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Capital Asset Decision Making in Three Federal Agencies
Representatives from three federal agencies with large capital asset portfolios told conferees how they make far-reaching decisions about capital facilities. They were: Ron Kendall of the General Services Administration; Rear Admiral Ronald F. Silva, U.S. Coast Guard; and Dr. Get Moy, Naval Facilities Engineering Command, U.S. Navy.
GENERAL SERVICES ADMINISTRATION
Summary of a Presentation by Ron Kendall, Director of Policy and Analysis, Office of Portfolio Management, Public Buildings Service, General Services Administration
The Public Buildings Service of the General Services Administration (GSA) has constructed only 4 million square feet of new space in the last 35 years for its own inventory. In the same period it has tripled the amount of space under lease, bringing the total to about 150 million square feet.
The agency is now developing asset business plans for the 1,700 properties it owns. In the plans the agency assesses the physical condition of each property using software developed by Vanderweil Facility Advisors. It also maintains information that puts that assessment in context, such as: What is the plan for the asset? Is there a disposition strategy? Is there a hold strategy? What is happening in the marketplace?
For internal purposes GSA measures the performance of its assets in terms of funds from operations (FFO)—the same financial metric used by real estate investment trusts in the private sector. FFO is different from corporate “earnings” because, historically, commercial real estate has maintained residual value to a much greater extent than machinery, computers, or other personal property. FFO is defined as net income excluding gains or losses from sale of property or debt restructuring plus depreciation of real estate.
GSA has routinely performed life-cycle cost analyses of properties under its management for many years. These analyses show that it is better to construct than lease if there is a 10-year holding period, because the federal government can borrow capital at a lower interest rate than the private sector.
GSA estimates its current backlog of needed work at $4 billion–the same as in 1993. It currently budgets between $600 million and $700 million per year for capital reinvestment. This includes not only base building improvements but also tenant work
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and security improvements, which have absorbed an increasingly large portion of the funding since the bombing of the Alfred P. Murrah federal building in Oklahoma City.
There are two levels of capital reinvestment projects for the 1,700 buildings GSA owns. The first are those that must be approved by OMB and Congress, so-called prospectus-level projects. The second level is repair and alteration projects. Because funding is constrained, GSA uses a group meta decision support software called Expert Choice to help it rank prospectus-level projects. GSA recommends the software to anyone who has to deal with a complex array of criteria.
Expert Choice allows important subjective factors to be taken into account through a series of paired comparisons. GSA uses broad criteria in the evaluations, such as economics, project urgency, customer impacts, and community plan. In these broad categories are some 10 subsets, such as safety and historic factors.
The process for allocating funds for non-prospectus level projects begins by dividing funds on the basis of functional replacement value of buildings in each region. The individual regions then make allocation choices using Expert Choice or something akin to it.
GSA does not have the funding to reinvest in its entire inventory and, therefore, must reinvest strategically. Thus, most capital is reinvested in highly visible and historic properties and large capital assets that produce large returns. GSA has to keep up the assets that are really important and the others it will have to relinquish. The current system does not provide incentives for GSA to dispose of assets that are classified as underperforming assets or marginal performers.
U.S. COAST GUARD
Summary of a Presentation by Rear Admiral Ronald F. Silva, Assistant Commandant for Systems and Chief Engineer, U.S. Coast Guard
The U.S. Coast Guard began looking at the concept of capital asset management about four years ago. In 1999, it began transitioning its civil engineering program from traditional facilities engineering, a “build it, fix it focus,” to true capital asset management where the agency looks at its portfolio of assets over its life cycle.
The Coast Guard's capital asset portfolio includes 21,000 buildings and structures on 66,000 acres of land with a replacement value of $7.4 billion, exclusive of land value. The buildings, which typically were designed for a 50-year economic life, have an average age of 38 years. Many of the facilities were originally built for other agencies and are ill-suited for today's multi-mission Coast Guard.
Based on current funding levels a major rehabilitation or facility replacement would occur on average every 150 years, which is inadequate for maintaining facilities in their current condition, much less replacing them with more flexible, less maintenance-intensive facilities. Clearly, we need a new game plan. We need to understand our facility conditions, total ownership cost of those facilities, how to link the asset to Coast Guard mission performance, and how to communicate what return or value added to the Coast Guard mission accomplishment we expect from investing in our shore facilities.
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To that end the Coast Guard has launched a new program called Shore Facilities Capital Asset Management (SFCAM), a top-down strategic initiative to better match facilities with mission requirements and to make them consistent with budget realities. To paraphrase the Coast Guard's logistics doctrine, SFCAM is all about delivering the right facility at the right place for the right costs at the right time. This plan was developed consistent with OMB's Capital Programming Guide. The overarching strategy is to transition shore support from a facility engineering focus to a capital asset management focus.
Allowing federal agencies to manage their portfolio of assets in line with how businesses do it is seen as the next logical succession in agency accountability. The commandant has designated me the shore-facility capital asset manager to insure that we have an enterprise-wide approach to managing the Coast Guard's shore assets.
The concept of SFCAM is focused on all phases of facility life cycles: planning, investing, using, and divesting. The Coast Guard has developed three strategies to put SFCAM in place throughout the agency:
1. Develop SFCAM to ensure that shore infrastructure is aligned with Coast Guard-wide strategic outcomes. To implement this strategy the agency must gather accurate system requirements, develop a facility assessment methodology, develop total ownership cost policies for asset portfolio decision making and procedures, and develop and implement asset performance measures.
2. Implement SFCAM system, which involves developing and implementing a transition plan; aligning the current civil engineering organization and training personnel to support the SFCAM strategies; determining information technology support requirements; and identifying the means and time frames to put the SFCAM management system in place. As with any organizational change this will be one of the greatest challenges. Training will be a key element.
3. Evaluate SFCAM system performance, which will require developing and implementing measures for customer satisfaction, organizational assessment, innovation and learning, and financial performance.
Initially the Coast Guard will put SFCAM to work in managing its 5,100 housing units. It will conduct facility condition assessments, housing market surveys, and define total ownership costs at 30 Coast Guard-owned housing sites over the next two years. The effort is aimed at developing the right mix of owned, leased, and market-supported housing at its primary locations.
Meanwhile, SFCAM is being used to help the Coast Guard match its shore facilities with its 20-year, $7 billion to $15 billion Deep Water Project aimed at upgrading its other capital assets-cutters, aircraft, logistics, and communications. The Coast Guard is developing an integrated management framework run by a shore infrastructure management board (SIM board) and integrated planning teams. SIM board members are senior-level stakeholders. Integrated planning teams (IPTs) consisting of
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members from various parts of the agency will be chartered as needed to provide the SIM board with fact-based recommendations.
In each level of the civil engineering organization the SFCAM division will manage Coast Guard-wide shore infrastructure processes and initiatives. It will be independently staffed to reduce resource conflicts and still enable the division to draw upon organization-wide expertise as required. The Coast Guard has drawn heavily on GAO's information technology capital planning guide in its SFCAM effort. The SIM board, which is similar to the Department of Defense's installation policy board, will manage the shore capital asset portfolio. The IPTs are similar to the integrated process teams in the GAO guide.
Business process improvements will be done incrementally as opposed to a radical reengineering approach. We anticipate using activity-based costing and functional economic analysis to develop risk-adjusted best-business recommendations using commercial off-the-shelf software applications.
NAVAL FACILITIES ENGINEERING COMMAND
Summary of a Presentation by Get W. Moy, Ph.D., Chief Engineer and Director of Engineering and Base Development, Naval Facilities Engineering Command, U.S. Navy
Until recently Navy asset management has basically been an inventory exercise. It meant counting how many buildings we had, how many roads we had, how many ships we had, and so forth. Next came an effort at managing assets through material types such as roofing across the department and then determining what the best practices were for managing these assets. Now the Navy really wants to move asset management to the next stage and that is basically focused on managing through requirements instead of managing only the assets.
This objective has been initiated in a planning exercise called “Global Shore Planning for the 21st Century,” or GAP21, which has been underway for two years. A primary aspect—a key one in terms of capital asset management—of GAP21 is planning where Navy facilities should be located to maximize their support for the fleet. Subsequently, a follow-on benefit is for the Navy to evaluate assets outside the military base fence lines in communities in fleet concentration areas, such as San Diego, Norfolk, Jacksonville, Pearl Harbor, Yokosuka, and the Pacific Northwest, where possible. The intent is not to depend solely on the Navy's assets but to evaluate the use of facilities in surrounding communities outside the base perimeter to work in an integrated setting.
The Navy's assets are substantial. For example, its facilities worldwide have twice the floor area of office buildings in lower Manhattan. The acreage it owns, about 3 million worldwide, is equal to about two small states.
The Navy has always focused on its planes, ships, and sailors. We have done a lot of rigorous analysis about the type, the mix, the size of the ships that we need, the planes that we need, the type of sailors. But it has been quite some time since we have gone through the strategic rigor on type, mix, and location of the bases. Shore facility studies have been done before, but have focused on specific regions homeporting or base closure.
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What sets GAP21 apart is that it tried to answer for the 21st century through the warfighter. It is the operational requirements which are going to set the stage, which are going to make the decisions, and how we are going to focus on making those decisions. The study is also unique in its focus on all types of shore facilities around the world.
The basic tool in the effort was the use of scenario planning to determine the direction Navy leadership wanted to take 10, 20, and 30 years from now. One key parameter used to frame the scenarios was how concentrated or dispersed should the fleet be. A second important set of parameters turned on quality-of-life facilities. How much did we want the Navy to own or how much did we want private industry to own and just provide services to the Navy?
Through scenario planning the study leaders were trying to determine which direction Navy leadership wanted to steer toward and project what the potential implications were. Did we want to steer more toward greater concentration or more toward dispersal? Did we want to steer toward more government-owned facilities, quality-of-life facilities, or more contractor-owned facilities? In addition, by using extreme boundary conditions, we could define other important issues for the leadership. It took us months to convince people we were focusing on some strategic directions, not a point solution.
By the time the study was completed 50 flag officers representing a cross-section of the Navy had been involved in an effort to make sure every perspective was brought into the process. To make sure enlisted sailors' views were represented focus groups were organized in six fleet concentration areas to determine their perspective on the facilities they were living and working in and how facilities might affect their reenlistment.
Enlisted sailors consistently said they needed better housing. For other facility types, the sailors were generally satisfied with the quality, but did express concern about the functionality of facilities, such as medical and training facilities. A major finding was the concern about the quality of the workplace environment. One of the outcomes of this exercise was the identification of other issues, not necessarily related to facilities that were important to the workforce. Identifying the type of workforce that the Navy wants to have in the future, the incentives needed to attract and retain that workforce, the training they will need is an important part of this type of analysis.
As the study winds down, the need to translate it into regional and local requirements and integrate it into the planning, programming, and budgeting system becomes apparent. Also, it became clear that there is not enough money to do everything that needs to be done. Study leaders therefore developed an investment matrix that considers how the Navy could investigate other sources of funding in communities and regions of Navy concentration. Organizationally we now look for a sustainment of this process. Basing strategies is fundamental in determining what the Navy's requirements are and where the Navy makes its facilities investments to optimize support to the fleet.
