Core Competencies for Federal Facilities Asset Management Through 2020: Transformational Strategies (2008)

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Appendix E Executive Summary from Investments in Federal Facilities Federal facilities investments are matters of public policy. The facilities acquired by the federal government provide a means to produce and distribute public goods and services to 280 million Americans, create jobs, strengthen the national economy, and support the missions of federal departments and agen- cies, including the defense and security missions. Such investments also support policies for public transportation, urban revitalization, and historic preservation, among others. Hundreds of billions of dollars have been invested in federal facilities and their associated infrastructure. As of September 2000, the federal government owned or leased 3.3 billion square feet of space worldwide, distributed across more than 500,000 facilities conservatively valued at $328 billion. Annually, it spends upwards of $21 billion for the acquisition and renovation of facilities; approximately $4.5 billion to power, heat, and cool its buildings; and more than $500 million for water and waste disposal. Additional expenditures for facilities maintenance, repair, renewal, demolition, and security upgrades probably amount to billions of dollars per year but are not readily identifiable under the current budget structure. Despite the magnitude of this ongoing investment, federal facilities continue to deteriorate, backlogs of deferred maintenance continue to increase, and excess, underutilized, and obsolete facilities continue to consume limited resources. Many departments and agencies have the wrong facilities, too many or not enough ­facilities, or facilities that are poorly sited to support their missions. Such facilities constitute a drain on the federal budget in actual costs and in foregone o ­ pportunities to invest in other public resources and programs. 110 

APPENDIX E 111 On January 30, 2003, the U.S. General Accounting Office (GAO) designated federal real property as a government-wide high-risk area because current trends “have multibillion dollar cost implications and can seriously jeopardize mission accomplishment” and because “federal agencies face many challenges securing real property due to the threat of terrorism.” It declared that “current structures and processes may not be adequate to address the problems,” so that “a compre- hensive, integrated transformation strategy” may be required. PRINCIPLES AND POLICIES FOR FACILITIES INVESTMENTS AND MANAGEMENT As the committee reviewed the types of analyses, the processes, and the decision-making environments that private sector and other organizations use for facilities investments and management, it focused on identifying principles and policies used by best-practice organizations, as defined by the committee. The committee found that, in matters of facilities investment and management, best- practice organizations do the following: Principle/Policy 1. Establish a framework of procedures, required infor- mation, and valuation criteria that aligns the goals, objectives, and values of their individual decision making and operating groups to achieve the organization’s overall mission; create an effective decision-making environment; and provide a basis for measuring and improving the out- comes of facilities investments. The components of the framework are understood and used by all leadership and management levels. Principle/Policy 2. Implement a systematic facilities asset management approach that allows for a broad-based understanding of the condition and functionality of their facilities portfolios—as distinct from their individual projects—in relation to their organizational missions. Best- practice organizations ensure that their facilities and infrastructure managers possess both the technical expertise and the financial analysis skills to implement a portfolio-based approach. Principle/Policy 3. Integrate facilities investment decisions into their organizational strategic planning processes. Best-practice organizations evaluate facilities investment proposals as mission enablers rather than solely as costs.   AO’s high-risk update is provided at the start of each new Congress. The reports are intended G to help the new Congress “focus its attention on the most important issues and challenges facing the federal government.” (GAO, 2003f) 

112 CORE COMPETENCIES FOR FEDERAL FACILITIES ASSET MANAGEMENT Principle/Policy 4. Use business case analyses to rigorously evaluate major facilities investment proposals and to make transparent a proposal’s underlying assumptions; the alternatives considered; a full range of costs and benefits; and the potential consequences for their organizations. Principle/Policy 5. Analyze the life-cycle costs of proposed facilities, the life-cycle costs of staffing and equipment inherent to the proposal, and the life-cycle costs of the required funding. Principle/Policy 6. Evaluate ways to disengage from, or exit, facilities investments as part of the business case analysis and include disposal costs in the facilities life-cycle cost to help select the best solution to meet the requirement. Principle/Policy 7. Base decisions to own or lease facilities on the level of control required and the planning horizon for the function, which may or may not be the same as the life of the facility. Principle/Policy 8. Use performance measures in conjunction with both periodic and continuous long-term feedback to evaluate the results of facilities investments and to improve the decision-making process itself. Principle/Policy 9. Link accountability, responsibility, and authority when making and implementing facilities investment decisions. Principle/Policy 10. Motivate employees as individuals and as groups to meet or exceed accepted levels of performance by establishing incentives that encourage effective decision making and reward extraordinary performance. ADAPTING THE PRINCIPLES AND POLICIES TO THE FEDERAL OPERATING ENVIRONMENT Adapting the aforementioned principles and policies for facilities investments for use by the federal government requires consideration of and compensation for a number of special aspects of the federal operating environment. These aspects include the goals and missions of the federal government, its departments, and agencies; the organizational structure and decision-making environment; the nature of federal facilities investments; and the annual budget process and its attendant procedures. They are described more fully in Chapters 1 and 6 [of Investments in Federal Facilities]. 

APPENDIX E 113 Despite the inherent differences, the committee’s overall conclusion is that aspects of all of the identified principles and policies used by best-practice orga- nizations can be adapted in varying form to the federal operating environment. It has therefore made recommendations to aid in developing an overall framework based on suitable adaptations of the identified principles and policies. The committee also concluded that there is no single solution from the pri- vate sector that can be applied to all issues related to federal facilities investment and management, nor should there be an expectation that one will be found. The committee points to the number of missions and the variation in size, resources, culture, and political support of the many federal agencies with facilities-related responsibilities and urges all involved not to attempt to create one-size-fits-all solutions to different problems. Instead, the committee recommends that efforts be made to concurrently and collaboratively develop top-down and bottom-up approaches while keeping in mind differences among various agency missions and cultures as well as similari- ties in many specifics of facility investment and management. Varying practices within common principles and policies should be expected. RECOMMENDATION 1. The federal government should adopt a framework of procedures, required information, and valuation crite- ria for ­ federal facilities investment decision making and management that incorporates all of the principles and policies enumerated by this committee. Implementation of a framework that incorporates the identified principles and policies will align the goals, objectives, and values of individual federal decision-making and operating groups with overall missions; create an effective decision-making environment; and provide a basis for measuring and improving the outcomes of federal facilities investments. Because such a framework repre- sents a significant departure from current operating procedures, it may be advis- able to establish one or more pilot projects. A small government agency with a diverse portfolio of facilities might provide the environment in which to test the application of the committee’s recommendations. RECOMMENDATION 2(a). Each federal department and agency should update its facilities asset management program to enable it to make investment and management decisions about individual projects relative to its entire portfolio of facilities. Federal departments and agencies have begun implementing facilities asset management approaches that allow for a broad-based understanding of the condi- tion and functionality of their facilities portfolios. An updated approach should 

114 CORE COMPETENCIES FOR FEDERAL FACILITIES ASSET MANAGEMENT incorporate life-cycle decision making that accounts for all the inherent operating costs (i.e., facilities, staffing, equipment, and information technologies); accurate databases; condition assessments; performance measures; feedback processes; and appropriately adapted business practices. RECOMMENDATION 2(b). Each federal department and agency should ensure it has the requisite technical and business skills to implement a facilities asset management approach by providing specialized training for its incumbent facilities asset management staff and by recruiting individuals with these skills. Most federal departments and agencies currently have staff with the requisite technical skills to implement asset management approaches. Less likely to be found are facilities management staff also versed in financial theory, practices, and management. Departments and agencies should provide their incumbent facilities asset management staff with training in business concepts such as financial theory and analysis. Training can be in the form of coursework, seminars, rotational assignments, and other appropriate methods. As job vacancies occur in facilities management operating groups, departments and agencies should seek to recruit and hire staff with the requisite technical and business skills. RECOMMENDATION 2(c). To facilitate the alignment of each depart- ment’s and agency’s existing facilities portfolios with its missions, Con- gress and the administration should jointly lead an effort to consolidate and streamline government-wide policies, regulations, and processes related to facilities disposal, which would encourage routine disposal of excess facilities in a timely manner. Eighty-one separate policies applicable to the disposal of federal facilities have been identified. These include agency-specific legislative mandates and directives and government-wide socioeconomic and environmental policies. The number of policies related to facilities disposal hinders government-wide efforts to expeditiously dispose of unneeded facilities in response to changing requirements. RECOMMENDATION 2(d). For departments and agencies with many more facilities than are needed for their missions—the Departments of Defense, Energy, State, and Veterans Affairs, the General Services Administration, and possibly others—Congress and the administration should jointly consider implementing extraordinary measures like the process used for military base realignment and closure (BRAC), modified as required to reflect actual experience with BRAC. 

APPENDIX E 115 Federal agencies are incurring significant costs by operating and maintain- ing facilities they no longer need to support today’s missions. The Department of Defense (DoD) alone estimates it spends $3 to $4 billion each year maintaining excess facilities. The lack of alignment between a department’s or agency’s mis- sion and its facilities portfolio, coupled with the cost of operating and maintaining excess facilities, may require extraordinary measures to effect improvement, such as the BRAC process used for closing DoD facilities. The government as a whole and the DoD in particular have 15 years of experience and lessons from BRAC. Such lessons can be used to make adjustments to the process to improve it and adapt it to other departments and agencies, as appropriate. RECOMMENDATION 3. Each federal department and agency should use its organizational mission as guidance for facilities investment deci- sions and should then integrate facilities investments into its organi- zational strategic planning processes. Facilities investments should be evaluated as mission enablers, not solely as costs. Organizational strategic planning that does not include facilities consider- ations up front fails to account for a potentially substantial portion of the total cost of a program or initiative. Integrating facilities considerations into evalua- tions of strategic planning alternatives will provide decision makers with better information about the total long-term costs, considerations, and consequences of a particular course of action. To this end, the senior facilities program manager for a department or agency should be directly and continuously involved in the organization’s strategic planning processes. This person should be responsible for providing the translation between the agency’s mission and its physical assets; identifying alternatives for meeting the mission; identifying the costs, benefits, and potential consequences of the alternatives; and suggesting facilities invest- ments that will reduce overall—that is, portfolio—costs. RECOMMENDATION 4(a). Each federal department and agency should develop and use a business case analysis for all significant facili- ties investment proposals to make clear the underlying assumptions, the alternatives considered, the full range of costs and benefits, and potential consequences for the organization and its missions. There is no standard format for a business case analysis that can be ­readily adapted directly for use by all federal departments and agencies. However, the committee believes that such an analysis can and should be developed by each federal department and agency and refined over time through repeated, consistent use by the relevant stakeholders and decision makers. At a minimum, a federally adapted business case analysis should explicitly include and clearly state the follow­ ing: (1) the organization’s mission; (2) the basis for the facility­ requirement; (3) 

116 CORE COMPETENCIES FOR FEDERAL FACILITIES ASSET MANAGEMENT the objectives to be met by the facility investment and its potential effect on the entire facilities portfolio; (4) performance measures for each objective to indi- cate how well objectives have been met; (5) identification and analysis of a full range of alternatives to meet the objectives, including the alternative of no action; (6) descriptions of the data, information, and judgments necessary to measure the anticipated performance of the alternatives; (7) a list of the value judgments (i.e., value trade-offs) made to balance achievement on competing objectives; (8) a rationale for the overall evaluation of the alternatives using the information above; (9) strategies for exiting the investment; and (10) the names of the individuals and operating units responsible for the analysis and accountable for the proposed facility’s subsequent performance. The business case format to be used by the department or agency should be agreed to by the pertinent oversight constituencies in Congress, the Office of Management and Budget, and the GAO. RECOMMENDATION 4(b). To promote more effective communication and understanding, each federal department and agency should develop a common terminology agreed upon with its oversight constituencies for use in facilities investment deliberations. In addition, each should train its asset management staff to effectively communicate with groups such as congressional committees having widely different sets of objectives and values. Mirroring this, oversight constituencies should have the capacity and skills to understand the physical aspects of facilities man- agement as practiced in the field. Engineers, lawyers, accountants, economists, technologists, military per- sonnel, senior executives, and elected officials lack a common vocabulary and style of interaction and do not necessarily share a common set of interests or time frames they consider important. To improve communications among the various stakeholders in facilities investments, each federal department or agency, in collaboration with the appropriate program examiners and congressional rep- resentatives, should develop and consistently use a common terminology for the concepts routinely used in facilities investment decision making and applicable to its organizational culture. With the wide variety of missions, cultures, and procedures that exist among federal departments and agencies, a standard set of government-wide definitions is not to be expected. Training is necessary to ensure that the concepts underlying the terms have meaning and are understood by all. Facilities asset management staff should have the capacity and skills to understand the relationship of facilities to the big picture of an organization’s overall mission and to communicate that understanding to others. They should also be able to solve problems by considering all sides of issues and to negotiate a solution that will best meet the organizational require- ment. Financial, budget, and program analysts should receive some basic training in facilities investment and management. 

APPENDIX E 117 RECOMMENDATION 5(a). Each federal department and agency should use life-cycle costing for all significant facilities investment deci- sions to better inform decision makers about the full costs of a proposed investment. A life-cycle cost analysis should be completed for (1) a full range of facilities investment alternatives; (2) the staff, equipment, and technologies inherent to the alternatives; and (3) the costs of the required funding. For some very expensive project proposals, federal departments and agencies conduct life-cycle analyses internally to understand the total costs and benefits of the facility itself over the long term and to prioritize their requests for funding. However, in its research and interviews, the committee was not made aware of any instance in which a department or agency also conducted a life-cycle analysis for the staffing, equipment, and technologies inherent to the proposal, or for the life-cycle costs of the required funding. RECOMMENDATION 5(b). Congress and the administration should jointly lead an effort to revise the budget scorekeeping rules to support facilities investments that are cost-effective in the long term and recognize a full range of costs and benefits, both quantitative and qualitative. Under federal budget scorekeeping procedures, the budget authority associ- ated with requests to design and construct a new facility, to fund the major renova- tion of an existing facility, to purchase a facility outright, or to fund operating and capital leases is “scored” up front in the year requested, even though the actual costs may be incurred over several years. Scoring facilities’ costs up front is intended to provide the transparency needed for effective congressional and public oversight. However, implementa- tion of the budget scorekeeping procedures as they relate to facilities investments has resulted in some unintended consequences, including disincentives for cost- e ­ ffective, long-term decision making and some gamesmanship. Amending the scorekeeping rules such that they meet congressional oversight objectives for transparency and take into account the long-term interests of depart- ments, agencies, and the public will not be easy. Amending them specifically to account only for life-cycle costs would probably create an even greater disincen- tive for facilities investments. The committee believes that a collaborative effort that encompasses a wide range of objectives, goals, and values is required. Some possible revisions to the rules could be tested through pilot projects. RECOMMENDATION 6. Every major facility proposal should include the strategy and costs for exiting the investment as part of its business case analysis. The development and evaluation of exit strategies during the programming process will provide insight into the potential long- 

118 CORE COMPETENCIES FOR FEDERAL FACILITIES ASSET MANAGEMENT term consequences for the organization, help to identify ways to mitigate the consequences, and help to reduce life-cycle costs. The development of exit strategies for facilities investment alternatives as part of a business case analysis will help federal decision makers to better understand the potential consequences of the alternative approaches. Evaluation of exit strat- egies can provide a basis for determining whether it is best to own or lease the required space in a particular situation and whether specialized or more generic “flexible” space is the best solution to meet the requirement. For those investment proposals in which the only exit strategy is demolition and cleanup, evaluating the costs of disposal may lead to better decisions about the design of the facility, its location, and the choice of materials, resulting in lower life-cycle costs. RECOMMENDATION 7. Each federal department and agency should base its decisions to own or lease facilities on the level of control desired and on the planning horizon for the function, which may not be the same as the life of the facility. Based on the committee’s interviews and research activities, the criteria that departments and agencies use to determine if it is more cost-effective to own or lease facilities to support a given function are not clear or uniform. The commit- tee believes that federal departments and agencies should base the “own” versus “lease” decision on a clearly stated rationale linked to support of the organi- zational mission, the level of control desired, and the planning horizon for the function to be supported. RECOMMENDATION 8. Each federal department and agency should use performance measures in conjunction with both periodic and con- tinuous long-term feedback and evaluation of investment decisions to monitor and control investments, measure the outcomes of facilities investment decisions, improve decision-making processes, and enhance organizational accountability. Because the results of many federal programs or services are qualitative and occur over long periods of time, measuring them can be challenging. However, efforts are under way in various departments and agencies to develop indices and measures that can be applied to evaluate various aspects of facilities portfolios. Some or all of these indices could be adapted for use by other federal departments and agencies and used in combination with other metrics to measure the perfor- mance of their facilities’ portfolios. Short-term feedback procedures for facility projects are commonly used. However, to the committee’s knowledge, no federal department or agency col- lected long-term feedback to determine if facilities investments met overall orga- 

APPENDIX E 119 nizational objectives, solved operational problems, or reduced long-term operat- ing costs. Long-term feedback is essential if the outcomes of facilities investments and management processes are to be measured and the decision-making process itself is to be improved. RECOMMENDATION 9. To increase the transparency of its decision- making process and to enhance accountability, each federal department and agency should develop a decision process diagram that illustrates the many interfaces and points at which decisions about facilities investments are made and the parties responsible for those decisions. Implementation of facilities asset management approaches and consistent use of business case analyses will further enhance organizational accountability. In the federal government, responsibility and authority for making decisions and executing programs often are not directly linked. Instead, decision-making authority and decision-making responsibility are spread throughout the executive and legislative branches, leading to lack of clear-cut accountability for facilities investment outcomes. A diagram that illustrates the many interfaces and decision points among the various federal decision-making and operating groups involved in facilities invest- ment decision making can serve as a first step toward increasing the transparency of the process and enhancing accountability. Implementation of a facilities asset management approach, the use of performance measures and feedback processes, and the consistent use of business case analyses will further enhance organiza- tional accountability for federal facilities investments. RECOMMENDATION 10. Congress and the administration and federal departments and agencies should institute appropriate incentives to reward operating units and individuals who develop and use innovative and cost-effective strategies, procedures, or programs for facilities asset management. In the federal system, the multiple-objective nature of laws and policies and the sheer volume of procedures sometimes result in unintended consequences, sometimes creating disincentives for good decision making and cost-effective behavior. Potential incentives to support more cost-effective decision making and management by facilities asset management groups could include programs that allow savings from one area of operations to be applied to needs in another area, if the savings are carefully documented; allow the carryover of unobligated funds from one fiscal year to the next for capital improvements, if doing so can be shown to be cost-effective; and establish meaningful awards for operating units with high levels of performance. 

120 CORE COMPETENCIES FOR FEDERAL FACILITIES ASSET MANAGEMENT RECOMMENDATION 11 (from Chapter 5). In order to leverage fund- ing, Congress and the administration should encourage and allow more widespread use of alternative approaches for acquiring facilities, such as public-private partnerships and capital acquisition funds. A number of alternative approaches for acquiring facilities are being used by federal departments and agencies, on a case-by-case basis under agency-­specific legislation. Each approach has advantages and disadvantages for particular types of organizations and types of facilities. None of the identified alternative approaches can guarantee effective management absent agreed-upon performance measures, feedback procedures, and well-trained staff. Allowing the use of alternative approaches on a government-wide basis raises concerns about the transparency of funding relationships and concerns about whether the approaches sufficiently account for the perspectives of state and local governments and constituencies. Despite these concerns the committee supports more widespread use of alternative approaches to leverage funding and supports using pilot programs to test the effectiveness of various approaches and to evaluate their outcomes from national, state, and local perspectives. If changes to the budget scorekeeping rules are required to expand the range of alternative approaches, such changes should be tested through the pilot programs. AN OVERALL STRATEGY FOR IMPLEMENTATION Transforming decision-making processes, outcomes, and the decision-­making environment for federal facilities investments will require sponsorship, leader- ship, and a commitment of time and resources from many people at all levels of government and from some people outside the government. Implementation of some of the committee’s recommendations can begin immediately within federal departments and agencies that invest in and manage significant portfolios of facili- ties. However, implementing an overall framework of principles and policies will require collaborative, continuing, and concerted efforts among the various legisla- tive and executive branch decision makers and operating groups. These include the President and Congress, senior departmental and agency executives, facilities program managers, operations staff, and budget and management analysts within departments and agencies and from the Congressional Budget Office, the Office of Management and Budget, and the GAO. Having noted this, the committee is well aware that similar recommenda- tions made by other learned panels advocating long-term, life-cycle stewardship of facilities and infrastructure have achieved only limited success and have failed to move all of the involved stakeholders to action. The committee believes that a new dynamic can and must be instituted and recommends herewith a program it believes practicable. 

APPENDIX E 121 RECOMMENDED IMPLEMENTATION STRATEGY: The committee recommends that legislation be enacted and Executive Orders be issued that would do two things: (1) Establish an executive-level commission with representatives from the private sector, academia, and the federal government to determine how the identified principles and policies can be applied in the federal government to improve the outcomes of decision-making and management processes for fed- eral facilities investments within a time certain. The executive-level commis- sion should include representatives from nonfederal organizations acknowledged as leaders in managing large organizations, finance, engineering, facilities asset management, and other appropriate areas. The commission should also include representatives of Congress, federal agencies with large portfolios of facilities, oversight agencies, and others as appropriate. The commission should be tasked to gather relevant information from inside and outside the federal government; hold public hearings; and submit a report to the President and Congress outlin- ing its recommendations for change, an implementation plan, a timetable, and a feedback process for measuring, monitoring, and reporting on the results, all within a time certain. (2) Concurrently establish department and agency working groups to collaborate with and provide recommendations to the executive-level com- mission for use in its deliberations. The working groups within each department and agency should collaborate with the executive-level commission. Staff in the departments and agencies are in the best position to communicate their organiza- tional culture and identify practices for implementing the principles and policies that will work for their organization. In addition, they can provide the commission with information related to the characteristics of their facilities portfolios; issues related to aligning their portfolios with their missions; facilities investment trends; good or best practices for facilities investment and management; performance measures for monitoring and measuring the results of investments; and other relevant information. The committee believes that such sponsorship, leadership, and commitment to this effort will result in • Improved alignment between federal facilities portfolios and missions, to better support our nation’s goals. • Responsible stewardship of federal facilities and federal funds. • Substantial savings in facilities investments and life-cycle costs. • Better use of available resources—people, facilities, and funding. • Creation of a collaborative environment for federal facilities investment decision making.