Transcript Review of Deferred Maintenance in the Commonwealth

Review of the Capital Outlay
Process and Deferred Maintenance
in the Commonwealth
Implementation Committee
April 18, 2005
APA Reports
Review of the Commonwealth’s
Capital Outlay Process
November 2004
Review of Deferred Maintenance
in the Commonwealth
December 2004
Auditor of Public Accounts
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Capital Outlay Review
• The Auditor of Public Accounts initiated the
Capital Outlay Review due to concerns raised
by agencies and institutions of higher
education about the capital outlay process.
– Lengthy process
– Too many change orders
– Too many scope adjustments
Auditor of Public Accounts
2
Capital Project Life Cycle
60
Occupancy
and Close
Out Phase
80
Bid Phase
Planning and
design phase
Planning and
Apprival
Phase
Percentage complete to date
100
Construction
Phase
Typical Life Cycle of a Project
40
20
0
0
5
10
15
20
25
30
Months after project start
Life Cycle of a Project in the Commonwealth
Occupancy /
Closeoout
Constructio
n Phase
Bid Phase
80
Design
Phase
Planning
and
Approval
Phase
Percentage completeto date
100
60
40
20
0
0
5
10
15
20
25
30
35
40
45
50
55
60
Months after project start
Auditor of Public Accounts
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Planning vs. Project Approval
• Issue: Funding is committed to an entire project
based on a conceptual design. Detailed planning,
which provides more accurate cost estimates, occurs
after approval and financing resulting in change
orders and scope adjustments
• Recommendation: Implement a two-phased approach
to capital project approval to provide more accurate
project cost estimates prior to granting construction
approval and financing.
Auditor of Public Accounts
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Project and Appropriation Monitoring
• Issue: There is no comprehensive reporting of
progress or funding status on approved
projects.
• Recommendation: Require the Appropriations
Act to show unexpended appropriations for
each project and require agencies to report
whether capital projects are “On Time” and
“On Budget”.
Auditor of Public Accounts
5
Total Life Cycle Costing
• Issue: Total Life Cycle Costing occurs during
preliminary planning making it less effective.
• Recommendation: Require agencies and
institutions to provide a Total Life Cycle
Costing determination based on final approved
designs for all capital construction.
Auditor of Public Accounts
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BCOM’s Role Unclear
• Issue: BCOM’s role in the capital outlay process is
often confused with General Services’ role as the
Capital Square area project manager.
• Recommendation: General Services should work
with BCOM to define its roles and duties. This
should include consideration of whether BCOM
should provide only limited oversight on projects,
assume a traditional role of project manager, or have
some other responsibilities.
Auditor of Public Accounts
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Deferred Maintenance Review
The 2004 Special Session of the General
Assembly directed the Auditor of Public
Accounts to conduct a review to determine the
amount of deferred maintenance and the
ongoing major maintenance needs of the
Commonwealth. This review includes an
interim report issued in December 2004 and a
final report due in December 2005.
Auditor of Public Accounts
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Interim Study Objectives
• Establish a statewide definition of deferred maintenance.
• Review statewide and agency specific maintenance practices.
• Determine what maintenance systems exist in the
Commonwealth and which agencies currently track deferred
maintenance and perform facility condition assessments.
• Determine the need for an RFP for a new system or whether
the Commonwealth has an existing system that can be used.
• Research and evaluate funding options and best management
practices used by other governmental entities.
• Recommend an interim and long-term plan for reducing the
backlog of deferred maintenance and preventing the backlog
from occurring in the future.
Auditor of Public Accounts
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Final Study Objectives
• Establish the data needed to determine the deferred
maintenance backlog and develop an RFP for a Facility
Condition Assessment System to collect this information.
• Develop a methodology for phasing in the implementation of
the Facility Condition Assessment System.
• Develop policies and procedures for the initial and future
collection and maintenance of information maintained in the
Facility Condition Assessment System by agencies and
institutions.
• Audit the information agencies and institutions report in the
Facility Condition Assessment system and determine the
deferred maintenance backlog, prioritize problems, and
propose deferred maintenance funding methods for the future.
Auditor of Public Accounts
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Study Activities
• Established a Task Force of agencies and institutions.
• Surveyed 85 agencies and institutions about facility
maintenance practices.
• Visited Task Force member agencies to obtain an
understanding of facility maintenance operations,
budget, and systems used.
• Researched and evaluated practices used by federal,
state, and local governments to address deferred
maintenance.
• Developed a timeline and plan of action.
Auditor of Public Accounts
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Commonwealth’s Buildings
• Over 11,000 buildings valued at more than
$12.6 billion
• Buildings range in age from new to over 100
years old.
• Buildings are in a constant state of
deterioration.
• Many buildings are at or past the time for
major renovation or replacement.
Auditor of Public Accounts
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Deferred Maintenance
Definition:
Facility owner leaves unperformed planned
maintenance, repairs, replacement, and renewal
projects due to a lack of resources or perceived
low priority and deferral of the activity results in
a progressive deterioration of the facility
condition or performance.
Auditor of Public Accounts
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Definitions
• Operational maintenance is the day-to-day operations of a
facility to maintain its functionality.
• Continuous maintenance is the preserving of facilities and
their components from failure or deterioration, which is
necessary to realize its originally anticipated useful life.
• Capital renewal is the planned repair and replacement of
facility systems and components having a life less than the life
of the facility so the systems and components will last as long
as the anticipated life of the facility.
• Capital improvement and renovation is the rebuilding or
restoring of facilities through additions or alterations so they
more efficiently and effectively meet programmatic needs.
Auditor of Public Accounts
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Lack of Accountability
The General Assembly and the Governor cannot
adequately plan for future maintenance and capital
needs because:
• The Commonwealth does not have a complete
inventory of all of its buildings and their condition.
• The Commonwealth does not require agencies to
have a master plan.
• The Commonwealth does not consider total life
cycle costs of a building in the final design process.
Auditor of Public Accounts
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Lack of Accountability
• The Commonwealth does not have an established
condition level at which agencies must maintain their
facilities.
• The Commonwealth does not provide agencies
policies or guidance on how to maintain facilities.
• There is no accountability or consistency in the
budgeting or accounting process for operating
maintenance.
– Budgets are not based on need.
– Facility maintenance funding and expenses are not
separately tracked and account for.
Auditor of Public Accounts
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Maintenance Reserve Program
• The program is not functioning as originally intended.
• It should fund capital renewal projects.
• Agencies are using maintenance reserve funds for
operating and capital maintenance activities.
• The project validation process focuses on individual
projects and their dollar value rather than whether the
project is worthwhile given the overall condition, age,
and functionality of the entire facility .
Auditor of Public Accounts
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Maintenance Reserve Program
• Agencies use the maintenance reserve allocation on
any validated project, not necessarily in priority
order.
• Agencies must obligate maintenance reserve
allocations within the biennium appropriated and
therefore cannot accumulate the allocations over time.
• This results in agencies not repairing and replacing
roofs and other priority projects first because they are
more costly and time consuming to execute.
Auditor of Public Accounts
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Determining Maintenance Needs
• Agencies rarely perform facility condition
assessments to determine needs.
• Agencies determine needs and identify deficiencies
through unstructured methods.
• In the past, the Commonwealth has not adequately
funded identified needs, so agencies often identify
only the needs for which they believe they can get
funding.
• As a result, the Commonwealth does not know what
all of its maintenance and renewal needs are.
Auditor of Public Accounts
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Operating Maintenance Budget
• The maintenance budget is not based on need; it is
often based on prior year expenses plus an increase.
• Because operating maintenance funding is relatively
consistent, it does not provide agencies with a method
to plan and fund continuous maintenance activities
that experience fluctuations in timing.
• Operating maintenance is not separately funded,
except in higher education, therefore the funding is
susceptible to management directing it to other
activities.
Auditor of Public Accounts
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General Services’ Rental Rates
• These rates are insufficient to allow General
Services to provide adequate maintenance for
the buildings in Capital Square.
• General Services, with JLARC approval, sets
these rates to cover costs but not to provide
funding to ensure maintenance of buildings at
a satisfactory level.
Auditor of Public Accounts
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Demolish or Sell
• The Commonwealth appears to believe that buildings
have an infinite life.
• The Commonwealth does not require agencies to
analyze the benefits of replacing old buildings with
newer, more efficient buildings versus continuing to
repair and renovate the building.
• Factors to consider:
– Cost of the construction and future operating costs
– Economic impact of moving or operating more efficiently
– Ability of the building to meet the current and future
programmatic needs of the agency
Auditor of Public Accounts
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Life Cycle Analysis
• A structured approach or methodology to establish a facility’s
anticipated expenses for each stage in its life.
• The Commonwealth does not properly or adequately use life
cycle analysis during the life of a building.
• The Commonwealth currently only considers life cycle
analysis during the initial design phase of a capital project.
• Life cycle analysis should occur during the final design phase
and once the building reaches the point when it is time to
replace major systems but no later than when the cumulative
cost of the needed repairs reach 60 percent of the current
replacement value of the building.
Auditor of Public Accounts
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Recommendations
•
•
•
Define and require Master Planning.
Implement a complete asset management
system that integrates the financial aspect of
purchasing an asset with the stewardship and
custody responsibilities that come with
ownership.
Require agencies to perform facility
condition assessments periodically.
Auditor of Public Accounts
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Recommendations
• Require life cycle costing during the final design
phase of a capital project and when a building’s major
systems are ready for replacement.
• Establish a facility condition level policy and
maintenance standards for Commonwealth-owned
buildings.
• Require agencies to establish maintenance programs
that comply with the facility condition level policy
and maintenance standards in order to be eligible to
receive maintenance funding.
Auditor of Public Accounts
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Recommendations
• Budget and account for maintenance funding
separately and hold agency management accountable
for the maintenance budget and condition of its
buildings.
• Revamp the budget process as it relates to facility
maintenance, renewal, and renovation.
• General Services should establish rental rates that will
provide adequate funding for operating and
continuous maintenance services and capital renewal
activities. JLARC’s approval should ensure that this
occurs.
Auditor of Public Accounts
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Interim Solution
• Provide for an increase in accountability for
maintenance funding.
• Provide a method to accumulate and protect funding
and separate the cost of operational and continuous
maintenance activities.
• Acknowledge that operational and continuous
maintenance activities are operating costs and will
come from assessed fees or collected revenues where
available.
• Fund capital renewal maintenance with increased
restrictions and monitoring.
Auditor of Public Accounts
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Interim Solution
• Establish the Operating and Continuous Maintenance
Reserve Fund
– A non-reverting, reserve fund established at each agency
and institution to accumulate funds to carry out all
operating and continuous maintenance activities.
– Allows accumulation of funds to pay for more expensive
continuous maintenance projects.
– Funded through the operating budget, which could include
assessed fees, collected revenues, or general fund
appropriation.
Auditor of Public Accounts
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Interim Solution
• Capital Renewal Maintenance
– Recommend directing funding for the maintenance reserve
program towards capital renewal activities that meet the
following criteria:
• Projects that involve major building systems must have a useful life
of at least ten years once completed.
• The useful life of the project must not be more than the remaining
life of the building to which it relates.
• The total cost of all needed work on the building must be less than
60% of the building’s current replacement value .
• Projects must be for buildings that have a facility condition
assessment so that the effectiveness of the project can be evaluated
against the overall condition of the building.
Auditor of Public Accounts
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Long-Term Funding Options
• Reserve Fund
– A fund to set aside money for a specific use, such as capital
maintenance.
• Capital Reserve Fund
– A reserve fund that ties the payments into the reserve fund
to the timing of debt service payments that funded the
original construction of the building.
• Revolving Fund
– A fund into which there is an initial large deposit. Then the
fund makes loans for a specific purpose, such as capital
maintenance, and users pay back the loan over a period of
time.
Auditor of Public Accounts
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Long-Term Recommendation
• Establish the Operating and Continuous Maintenance
Reserve Fund as described in the interim solution
• Establish a Capital Preservation and Renewal Reserve
Fund to replace the Maintenance Reserve Program
– A non-reverting, reserve fund to retain funds to carry out all
capital preservation and renewal activities. Deposits
should occur annually at the same time as the debt service
payments. The fund represents the present value of the
anticipated capital renewal activities for the life of the
facilities and its components.
– The source of funding will be the same as the funding for
the original construction of the building.
Auditor of Public Accounts
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APA Project Status
• We have contracted with Vanderweil Facility
Advisors, Inc (VFA) to provide a hosted Facility
Inventory and Condition Assessment System
(VFA.facility).
• Task Force agencies will perform a combination
of detailed facility condition assessments and life
cycle costing analysis to populate the new system.
• APA will audit, analyze, and prioritize the
collected information to determine the deferred
maintenance needs for the Task Force agencies.
• Issue Final Report by December 2005.
Auditor of Public Accounts
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