The Stewardship of Facilities

R. Admiral Robert F. Jortberg

Construction Industry Institute

I believe I have been asked to address this subject because I served on a National Research Council (NRC) committee studying advanced maintenance concepts for buildings in 1989.1 also have some very strong personal convictions, as my colleagues know, that I developed in my years with the Navy.

From 1972 to 1974, I was Commanding Officer of the Naval Facilities Engineering Command Western Division in San Francisco. We were responsible for design and construction in the nine western states for the Navy and Marine Corps—about a third of their total construction program. It was exciting work.

However, in my extensive travels in those states, I began to see some troublesome things. I saw, for example, a fueling pier at the Naval Supply Center in San Francisco that was in such bad shape you could not bring a ship alongside. A barge had to be taken to the pier, filled with fuel, and then taken out to the ship. I saw a runway where the flying object damage to jet engines was so great every year, the cost of it exceeded the cost to pave the runway. But the monies to do these things came from different appropriations, and the needed work was not performed for years.

When I reported to the Pentagon in the summer of 1974, to plan and program resources for Navy construction and real property maintenance, I became much more concerned about why these conditions

1  

The committee's report, Committing to the Cost of Ownership: Maintenance and Repair of Public Buildings, was issued in 1990.



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--> The Stewardship of Facilities R. Admiral Robert F. Jortberg Construction Industry Institute I believe I have been asked to address this subject because I served on a National Research Council (NRC) committee studying advanced maintenance concepts for buildings in 1989.1 also have some very strong personal convictions, as my colleagues know, that I developed in my years with the Navy. From 1972 to 1974, I was Commanding Officer of the Naval Facilities Engineering Command Western Division in San Francisco. We were responsible for design and construction in the nine western states for the Navy and Marine Corps—about a third of their total construction program. It was exciting work. However, in my extensive travels in those states, I began to see some troublesome things. I saw, for example, a fueling pier at the Naval Supply Center in San Francisco that was in such bad shape you could not bring a ship alongside. A barge had to be taken to the pier, filled with fuel, and then taken out to the ship. I saw a runway where the flying object damage to jet engines was so great every year, the cost of it exceeded the cost to pave the runway. But the monies to do these things came from different appropriations, and the needed work was not performed for years. When I reported to the Pentagon in the summer of 1974, to plan and program resources for Navy construction and real property maintenance, I became much more concerned about why these conditions 1   The committee's report, Committing to the Cost of Ownership: Maintenance and Repair of Public Buildings, was issued in 1990.

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--> existed. After generating some statistical information, I found a startling number. In 1974, we had spent about 0.6 percent per year of current plant value of our shore establishment to maintain and repair it. In 1967, the figure had been over 1.0 percent. It came down to the costs of fighting a war in Vietnam and meanwhile continuing all other federal activities, without any kind of tax increase. Resources were being reapplied from areas like operation and maintenance of real property, to ammunition, fighting ships, and aircraft. I decided that we had to find a way to turn this around, or we would continue in a self-destructive spiral. We were consuming our own physical plant. This strategy might be useful in certain cases, but it does not make much sense across the board. Many people who had been working in the Naval Facilities Engineering Command and its systems had long been arguing for increased resources for maintenance and repair, but totally without avail. I felt we had to find a different way of articulating the requirement and of convincing people that we needed to increase the allocation of resources for this purpose. Ultimately, I came to believe, the solution depended on communicating the idea that maintenance and repair of our shore facilities was an implicit part of the cost of ownership. The decision to acquire a facility involved not only the explicit decision to buy the land needed, and to acquire the facility through either purchase or design and construction. It also implicitly involved the resources necessary to operate, maintain, update, and finally dispose of that facility. The cost of ownership is clearly a stream of costs throughout the life of a facility. Unfortunately, paying light and air conditioning bills and performing maintenance and repair are not very exciting. They are not activities that are individually authorized or funded. No one closely examines them. They are performed almost as an afterthought. Resources are committed on the basis of a level-of-effort concept: you are likely to get the funds you spent last year, perhaps adjusted for inflation. Typically, the response to your argument is that this is not the year to catch up.

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--> Facilities as Public Assets We all do recognize that our facilities are public assets. They represent a very substantial investment and they serve the public. They also enhance private sector productivity. We are all familiar with the idea that, as we permit our infrastructure in this country to deteriorate, our competitive position in world markets deteriorates as well. Our public facilities are the primary interface between the government and public, whether in the form of post offices, schools, museums, fire houses, or any kind of public structure. Please consider for a moment the impact of underproductive public assets, assets that do not serve their purpose well, assets that demoralize and demotivate because they are in such poor condition. What are the costs of this to our people? There are very significant costs to the public when our facilities have deteriorated and cannot serve the purpose for which they were acquired. Facilities in poor condition not only affect our quality of life. They affect the competitiveness of our industry, as has been demonstrated many times. If we burden industries with a hidden tax of underproductive facilities and infrastructure, then industries must recover these costs in their pricing structures. As consumers, we pay for these costs in the prices of goods and services. Moreover, the problem has a ripple effect. New York City schools today provide a perfect example. We all pay the costs of the deteriorating conditions of school facilities, and hospital and other facilities, in both our quality of life and our dollars. Visibility of Costs The acquisition costs of facilities are very visible, through the appropriation process. But the costs of operations and maintenance are not. The budget structures that we are familiar with, whether federal, state, county, or community, do not spell out the implications of the funding level for maintenance and repair. But the life-cycle costs of facilities far exceed their acquisition costs. How do we determine what level of funding ought to be allocated to maintenance and repair? When we began to address this problem in the Navy, we established a target of 1.2 percent of current plant value per year

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--> for repair work. This funding was not to reduce backlog, but to meet the current yearly evolving requirement for maintenance and repair. Where did we get this number? It was simply two times the value we started from, which seemed to be a pretty good target. We developed some other rationale to justify this target, but developing the rationale was not hard by any means. After hearing from many agencies for the NRC study, the committee reached a strong consensus that the maintenance and repair component of the cost-of-ownership budget should be from 2 to 4 percent of current plant value. To determine this value, some mechanism for assessing current year value of plant is needed. For a small inventory of buildings, like that of a small county, the target of 2 to 4 percent would be appropriate as an average over time, not necessarily for any given year. But for a large inventory, like that of the Department of Veterans Affairs, Public Health Service, or Department of Defense, it would be a very reasonable annual target. People have commented that this range is quite wide in dollar terms for a large agency and asked if we could not target it more precisely. This would be a good thing to do, but at the time the NRC committee made its recommendations, we were frankly not worried about what point within this range would be ideal. Everyone was so far below, to move up to 2 percent represented a formidable challenge. Since I retired to work in the private sector, I have learned more about what major industry does. Some of our bigger companies, like the Dupont Company, who were in fact represented on our committee, use the general calculation approach we recommended. Dupont, however, was talking about 5 percent for maintenance and repair, way above our target. In many industry situations, the cost of deteriorated facilities is much greater and brought home harder than in the public sector. Deteriorated facilities in the private sector clearly raise serious productivity, quality, and safety problems. One root of the problem in government is the discipline involved in funding maintenance and repair. In all agencies, the money made available by one source or another for maintenance and repair is part of an appropriation package that has a good amount of flexibility associated with it. People can use maintenance and repair funds for other purposes, and they do. For example, operation and repair money may be used for minor construction projects. I call this leakage, because it is invisible.

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--> I tried, but never succeeded, in selling the idea that appropriations and accounting structures should give specific visibility to any use of repair money for construction, no matter how small. No one liked this idea; it would impinge on freedom and flexibility. But the problem is so severe that I think this may have to happen. We developed a solution as we wrestled with this problem in the 1970s and on the NRC study committee. First, budgets must reflect all costs of ownership, not just capital costs. They must give visibility to all costs. Second, facilities must be responsibly managed; there must be stewardship. Third, the public must be educated about the requirements and about the effects of failure to fund and manage resources appropriately. Once, when the Navy was planning to build a large new hospital, I had to ask what sense it made to do this when we could not afford to maintain facilities we already owned. At that time, we were spending hundreds of millions of dollars on new facilities, while existing facilities were going down hill very rapidly. We did turn the situation around. By 1979, we had reached our target figure for operations and maintenance of 1.2 percent, and we actually reached 1.3 to 1.4 percent in some years. I do not closely work with this issue today and do not know where it stands. But I have been told by some at the National Aeronautics and Space Administration, for example, that these basic concepts have been useful. At least some analysts in the Office of Management and Budget also respect the argument and use it to justify budgets. Conclusion I would summarize by saying that those serving in any public agency, at any level, should view themselves as true stewards of the facilities that are our public assets. The decision to acquire a facility implicitly involves the total cost of ownership. For this reason, I very strongly believe that the actions of public officials determine the productivity of our public assets and whether facilities are able to serve their intended purpose. These achievements, or failures, in turn, deeply affect our public well-being.