCES FEMP (Federal Emergency Management Program) 2000a. Energy Management in Buildings and Facilities. In Annual Report to Congress on Federal Government Energy - Management C;onservation Programs FY 1998. tOnline1. Available at http://www.eren.doe.gov/femp/abouttemp/annual_reports/ann98_report.htmI. t200l, January 2~. FEMP. 2000b. Section 4; Water and wastewater. In Greening Federal Facilities: An Energy, Environmental, and Economic Resource Guide for Federal Facility Managers. "Online]. Available at: http://www.eren.doe.gov/femp/greenfed/online_toc.htm! t200l, January 21. NRC (National Research Council) ~ 998. Stewardship of Federal Facilities. A Proactive Strategy for Managing the Nation's Public Assets. Washington, D.C.: National Academy Press. OMB (Office of Management and Budget) 1993. OMB Circular No. A-13 l. "Online]. Available at: http://www.whitehouse.gov/OMB/circulars/al31/al31.htm] t2000, July ll]. OMB. ~ 999. OMB Circular No. A- ~ 1. ~Online]. Available at: http://www.whitehouse.gov/OMB/circulars/al I/99toc.htmI. t2000, July 33. PCSD (President's Council on Sustainable Development) 1996. Sustainable America: A New Consensus for Prosperity, Opportunity, and a Healthy Environment for the Future. tOnlinel. Available at: http://www.whitehouse.gov/PCSD/Publications/TF_Reports/amer-top.htmI. t200l, January 23. UN (United Nations, World Commission on Environment and Development). 1 987. Our Common Future. New York: Oxford University Press. ULl (Urban Land Institute). 2000. The Practice of Sustainable Development. Washington, D.C.: Urban Land Institute.

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Ir~tro~uctior' WBDG (Whole Building Design Guide). 2000a. ENERGY- Minimize Nonrenewable Energy Consumption. "Online]. Available at: http://www.wbUg.org/sustainability/ENERGYframe.htm. t200 l, January 23. 15 WBDG. 2000b. MATERIALS - Use Environmentally Preferable Products. [Online]. Available at: hup://www.wbdg.org/sustainability/MATERIALSframe.htm t2000, June 73. WBDG. 2000c. Principles of Sustainable Development. In Meeting Executive Order 13 123; Sustainable Design and Development for Federal Agencies "Online]. Available at: http://www.wbUg.org/sustainability/index.htm t200l, January 23.

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