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4 Strategic Framework The ownership of real property entails an investment in the present and a commitment to the future. Ownership of facilities by the federal government, or any other entity, represents an obligation that requires not only money to carry out that ownership responsibly, but also vision, resolve, experience, and expertise to ensure that resources are allocated effectively to protect the value of that in- vestment. Once facilities have been acquired, the long-term costs of maintaining them become the owner's responsibility. Even though federal facilities represent investments of capital, they are gen- erally not treated as capital investments from a management and accounting standpoint, as they would be in the private sector. In fact, there are fundamental differences between the objectives of the federal government and the objectives of the private sector and, consequently, in the ways they operate. Most impor- tantly, the primary goal of business is to earn a profit whereas the goals of gov- ernment are more complex and are often guided by issues of public health, safety, and welfare. Businesses invest in buildings and property to produce a return on invested capital, both through the rental income stream and through proceeds from the final disposition of the property. The decision to invest is based on considerations such as the cost of capital, depreciation over a fixed period of time, and tax strategies. The focus is very much on the owner's "bottom line," or financial return. The Analytical Perspectives volume of the President's 1998 Budget states that "there is no single number or 'bottom line' for the Government comparable to the net worth of a business corporation" (OMB, 1997~. Because of the absence of a financial bottom line, the government must use discretion when looking to the private sector for asset management strategies. Even though factors at what 59

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60 STEWARDSHIP OF FEDERAL FACILITIES might be termed the strategic level (i.e., linking the need for a facility to agency mission and ensuring employee health and productivity) are similar, the financial motivations are quite different. In the private sector, the owner of an investment property usually maintains a building in a condition that ensures a positive ROI throughout its economic life. The owner will take whatever actions are necessary to maximize the ROI includ- ing the amount realized when the property is sold. Owners of investment build- ings will generally tailor the level of maintenance to the rent the tenants are will- ing to pay. Although this may be an excellent financial strategy, it does not ensure that the building will be well maintained. An owner-occupied building in the private sector is more like a government- owned facility. Intangible factors, such as corporate image, quality of the physi- cal environment, and employee satisfaction are considerations in the facility main- tenance and repair function. Even in the case of a building that is nearing the end of its service (not economic) life, maintenance and repair are justified, as long as they support the achievement of other goals. However, even in this case, the government's financial considerations and incentives are different from those of the private sector. A government agency has many objectives in maintaining its facilities, but making a profit is not one of them. Nevertheless, the government is expected to sustain the taxpayers' investment in facilities. Chapters 1-3 described issues and findings related to maintenance and repair of the federal facilities portfolio. To address these findings the committee at- tempted to develop a methodology and rationale that federal facilities program managers could use to systematically formulate and justify facility maintenance and repair budgets. However, the current state of practice, the lack of data, in general, and the lack of research results, in particular, precluded the development of a methodology per se. The committee instead developed a strategic framework of methods, principles, and strategies, which can serve as the basis for the devel- opment of a methodology for the systematic formulation of maintenance and re- pair budgets in the future. The maintenance and repair of federal facilities is a complex issue and no single action or strategy will resolve all of the identified issues. Commitment at all levels of the federal government will be necessary over the long term to ensure that resources are optimized and the public's investment in the facilities portfolio is sustained. The overall goal of the strategic framework is to protect and enhance the functionality and quality of (and investment in) the federal facilities portfolio. The framework has two objectives: (1) to foster accountability for the steward- ship of facilities at all levels of government; and, (2) to allocate resources strate- gically for maintenance and repairs. The strategies to achieve these objectives are outlined in Figure 4-1. A more detailed discussion follows.

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STRATEGIC FRAMEWORK GOAL Protect and Enhance the Functionality and Quality of the Federal Facilities Portfolio 61 FIGURE 4-1 Strategic framework for the maintenance and repair of federal facilities.

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62 STEWARDSHIP OF FEDERAL FACILITIES FOSTERING ACCOUNTABILITY FOR THE STEWARDSHIP OF FEDERAL FACILITIES The responsible ownership of facilities by the federal government is an obli- gation that requires not only money, but also the vision, resolve, experience, and expertise to ensure that resources are allocated effectively to sustain the public's investment. The recognition and acceptance of this obligation is the essence of stewardship. Public officials and employees at all levels of the federal govern- ment are responsible for decisions that affect the stewardship of federal facilities: . . . At the agency field level, facilities program managers develop budget re- quests for maintenance and repair funding, help determine which projects will be completed based on available funding, spend the funds allocated to them, and implement condition assessment programs. At the agency headquarters level, senior managers determine agency pri- orities among competing interests for operations and maintenance fund- ing and for new construction; develop agency budget requests, including operations and maintenance requests; defend budget requests to OMB and Congress; allocate appropriated funds back to the field level; and make adjustments between operating and maintenance and repair funds during the fiscal year. Oversight agencies, such as OMB, review and revise agency budget re- quests, monitor the spending of appropriations, and rescind funds not ob- ligated during the fiscal year. Congress reviews agency budget requests, appropriates operating funds, approves and funds the acquisition of new facilities, and legislates re- quirements for public health, safety, and welfare. Because all levels of government share the decision-making responsibility for the stewardship of federal facilities, no single entity can be held responsible or accountable for the results. The lack of accountability for maintenance and repair issues has created a climate in which the long-term care of the facilities invest- ment is regularly sacrificed to current programs. Effective stewardship of the federal facilities portfolio requires that public officials and employees accept their long-term as well as short-term obligation; recognize the long-term consequences of short-term actions; and make a commitment not to compromise the long-term viability of the federal facilities portfolio for more immediate concerns. Greater accountability requires that public officials and employees be held responsible for the consequences of their actions. It also requires that they be given the appropriate tools, funding, and authority to carry out the responsibilities for which they are to be held accountable. The strategies set forth on the follow- ing pages are intended, in part, to create a climate for stewardship that will foster a shared assumption that public officials and employees at all levels of govern- ment must do their best not to sacrifice the functionality and quality of federal buildings to short-term interests.

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STRATEGIC FRAMEWORK 63 Strategy: Create a Climate for Effective Stewardship in Federal Agencies The four most important elements in creating a climate that encourages ef- fective stewardship of facilities in federal agencies are: leadership by agency senior managers the establishment and implementation of a stewardship ethic by facilities program managers and staff as their basic business strategy senior managers and program managers who create or seek incentives for successful and innovative facility management programs agency strategic plans that give suitable weight to effective facilities management There is no substitute for an agency director and senior managers who recog- nize the importance of facilities maintenance and operations and who will fight for the resources needed to maintain facilities effectively. A chief executive will- ing to "make waves" both within and outside an agency on behalf of facilities immediately frees internal staff from two burdens: first, they no longer have to find the "right" arguments to persuade the executive to take up their cause, and second, they can be confident that the need for facilities maintenance is being addressed during budget formulation and negotiation. These anxieties are a pow- erful disincentive to facilities program managers to spend time or intellectual creativity advocating measures or funding necessary to protect the facilities in- vestment. A chief executive who does not provide leadership in this area may spend much of his/her tenure combating indifference and engaging in crisis manage- ment and damage control on facilities-related issues. An effective agency director will support a substantive role for facilities program managers in the agency's strategic planning process, in the development of budget requests for facilities maintenance and repairs, and in finding innovative, cost-effective ways to imple- ment maintenance and repair activities. Facilities program managers should place their leadership in a context of innovation and stewardship. They should provide good fiscal analyses and a con- vincing rationale that chief executives and senior managers can use to advocate long-term facilities interests against short-term operations interests in the budget arena. The basic rationale for any government facility is that it is a long-term investment that supports mission-related activities. Facilities program managers should consider it their job to defend long-term interests against more parochial interests. Facilities program managers who do not take stewardship seriously will not be in a position to accomplish much that is useful. In order for facilities program managers to practice effective stewardship, they must have the authority, "tools," and incentives to implement cost-effective programs for maintenance and repair. If they are given the necessary tools, are empowered and encouraged to use modern maintenance and repair management methods, and are rewarded for innovations, initiatives, and risk taking, then they

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64 STEWARDSHIP OF FEDERAL FACILITIES can also be held accountable for maintenance and repair performance. They should be held accountable for knowing and properly reporting on the condition of federal facilities; for developing appropriate maintenance and repair budget requests; and for the efficient use of appropriated funds. Strategy: Empower Facilities Program Managers and Remove Institutional Barriers In today' s environment, federal facilities program managers are faced with extending the useful life of aging facilities; altering or retrofitting facilities to consolidate space or accommodate new functions and technologies; meeting evolving standards for safety, environmental quality, and accessibility; maintain- ing or disposing of excess facilities; and finding innovative ways and technolo- gies to maximize limited resources. In order to meet these challenges, they must be provided with adequate resources, appropriate authority, training, "tools," and incentives. Motivating personnel to change long-established processes is a difficult un- dertaking. Employees need incentives to work toward improvement or to take risks that could (or could not) result in cost savings. The federal budget process for maintenance and repair activities does not offer incentives for improvement or for lower costs. In fact, it has disincentives. Agencies may be penalized if they do not obligate their entire budgets within a given fiscal year even if carrying over unobligated funds into the next fiscal year can be shown to be cost effective. There are many opportunities for lowering facilities costs. Public agencies have been conducting a wide variety of experiments in improving public sector operations and modernizing public agency management, including outsourcing or privatizing facility-related functions or securing services through performance- based contracts. New opportunities, however, carry risks. There is always the possibility of failure in trying something new. Encouraging facilities program managers to be innovative and to take risks means offering them rewards com- mensurate with the risks. It also requires that some level of experimentation and failure be tolerated, although the causal factors leading to failures should be re- searched and documented so that mistakes are not repeated. One potential reward for facilities program managers would be to allow them to take savings from one area of operations and maintenance and apply it to an- other. For example, if energy costs are lowered through cost-effective manage- ment, the savings could be used to finance other facilities-related improvements. To foster accountability, as well as recognize the achievement, the savings should be documented and should appear in the budget in a way that identifies how the savings will be used. Recognition awards for facilities maintenance and repair programs that achieve high levels of performance over a sustained period of time could also be incentives for facilities program managers to seek continuous im- provement in maintenance and repair practices.

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STRATEGIC FRAMEWORK 65 Facilities program managers may also improve the efficiency of operations by consolidating functions or leasing out space. For instance, "by consolidating 14 laundry facilities over a 3-year period, the VA [Veterans Affairs] expects to achieve a one-time equipment and renovation savings of about $38 million as well as recurring savings of about $600,000 per year from operational efficien- cies" (GAO, 1996~. The Army and other agencies have facility use contracts "at nine inactive ammunition plants and at all of them the ARMS [Armament Retool- ing and Manufacturing Support Act of 19921 initiative has produced revenue to offset all or part of the maintenance costs" (GAO, 1997b). Agencies might also be allowed to sell excess properties and retain the re- sulting funds for repair and maintenance of other, mission-related facilities, where appropriate. Given the pressures on agency senior managers and executives to focus on short-term operations instead of long-term issues of stewardship, how- ever, a government-wide policy allowing agencies to retain funds from real estate sales in all circumstances could lead to unintended consequences. Agencies try- ing to raise funds for operating programs could be tempted to hold "fire" sales of properties that may be needed to meet future mission requirements. Program managers and agencies that can document and justify the sale of a property that is not needed to meet long-term mission requirements, however, should be able to retain the savings and apply them to other identified maintenance and repair needs, on an agency by agency basis. To ensure accountability, the accounting system should clearly track how proceeds are spent and identify the results. No one can guarantee that empowering managers and removing institutional barriers will not result in some failures or abuses of the system. Some level of failure must be tolerated to encourage innovation. Agencies and managers should be encouraged to set up pilot programs to test new tools, technologies, and strat- egies for cost-effective maintenance and repair. The expectations, objectives, costs, benefits, and outcomes of these test programs should be shared with other agencies so that successes can be duplicated and failures avoided. Revolving funds are a "tool" which offer several potential advantages for maintenance and repair. "Revolving fund activities operate with no, or very little, direct appropriated funds. They are instead financed on a reimbursable basis from appropriated funds. These funds are appropriated to customers of these activities . . . who, in turn, purchase goods and services from the revolving fund activity much like any private business" (NPR,1993~. Revolving funds would also enable agencies to accumulate the resources to make capital acquisitions over time; to establish more consistent revenue streams; and to overcome the disincentives created by the end of fiscal year "spend it or lose it" budget process. They would allow facilities program managers to consider the full costs and benefits of pro- posed actions and to make up-front investments that could have long-term paybacks in operating efficiencies. Revolving funds could be used to reduce the backlog of maintenance and repairs, fund major repairs and replacements, or pay for unfunded legislative requirements.

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66 STEWARDSHIP OF FEDERAL FACILITIES Revolving funds require good financial management and oversight (GAO, 1997a). A system that holds managers accountable for the use and solvency of revolving funds should be established. The U.S. Navy Public Works Center Re- volving Fund is a model already in use. Strategy: Create Accountability through More Standardized Budgeting and Cost Accounting for Facilities Management and Maintenance One of the findings of this study is that it is difficult, if not impossible, to determine how much money individual federal agencies and the federal govern- ment as a whole appropriate and spend for the maintenance and repair of federal facilities. The difficulty can be attributed to variations across agencies in budget- ing procedures, definitions, and accounting structures, the structure of operations and maintenance budgets, the moving of funds between operations and mainte- nance activities, and the lack of tracking of maintenance and repair expenditures. A single, standardized, government-wide system for developing maintenance and repair budgets and accounting for maintenance and repair expenditures may not be possible, or even desirable. A single system might not accommodate the variations among agency missions and programs, and, more important, the ben- efits of a single system might not outweigh the costs (e.g., time and salaries) involved in designing and implementing it. However, greater standardization in budgeting, cost accounting, defining activities, and calculating facilities-related terms across government agencies would increase accountability for the steward- ship of federal facilities. The authoring committee of this report developed an illustrative template for facilities-related activities (see Figure 4-2) that can be used as a meaningful first step in the development of a more standardized budgeting and cost accounting structure. The template could be used as a "tool" by facilities program managers to formulate and justify maintenance and repair budget requests in the context of a facilities management program and to track expenditures. Senior managers, oversight agencies, and decision makers could use the information in the tem- plate to gain a better understanding of an agency' s overall facilities-related activi- ties and to evaluate the potential impact of their decisions. If most or all govern- ment agencies used a similar template for formulating budget requests and tracking allocations and expenditures, in conjunction with their existing systems, comparisons of budget expenditures could be made and standardized measures developed. These measures could then be used to develop benchmarks and to identify best practices for facilities portfolio management and maintenance. The template is structured to show all of the major costs of ownership of a facilities inventory, i.e., routine maintenance, repairs, and replacements, facilities- related operations, alterations and capital improvements, legislatively mandated activities, new construction and total renovation activities, and demolition, as well as their interrelationships. The purpose is to foster clearer accountability for

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STRATEGIC FRAMEWORK 67 A. Routine Maintenance, Repairs, Yes and Replacements recurring, annual maintenance and repairs including maintenance of structures and utility systems, (including repairs under a given $ limit, e.g., $150,000 to $500,000 exclusive of furniture and office equipment) roofing, chiller/boiler replacement, electrical/lighting, etc. preventive maintenance preservation/cyclical maintenance deferred maintenance backlog service calls B. Facilities-Related Operations custodial work (i.e., services and cleaning) utilities (electric, gas, etc./plant operations) snow removal waste collection and removal pest control security services grounds care parking fire protection services C. Alterations and Capital Improvements No major alterations to subsystems, (e.g., enclosure, interior, mechanical, electrical expansion) that change the capacity or extend the service life of a facility minor alterations (individual project limit to be determined by agency $50,000 to $1 million) D. Legislatively Mandated Activities No improvements for accessibility, hazardous materials removal, etc. E. New Construction and Total Renovation Activities F. Demolition Activities Annual operating budget No Annual operating budget Various funding sources, including no year, project- based allocations such as revolving funds, carryover of unobligated funds, fund- ing resulting from cost savings or cost avoidance strategies Various sources of funding No Project-based allocations separate from operations and maintenance budget. Should include a life-cycle cost analysis prior to funding Various sources of funding FIGURE 4-2 Illustrative template to reflect the total costs of facilities ownership.

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68 STEWARDSHIP OF FEDERAL FACILITIES the allocation, expenditure, and tracking of funds for federal facilities at all levels of government and to provide greater visibility for the total costs of facilities ownership and its major elements. The template is a significant departure from current budget practices, which account for new facilities acquisition, major re- pairs and replacements, capital investments, and operations and maintenance separately but which blur the lines between various maintenance and operations functions. However, the template can be useful within current budget practices. In this template, the full costs of ownership are visible. The source of facilities- related funding is less significant than the total amount of funding requested, allocated, and obligated for an entire facilities management program. Six significant activities are included: routine maintenance, repairs, and re- placements; facilities-related operations, which includes activities such as snow removal and custodial work; alterations and capital improvements, which includes major capital expenses that recur on a 5, 10 or 20 year basis, and minor alter- ations; legislatively mandated activities such as asbestos removal; new construc- tion and total renovation projects; and demolition. Effective use of the template concept can also give visibility to the value of and promote a more detailed chart of accounts and some standardization of definitions and calculations to facilitate comparisons across agencies. Further development of the template concept should be the responsibility of an advisory body of senior level federal managers, other public sector managers, nonprofit and private sector representatives (described later in this report). The elements that should be included under each activity and potential sources of funding are described below. Routine Maintenance, Repairs, and Replacements This activity includes maintenance and repairs that recur on an annual basis. Recurring maintenance and repair includes preventive maintenance (planned, scheduled periodic inspections, adjustments, cleaning, lubrication, parts replace- ment, and minor repairs of equipment and systems); preservation or cyclical main- tenance, such as flood-coating of roofs, service calls for unscheduled or unantici- pated maintenance, and routine replacements. The need to replace an item or system may arise from obsolescence, cumulative effects of wear and tear, prema- ture service failure, or destruction by fire or other hazards (NRC, 1990~. Replace- ments do not significantly increase the capacity of the item involved; such work is considered routine maintenance and repair if it is required for the continued operation of a facility (FFC, 1996~. In most cases, the annual operations and maintenance appropriation is the source of funding for all these activities. The total funds allocated by an agency for these activities are part of the total maintenance and repair funds that should be measured against the benchmark of 2 to 4 percent of the aggregate current replacement value of the agency' s facilities inventory.

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STRATEGIC FRAMEWORK Facilities-Related Operations 69 This activity includes items associated with the routine operations of facili- ties but that do not include a significant amount of maintenance and repair work. For effective tracking of maintenance and repair costs, facilities-related opera- tions should be accounted for separately. Funding for operations should not be counted against the 2 to 4 percent benchmark, because including such activities will not give a true picture of maintenance and repair expenditures and will skew any results that may be used for benchmarking purposes. Alterations and Capital Improvements These activities and their costs are incurred once, infrequently, or irregularly during the service life of a facility. Capital improvements include major alter- ations to structural or mechanical systems that change the capacity or extend the service life of a facility. Minor alterations may include reconfigurations of space and similar activities that do not include significant maintenance and repair work. Funding for these activities may be project-based, rather than from the annual operations budget, because they do not occur on an annual basis and can involve significant costs. Legislatively Mandated Activities This activity includes facilities-related projects undertaken in response to legislative requirements. These projects include retrofitting facilities for accessi- bility and removing hazardous materials, such as asbestos and underground stor- age tanks. These are typically one-time improvements with costs comparable to the costs of other capital projects. The usual source of funding is the annual op- erations and maintenance appropriation. Funding for any of the activities could also come from the carryover of unobligated funds, where justified, funds gener- ated internally by cost-saving strategies, revolving funds, or other innovative measures. The committee recommends that these activities be accounted for sep- arately to provide facilities program managers and public officials with a better understanding of the total costs of unfunded legislative mandates and their impact on operations and maintenance budgets. New Construction or Total Renovation Activities New construction or total renovation activities above an established dollar threshold (which varies by agency) are currently separate line items in the federal budget and are not funded from the operations and maintenance appropriation. These projects are important elements of an agency's total facilities management program, however, and should be accounted for in the template in order to evaluate

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72 STEWARDSHIP OF FEDERAL FACILITIES occupy government buildings are also factors that could, with more research, be directly related to mission readiness. Minimizing costs, which is often the con- trolling factor in a unidimensional, budget-driven decision system, may under- value these factors in determining cost-effectiveness. How these factors are weighed in their application will be determined in large part by the nature of the facility, the severity of the impact, and if feasible, how performance is measured. Maintaining the physical appearance and user accessibility for national landmarks, such as the U.S. Capitol, is more important than for a purely administrative facil- ity. Military installations with a combat readiness mission have different priori- ties than administrative facilities. Not all facilities on an installation contribute equally to combat readiness, so condition priorities will also vary at the installa- tion level. Even though the stakeholders involved with the maintenance and repair of federal facilities differ significantly from the stakeholders described in Measur- ing and Improving Infrastructure Performance, the same principles apply. In both cases, the stakeholders, i.e., the agency directors, facilities program manag- ers, building operators, building occupants, and other customers of the facility, must judge whether the maintenance and repair program contributes to mission achievement for the agency. Performance measures for facilities maintenance and repair can be developed from the principles recommended in Measuring and Improving Infrastructure Performance. Once a preliminary set of measures has been developed, they can be tested for effectiveness and applicability by evalu- ating the maintenance and repair functions for a few agencies before being ap- plied government-wide. Strategy: Establish a Senior-Level Advisory Group on Federal Facilities Issues Accountability for the stewardship of federal facilities at the highest levels of government is at least as important as accountability at the agency and field of- fice level. Senior leadership has the responsibility to encourage cost-effective management of the federal facilities portfolio to protect the public's investment. The authoring committee recommends that an executive level, federal facilities advisory group be appointed to provide policy direction and set priorities for the effective management and maintenance of the facilities portfolio. This group should include senior level federal managers from civilian and military agencies, other public sector managers, and representatives of nonprofit organizations and private sector corporations. Models for this type of policy advisory group include the Federal Facilities Policy Group, which was convened by the director of the OMB and the chair of the Council on Environmental Quality to review the status and future course of environmental response and restoration of federal facilities. A report by the Federal Facilities Policy Group "identified areas of management and regulatory reform essential to protect public health and restore the environment

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STRATEGIC FRAMEWORK 73 as well as assure effective, efficient use of resources as the effort to clean up federal facilities proceeds" (COEQ and OMB, 1995. An advisory group of senior officials from DoD, DOE, GSA, NASA, other federal agencies responsible for managing facilities portfolios, OMB, GAO, the National Science and Technology Council, and other appropriate agencies and organizations should be appointed to focus on the policy issues related to main- taining and enhancing the functionality and quality of federal facilities. This group should also include representatives of state and local governments, nonprofit or- ganizations, and private sector corporations with facilities-related responsibilities to provide a broad perspective on facilities management. An executive level advi- sory group will give the issue of federal facilities maintenance, repair, and stew- ardship greater visibility. Initially, this effort may require the investment of more staff time and resources, but, in the long term, it should result in savings of both time and resources through greater cooperation and sharing of facilities manage- ment knowledge. Initial focus areas for the advisory group could include: . . identifying the entities responsible for facility stewardship at all levels of government, outlining their responsibilities, defining reporting require- ments, and setting standards for accountability providing guidelines for developing government-wide performance mea- sures for evaluating the effectiveness of facilities management and main- tenance programs establishing a process to identify best practices for facilities maintenance and repair developing a standardized, annotated chart of accounts for agencies to use in developing maintenance and repair budget requests and for tracking allocations and expenditures (A standardized chart of accounts, which could be based on the template described above, would facilitate inter- agency exchanges of information, the roll-up of data into broad classes for comparative analyses, and benchmarking for facilities management and maintenance and repair, inside and outside the federal government. A pro- cess for reviewing the quality of the data could also be developed.) identifying ways to eliminate institutional disincentives to effective facili- ties management and identifying potential incentives for innovative, cost- effective facilities maintenance and repair developing standardized methodologies for analyzing the life-cycle costs of facilities iThe Federal Facilities Policy Group included policy officials from the U.S. Departments of Agri- culture, Defense, Energy, Health and Human Services, Interior, and Justice, the Environmental Pro- tection Agency, NASA, and the U.S. Army Corps of Engineers. Several White House offices, includ- ing the President's Council of Economic Advisors, the Domestic Policy Council, the National Economic Council, and the Office of Science and Technology Policy, also participated.

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74 STEWARDSHIP OF FEDERAL FACILITIES developing a decision model for reviewing agency portfolios, determin- ing the value of facilities that are not considered mission-critical, and de- termining their appropriate disposition developing a government-wide database on excess facilities and a process for considering how excess facilities could be used and streamlining the process for the disposition of excess facilities establishing a process for comparing unit costs for common maintenance elements and for comparing service quality elements, such as breakdown/ problem incident rates STRATEGIC ALLOCATION OF RESOURCES Strategy: Incorporate a Facilities Component in Every Agency's Strategic Plan The Government Performance and Results Act of 1993 was enacted "to pro- vide for the establishment of strategic planning and performance measurement in the Federal Government and for other purposes." The Act is intended to accom- plish the following goals: (1) improve the confidence of the American people in the capability of the federal government by systematically holding federal agencies account- able for achieving program results (2) initiate program performance reform through a series of pilot projects for setting program goals, measuring program performance against those goals, and reporting publicly on their progress (3) improve federal program effectiveness and public accountability by promoting a new focus on results, service quality, and customer satisfaction (4) help federal managers improve service delivery by requiring that they plan for meeting program objectives and by providing them with infor- mation about program results and service quality (5) improve congressional decision making by providing more objective in- formation on achieving statutory objectives and on the relative effective- ness and efficiency of federal programs and spending (6) improve the internal management of the federal government By September 30, 1997, the head of every federal agency was required to submit to Congress and OMB a strategic plan for his or her agency's program activities. The strategic plans were required to include comprehensive mission statements covering the major functions and operations of the agency, outcome- related goals and objectives, a description of how the goals and objectives were to

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STRATEGIC FRAMEWORK 75 be achieved, the resources needed to achieve them, and performance measures, among other items. Congress and federal agencies have been discussing and reevaluating agen- cies' missions, functions, and responsibilities. Nevertheless, the relationship of constructed facilities to agencies' missions has largely been overlooked. Agency programs are, in fact, the driving force behind the construction and acquisition of federal facilities, which play supporting, but critical, roles. It is difficult to imag- ine for example, how the Smithsonian Institution could fulfill its mission without its museums, how the National Institutes of Health and the National Institute of Standards and Technology could fulfill their missions without research laborato- ries, or the Bureau of Prisons without prisons. Agencies and Congress do consider how facilities help implement an agency's mission when budget requests for constructing or acquiring new facili- ties are reviewed. Once the facilities have been built or acquired, however, their relationship to the agency's mission is taken for granted, even though deteriorat- ing facilities can seriously impair the fulfillment of an agency's mission. A recent GAO report found that "At the Naval Station in Norfolk, about half the piers are 50 years old and too narrow to accommodate today's larger ships. Many piers were in poor condition and, according to Navy officials, limited the Navy's abil- ity to berth ships in transit and support its dock side requirements, such as loading supplies" (GAO, 1997c). Deteriorating facilities can also affect an agency's abil- ity to recruit qualified employees, the productivity of current employees, and the efficient operation of the agency, all of which are related to effective implemen- tation of the agency's mission. As agencies reevaluate and, in some cases, redefine their missions, the rela- tionship between mission and facilities should be made explicit. Federal agencies require adequately maintained facilities to accomplish their missions. For NASA to conduct space exploration, the agency needs well maintained launch facilities, research laboratories, and command control centers. Similarly, the Navy needs well maintained docking facilities for the fleet, and the federal judicial system needs well maintained courthouses to hold trials and store legal documents. All federal agencies need well maintained administrative buildings to deliver services to the public and provide healthy and productive environments for their employees. However, not all facilities owned by federal agencies are critical to mission delivery. Some agencies already recognize that they own excess and/or under- utilized facilities. In reevaluating their missions, they may find that even more facilities will become "excess," or less critical, to support their current and future programs. Once an agency has determined which facilities are mission-critical, it can prioritize its needs for maintenance and repair and direct available funding to the facilities that are most closely linked to agency mission. Linking facilities to mission will enable agencies to link maintenance and repair budget requests and allocations to the long-term strategic planning of federal agencies and the govern- ment as a whole.

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76 STEWARDSHIP OF FEDERAL FACILITIES Strategy: Restructure and Reprioritize Condition Assessments Federal agencies, such DoD, DOE, and others, conduct comprehensive con- dition assessments of all of their facilities every two to five years. Despite ad- vances in technology, the type and volume of data collected and the number of facilities inspected makes condition assessments an expensive, time consuming, and labor intensive process. Because of the long time required to collect and analyze these data, their value for ongoing facilities management or developing maintenance and repair budget requests is limited. The more detailed the inspec- tion, the higher the cost. Federal agencies should determine if the benefits of comprehensive condi- tion assessments are commensurate with the costs. Every agency should review the objectives of its condition assessment survey process in relation to its mis- sion. Once the agency determines the data that are necessary to meet mission objectives and the costs of gathering those data, it can work "backwards" to de- termine the required level of detail (see Figure 4-3~. Focusing condition assess- ments on information that supports facilities management and decision making would provide the best return on the investment of staff time and resources. Agencies should consider restructuring their programs to focus first on fa- cilities that are mission-critical; on life, health, and safety issues; and on the build- ing components that are critical to a building's performance. The latter include the building envelope and system components, such as roofs, plumbing, and elec- trical systems. Data gathering should focus on compiling information that is criti- cal to building performance, to building users' safety and health, and to informed decision making by the agency senior managers who review and formulate opera- tions and maintenance budgets. Peeling paint, damaged carpets, and other non- structural problems should not be included in condition assessments unless they indicate structural deficiencies (e.g., paint is peeling because the roof leaks), or they constitute a significant risk to the health, safety, or welfare of the building's Typical Engineering Decision Process Reverse Engineering Decision Process FIGURE 4-3 Engineering decision processes.

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STRATEGIC FRAMEWORK 77 users. Condition assessments should concentrate on critical elements that affect the ability of an agency to operate effectively rather than simply cataloguing all problems, structural and cosmetic. Condition assessment programs are sometimes structured to assess every fa- cility in an agency's inventory once every two to five years. Available resources could be used more effectively if condition assessment programs were re- prioritized to inspect facilities that were identified as mission-critical by the agency first. These facilities might also require more frequent inspections than buildings that are not mission critical. Other facilities should continue to be in- spected but at a level commensurate with their relationship to the agency' s mis- sion and to meeting life, health, and safety standards. Because current condition assessments are time consuming and comprehen- sive, the information gathered in these inspections loses its value in developing agency maintenance and repair budget requests because data are not available in a suitable form or time frame. The condition assessment process should be stream- lined and refocused. By linking condition assessments to mission-critical facili- ties, focusing on life, safety, and health standards, as well as critical building system components, they can be integrated into strategic planning and budgeting processes. In summary, the purpose of restructuring and reprioritizing condition assess- ment programs is threefold: to make better use of available resources; to focus on deficiencies that can shorten a facility's service life, effect implementation of the mission, or pose significant risks to occupants' health or safety; and to collect meaningful, timely information that can be used in the budget process. Existing and emerging technologies offer promise for automating the condi- tion assessment process although many of these technologies are not yet widely deployed. The federal government's responsibility for the long-term stewardship of buildings and facilities supports taking a leadership position in deploying new technologies and accepting higher first costs to reduce life-cycle costs. The fed- eral government and private industry should work together to develop and inte- grate technologies for performing automated facility condition assessments and eliminate barriers to their deployment. Strategy: Manage the Size of the Federal Facilities Portfolio As a result of decisions made over many decades, some agencies in the fed- eral government now own more facilities than they need to perform their mis- sions effectively. Responsible stewardship of federal facilities requires that the size of an agency's portfolio be commensurate with a level that supports the long- term mission of the government as a whole. The committee recommends two strategic approaches to the effective management of the size of the facilities port- folio: limiting the construction and acquisition of new facilities; and reducing the number of facilities owned and maintained by the federal government.

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78 STEWARDSHIP OF FEDERAL FACILITIES Limiting the Construction and Acquisition of New Facilities Over the long term, the federal government will have to acquire new facili- ties to meet changing missions, circumstances, and technologies. New embassies will be needed as a result of changes in international politics and boundaries; technologically advanced buildings and facilities will be required for state-of- the-art research or to support new weapons systems; and other new buildings will be necessary to support as yet unidentified missions. Every new facility, how- ever, entails a responsibility for the government to operate and maintain it for 30 years or more. At a time when some federal agencies already own excess facili- ties, every effort should be made not to increase the size of the federal facilities portfolio unnecessarily. New facilities should only be acquired after a rigorous analysis clearly demonstrates that a new facility is the best way to meet mission requirements and the most cost-effective course of action over the life-cycle of the facility. Before acquiring a new facility, agencies should demonstrate that mission requirements cannot be met effectively through the use of existing facilities, either in their current or modified configurations. Agencies should consider using or adapting not only the facilities they own, but also excess or underutilized facilities owned by other agencies. Existing facilities embody already allocated resources, and maximizing their use can be cost effective and can help manage the size of the federal facilities portfolio. If an agency demonstrates that existing facilities cannot meet mission re- quirements in a resource-effective manner, the agency should consider whether leasing a new facility would be more cost effective than acquiring one. In some cases, particularly if a facility will be needed for a relatively short time (10 to 15 years), leasing may be more cost effective over the life-cycle of the building. Once a leased facility is no longer needed, the federal government would not be responsible for its operation and maintenance or for its disposition. In contrast, the government continues to be responsible for the maintenance and disposition of owned facilities, even if they are no longer needed. When considering the acquisition of new facilities, public officials have tra- ditionally focused on the "first costs" of design and construction, which represent only 5 to 10 percent of the total costs of ownership of a facility. The federal budget process is structured to reinforce the emphasis on first costs. Understand- ing the full costs of acquiring and operating a facility over the 30 or more years of its service life, requires a rigorous life-cycle cost analysis, which has been de- fined as "the present value of all anticipated costs to be incurred during a facility's economic life; the sum total of direct, indirect, recurring, non-recurring and other related costs incurred or estimated to be incurred in the design, development, production, operation, maintenance, support, and final disposition of a major sys- tem over its anticipated useful life span" (NRC, 1993~. As part of the analysis, the projected asset value the facility should be established in terms of the intended

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STRATEGIC FRAMEWORK 79 length of use, mission criticality, and embodied resources. Facilities program managers are essential participants in the analysis phase of life-cycle expendi- tures because they can ensure that operations and maintenance and repair expen- ditures over the projected lifetime of the facility are included as part of a facility' s total cost. The purpose of an extensive life-cycle cost analysis is to provide agency senior managers and Congress with the information they need to make informed decisions about the total costs of ownership before appropriating funds for new facilities. Accountability for the stewardship of facilities requires acknowledging the total costs of ownership and making a commitment to provide the funding necessary to maintain buildings over their entire life cycles. Reducing the Number of Federal Facilities Reducing the number of facilities owned and maintained by the federal gov- ernment will result in substantial savings in operations and maintenance costs over the long term. It should also allow the government to better maintain facili- ties that are directly supportive of agency missions by redirecting available fund- ing. Reducing the size of the portfolio will involve evaluating facilities to deter- mine their relative importance or value to an agency, closing obsolete or underutilized facilities, transferring the ownership of viable but no longer needed facilities, and demolishing facilities that cannot be transferred or used effectively. Agencies should conduct periodic analyses of their inventories to determine which properties no longer meet a standard of utility that warrants being retained. A facility may no longer be able to perform its original function for a variety of reasons. It may simply have reached the end of its useful life, it may have become technologically obsolete, or the function it was designed to house may have changed or become unnecessary. Facilities may also reach a point when it is more costly to operate and maintain them than to replace them. One element of the process used to identify excess facilities could be similar in concept to a decision-making model used by private sector facility portfolio managers who periodically evaluate each property in an investment portfolio to determine whether it is dilutive (a negative asset) or accretive (a positive asset). The process involves developing an economic model of the portfolio; if the port- folio financial performance improves when the property is removed from the model, the property is dilutive and is a candidate for disposal. Accretive proper- ties improve the portfolio and are candidates for retention. Other factors that play into the disposal/retention decision include long-range facility requirements (to ensure that existing facilities are not prematurely closed or transferred). Current programs and trends, as well as innovative approaches to meeting future mission requirements and trends in technology and industry and, in some cases, interna- tional competition, may also be considered.

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80 STEWARDSHIP OF FEDERAL FACILITIES Some factors are unique to the federal government. For instance, in a study of future needs for space facilities, the National Research Council found that there are limits to the amount of consolidation of space facilities that can be undertaken without adverse effects on efficiency and capabilities. Some redun- dancy in R&D facilities is desirable to allow competition that spurs innovative thinking and to provide for contingencies. Some redundancy is also justified in operations facilities. For instance, the need for east- and west-coast launch capa- bilities will continue into the indefinite future, with obvious duplication of sup- porting infrastructure.... Attempts to modify old equipment to satisfy new requirements may respond to near-term budget constraints but be considerably more expensive in the long term and vastly less efficient (NRC, 1994~. Some properties can become obsolete for a particular agency although they may be perfectly serviceable for other agencies. When a facility is no longer valuable to an agency's portfolio or no longer contributes to the agency's mis- sion, a simple and direct process of transferring title or otherwise disposing of the property would free maintenance and repair resources to be redirected to mission- critical facilities. The current process for declaring properties surplus and trans- ferring title to other agencies or outside entities is cumbersome and time consum- ing. The government needs more efficient interagency communication about the potential availability of facilities. An agency that needs a new facility to imple- ment its mission should be able to determine quickly and easily if an appropriate facility is available from another agency. Conversely, if an agency wants to dis- pose of a facility, it should be able to determine quickly if another agency could use the facility before making it available to nonfederal entities or taking it out of service. A centralized database for excess properties would make information sharing among government agencies more efficient and would expedite the dis- . . position process. If a facility is not needed by any federal agency, transferring ownership to a state or local public agency or the private sector should be considered. Transfer- ring title of a facility will maximize the public's investment by reusing existing resources and will reduce federal operations and maintenance requirements. The demolition of facilities that are functionally obsolete, do not support an agency's mission, are not historically significant, and are not suitable for transfer or adaptive reuse should also be part of the federal facilities portfolio management strategy. Up-front funding, over and above current operations and maintenance funding levels, should be considered for the demolition of facilities. The opera- tions and maintenance funds that will be saved over the long term could then be redirected towards the maintenance and repair of mission-critical facilities. Federal facilities support the provision of services, generate jobs, and are sometimes integral components in a community's architectural fabric. The trans- fer of title, closing, or demolition of a facility can generate considerable contro- versy at the local and congressional levels. Political and community pressures can make it difficult for agencies to transfer or close buildings even when they

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STRATEGIC FRAMEWORK 81 can clearly demonstrate that the facility is no longer needed. As the federal gov- ernment continues to downsize and realign its services, more facilities, particu- larly civilian agencies' facilities, will be declared excess and either transferred to other entities or closed altogether. An independent, objective, outside panel may be needed to weigh the costs and benefits of transferring title or closing federal facilities and to build a political consensus for doing so. The Base Realignment and Closure Commission is a model that could be adapted for transferring or closing excess facilities owned by civilian agencies. Strategy: Support Research on Maintenance and Repair-Related Issues Facilities program managers could determine how maintenance and repair funds could be optimized and operate safer, healthy, and more productive facili- ties if they had access to information about cost-avoidance strategies, the deterio- ration of building components, and the nonquantitative effects of maintenance on agency mission and on the people who work in or rely on federal facilities. Re- search on cost-avoidance strategies and the deterioration of building components would help facilities program managers and others to plan and implement cost- effective facilities management programs and strategies, develop maintenance and repair budget requests, and determine the optimum time to repair or replace building components or systems to maximize service life and avoid business dis- ruptions. Information on cost-avoidance strategies could also be used to convey the importance and cost effectiveness of preventive maintenance to the public and elected officials. Research on the causes and "cures" of sick building syndrome would enable facilities managers to take measures to correct adverse building-related health factors that lead to absenteeism and lost productivity. A limited amount of re- search about how buildings can be designed and operated to enhance the working environment and productivity is under way. Additional studies are needed about the effects of timely maintenance, cost-avoidance strategies, cost analysis and cost estimating, and the deterioration of building components. Focused research in these areas would be useful for the maintenance not only of federal facilities but of all public and private buildings. REFERENCES COEQ and OMB (Council on Environmental Quality and Office of Management and Budget). 1995. Improving Federal Facilities Cleanup. Report of the Federal Facilities Policy Group. Washing- _ ton, D.C.: Government Printing Office. FFC (Federal Facilities Council). 1996. Budgeting for Facilities Maintenance and Repair. Technical Report No. 131. Standing Committee on Operations and Maintenance. Washington, D.C.: Na- tional Academy Press. GAO (General Accounting Office). 1996. VA Health Care: Opportunities to Increase Efficiency and Reduce Resource Needs. Testimony. T-HEHS-96-99. Washington, D.C.: Government Printing Office.

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82 STEWARDSHIP OF FEDERAL FACILITIES GAO. 1997a. Budgeting Issues: Budgeting for Federal Capital. Chapter Report. Report to the Chair, Committee on Government Reform and Oversight, U.S. House of Representatives. AIMD-97-5. Washington, D.C.: Government Printing Office. GAO. 1997b. Military Bases: Cost to Maintain Inactive Ammunition Plants and Closed Bases Could Be Reduced. Letter Report. NSIAD 97-56. Washington, D.C.: Government Printing Office. GAO. 1997c. Defense Infrastructure: Demolition of Unneeded Buildings Can Help Avoid Operating Costs. Report to the Chair, Subcommittee on Military Installations and Facilities, Committee on National Security, U.S. House of Representatives. NSIAD-97-125. Washington, D.C.: Govern- ment Printing Office. NPR (National Performance Review). 1993. From Red Tape to Results: Creating a Government That Works Better and Costs Less. Mission-Driven, Results-Oriented Budgeting. Washington, D.C.: Government Printing Office. NRC (National Research Council). 1990. Committing to the Cost of Ownership: Maintenance and Repair of Public Buildings. Building Research Board, National Research Council. Washington, D.C.: National Academy Press. NRC. 1993. The Fourth Dimension in Building: Strategies for Minimizing Obsolescence. Building Research Board, National Research Council. Washington, D.C.: National Academy Press. NRC. 1994. Space Facilities: Meeting the Future Needs for Research, Development and Operations. Aeronautics and Space Engineering Board, National Research Council. Washington, D.C.: Na- tional Academy Press. NRC. 1995. Measuring and Improving Infrastructure Performance. Board on Infrastructure and the Constructed Environment, National Research Council. Washington, D.C.: National Academy Press. OMB (Office of Management and Budget). 1997. Analytical Perspectives, Budget of the United States Government, Fiscal Year 1998. Washington, D.C.: Government Printing Office.