Embed Size (px)
Citation preview
3UHYHQWLYH�0DLQWHQDQFH DQG
'HIHUUHG�0DLQWHQDQFH
Deferred Maintenance: What It Is, Why It Matters, and
How to Fix It
Observations by the National Association of State Facilities Administrators
Nothing contained in this work shall be considered the rendering of legal advice for specific cases, and readers are responsible for obtaining such advice from their own legal counsel. This work and any information herein are
intended solely for educational and informational purposes.
No portions of this work may be reproduced or displayed without the express written permission of the copyright holders.
All rights reserved. Printed in the United States of America – December 2020
National Association of State Facilities Administrators (NASFA) 1776 Avenue of the States ▪ Lexington, KY 40511 ▪ 859-244-8181 ▪ [email protected] ▪ www.nasfa.net
ACKNOWLEDGEMENTS Luis Luna - Chairperson Assistant Secretary Office of Facilities Management Maryland Department of General
Services 410-260-2907 [email protected] Jessica Ballew Chief of Infrastructure Operations Texas Department of Public Safety 512-424-5818 [email protected] Kelly Berard Project Manager Public Works Idaho Department of Administration 208-332-1938 [email protected] Mark DeVore Collegewide Director of Facilities Office of the President Delaware Technical Community College 302-857-1654 [email protected] Shannon Federoff Facilities Portfolio Manager Facilities Texas Department of Public Safety 512-424-0305 [email protected] Douglas Hanson Administrator State Building Division Nebraska Administrative Services 402-471-2662 [email protected]
Mike Harvey Director Support Services Iowa Department of Transportation 515-239-1327 [email protected] Peter Heimbach Director of Special Projects Real Estate Asset Management Division Tennessee Department of General
Services 615-509-2667 [email protected] Bert Jones Associate Vice Chancellor Virginia Community College System 804-819-4917 [email protected] James “Eddie” King Manager Planning & Construction
Management Administration / Facilities Texas Department of Public Safety 512-424-2219 [email protected] Michelle Potts Director of 309 Task Force & Deputy
Director State Building Division Nebraska Administrative Services 531-207-9029 [email protected] Marcia Stone Executive Director National Association of State Facilities
Administrators 859-244-8181 [email protected] or [email protected]
1
The opening of a new building is a cause for celebration. Years of planning, design and construction come to fruition, a ribbon cutting is held, and happy tenants move into brand-new space. But over time, the inevitable occurs: mechanical parts fail, finishes deteriorate, and systems stop working. Without ongoing repairs and maintenance, a building – like a car, a home, or any other asset – wears out. It then needs to be either renewed or replaced. Estimates vary, but experts say an office building may require anywhere from 50 to 100 percent of its construction cost to maintain over a typical 50-year lifespan. These are significant numbers. Funders are strongly tempted to delay making such outlays. After all, building failure is usually a slow process, and there are more pressing demands (usually for more new buildings and more ribbon cuttings). Postponing a cost today may not result in a problem until much later, when decision-makers have moved on. But doing so results in Deferred Maintenance: the act of delaying the inevitable for another day. And as the saying goes, when the tune is finished the piper must be paid. Proper, ongoing maintenance is not to be confused with capital investments for planned replacement of roofs, HVAC equipment, doors and windows, etc. They are two separate budgetary items. Yet they are two sides of the same Deferred Maintenance coin. Appropriate action in both categories can avoid the problem of Deferred Maintenance in the first place. (And as will be apparent shortly, correcting problems created by Deferred Maintenance saves far more than what is “saved” by postponing the work and thus delaying the day of reckoning.) This is because maintenance affects capital expenditures. Proper maintenance preserves and extends the life of building assets. Deferred Maintenance reduces the life span of building components, which in turn accelerates the need for capital expenditures to replace them. Without regular capital investments, the cost to maintain obsolete or worn-out building components increases exponentially. With such investments, the savings to state budgets is substantial. Experts have calculated the cost of Deferred Maintenance to be anywhere from 15 to 30 times the cost of early intervention. Preserving building assets through regular and preventative maintenance prevents their premature replacement and avoids emergency repairs. This only covers the building and equipment costs. The true, all-in cost of Deferred Maintenance can be quite significant. Occupants experience health issues from sick buildings. Elevators trap occupants and pedestrians fall on unsafe surfaces. Fire alarms and systems fail to function properly. The resulting injuries and illnesses cause lost staff time and claims for damages. Deferred Maintenance creates situations in which states can face significant liability exposure. All these are expenditures that can be saved by avoiding Deferred Maintenance.
2
Another savings comes from decreased calls for service from occupants once building systems and components fail. Broken system mean users experience hot and humid air in the summer, then cold and dry air in the winter. This leads to more water, fuel and electricity usage, since leaking and broken systems have to run longer to meet occupant demand. Thus, energy consumption increases. In buildings with delayed upkeep, equipment may become obsolete and no longer supported by their manufacturers. Replacement parts may be hard to find or nonexistent. Systems might fail without warning and catastrophically. Repairs must then be executed on an emergency basis and usually at significantly higher costs than if completed routinely. The budgetary impact of an ongoing litany of emergency repairs to correct equipment that has failed as a result of Deferred Maintenance, and the resulting backlog of repairs, can be staggering. If the building is not available, or its ability to be used is compromised, it creates new budget demands due to denial of the services that should be offered at that building. The costs of relocating services can be significant. Offices may need to be moved, new signage and letterhead created with address changes, and customers may be impacted, just to name a few. Inefficiencies mount as disruptions affect employees and visitors. A building itself is affected by Deferred Maintenance, as its life expectancy (and return on investment) is compromised. Deferred Maintenance can increase costs to the point where they exceed the value of the building itself. Replacement then becomes the only cost-effective solution, most often at a significantly higher cost than if maintenance had been done in the first place. Ongoing maintenance, then, prevents a host of building issues by slowing down a facility’s rate of decay. Proper maintenance saves significant taxpayer dollars by avoiding system failures, emergency repairs and unwelcome consequences. The National Association of State Facilities Administrators (NASFA) has considered the matter carefully. Its members have sought to explain the problem, quantify the savings when buildings and their systems are kept in good repair, and compile formulas by which the required investments can be calculated. They looked at industry best practices, academic research and real-world experience. Their conclusion is that Deferred Maintenance is a pressing issue. It can drain state treasuries if ignored, while saving a great deal of money if addressed in time.
3
Here is a chart prepared by staff at the Tennessee Department of General Services to illustrate what happens over the life of a building and its systems:
For each year that regular building maintenance (the cost of which is shown by the yellow line at bottom) is postponed, the resulting deferred and total maintenance costs (shown by the red and blue lines) rise dramatically and far exceed any potential savings from the delayed repairs.
$-
$100.00
$200.00
$300.00
$400.00
$500.00
$600.00
$700.00
$800.00
$900.00
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
ReplacementValue
MaintenanceCost
Deferred MaintCost
TotalMaintenanceCost
4
Here are the calculations behind the chart:
To keep things simple, assume a building component – a roof, furnace or electric motor – costs $100 to buy. Using the calculations underlying the chart above, it will then cost from 5% to 12% of its value to maintain it annually for its useful lifespan of 20 years. But without that maintenance, repairs will cost an additional $10 after two years, steadily rising to $43 after five years, and going up to $110 after ten years. This is because, as the item gets older, its deferred maintenance costs and total maintenance costs (the red line and the blue line rising with it) will go up. Warranties expire, parts become harder to find, and manufacturers stop supporting the product. Repairs become more expensive because parts fail prematurely due to neglected maintenance.
Year Replacement Value Maintenance Cost Defered Maint Cost Total Maintenance CostAssumed Inflation Basis of Cost Multiplier
5% 20 2
1 100.00$ 5.00$ -$ 5.00$ 2 105.00$ 5.25$ 10.00$ 15.25$ 3 110.25$ 5.51$ 20.50$ 26.01$ 4 115.76$ 5.79$ 31.53$ 37.31$ 5 121.55$ 6.08$ 43.10$ 49.18$ 6 127.63$ 6.38$ 55.26$ 61.64$ 7 134.01$ 6.70$ 68.02$ 74.72$ 8 140.71$ 7.04$ 81.42$ 88.46$ 9 147.75$ 7.39$ 95.49$ 102.88$
10 155.13$ 7.76$ 110.27$ 118.02$ 11 162.89$ 8.14$ 125.78$ 133.92$ 12 171.03$ 8.55$ 142.07$ 150.62$ 13 179.59$ 8.98$ 159.17$ 168.15$ 14 188.56$ 9.43$ 177.13$ 186.56$ 15 197.99$ 9.90$ 195.99$ 205.89$ 16 207.89$ 10.39$ 215.79$ 226.18$ 17 218.29$ 10.91$ 236.57$ 247.49$ 18 229.20$ 11.46$ 258.40$ 269.86$ 19 240.66$ 12.03$ 281.32$ 293.36$ 20 252.70$ 12.63$ 305.39$ 318.02$ 21 265.33$ 13.27$ 330.66$ 343.93$ 22 278.60$ 13.93$ 357.19$ 371.12$ 23 292.53$ 14.63$ 385.05$ 399.68$ 24 307.15$ 15.36$ 414.30$ 429.66$ 25 322.51$ 16.13$ 445.02$ 461.15$ 26 338.64$ 16.93$ 477.27$ 494.20$ 27 355.57$ 17.78$ 511.13$ 528.91$ 28 373.35$ 18.67$ 546.69$ 565.36$ 29 392.01$ 19.60$ 584.03$ 603.63$ 30 411.61$ 20.58$ 623.23$ 643.81$
5
Other components carry greater loads and they, too, fail. The total maintenance costs become orders of magnitude higher than necessary. Proper maintenance would save all this extra money. When the component reaches its expected 20 year lifespan, its replacement cost (the gray line) equals its maintenance costs. From that point forward, if the item is not replaced, total maintenance costs exceed replacement costs. In this example, twenty years of inflation mean the $100 building component will now cost $252 to replace. But if it is not replaced, it will cost $318 to keep it running due to Deferred Maintenance. Significant savings are achieved when obsolete equipment is retired rather than made to limp along. This does not even include the substantial savings in energy costs from replacing old, inefficient components with modern ones. Money is therefore wasted when it is spent on repairs that ongoing maintenance could have prevented. It is also wasted when spent to maintain an item beyond its replacement cost. Yet, because of Deferred Maintenance, states incur both expenses and the taxpayers pay the bill. In 2005, Virginia’s Auditor of Public Accounts looked at Deferred Maintenance in the Commonwealth. Here are the findings, as relevant now as then:
Deferred Maintenance is a Systemic Problem for Facility Owners The first step to deal with Deferred Maintenance is for an organization to recognize it has a problem. A building owner must understand what Deferred Maintenance is and its impact on the longevity of facilities, then develop a plan to take care of the condition. Deferred Maintenance Deferred Maintenance occurs when the facility owner leaves maintenance, repairs, replacement, and renewal projects unperformed, due to a lack of resources or perceived low priority. Deferral of the activity results in a progressive deterioration of the facility condition or performance. The cost of the deterioration includes capital and operating costs and productivity losses. These will increase if the activity continues to be deferred. Issues that can Exacerbate the Deferred Maintenance Dilemma
1) Not having a complete inventory of all owned buildings, their components, and their current physical condition.
2) Lack of policies or guidance on how to maintain facilities.
3) A capital outlay and maintenance process that does not function well to provide for corrective action, which will cause acceleration of the growing deferred maintenance backlog.
4) Lack of a set and adequate budget for preventative, ongoing and continuous maintenance activities.
5) Lack of a true preventative maintenance system and ongoing oversight to assure that it is happening.
6
Operational Items that will help correct a Deferred Maintenance Backlog
1) Reform the operating, maintenance, and capital outlay budget processes, especially for facility maintenance, renewal, and renovation.
2) Establish a standard condition level for state-owned facilities and require agencies and institutions to develop a program to achieve this level.
3) Establish a reserve fund for each agency for continuous maintenance.
4) Require agency and institution management to provide information that they have properly performed operating and continuous maintenance.
5) Establish a Capital Preservation and Renewal Reserve Fund to amass long-term funding for capital renewal activities by tying the funding to financing instruments used to fund capital improvements, renovations, or building construction.
6) Require agencies and institutions to show they have used the funds for the intended purposes and not for other facilities, programs, or activities.
Most Governmental entities approach building ownership as if the buildings have an infinite life. Most agencies do not analyze the benefits of replacing an old building with a newer, more efficient building. Most governmental buildings are deteriorating; they do not fulfill the needs of the agencies’ and institutions’ current missions. Technological advancements, programmatic and social changes, and economic fluctuations over the years have changed the way the Government does business and the resources needed to do business. A public entity should develop procedures for collecting information and assisting agency personnel with advice and guidance in implementing, collecting and summarizing information for a Deferred Maintenance audit. These individuals should work to ensure that they are properly accumulating information. Collection, analysis, and prioritization of the data to audit Deferred Maintenance costs is critical. The entity should:
1) Evaluate the funding options and best management practices used by the federal, state or local government to address the backlog of and ongoing need for major maintenance projects for state buildings, and
2) Recommend options to address the on-going need for major maintenance of state buildings, which may include cash, debt and setting aside funds in anticipation of future maintenance needs.
7
Here are some definitions and best practices from the report: 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. Such projects could include the repair or replacement of damaged or inoperable equipment, components of a plant, or existing utility systems; correction of deficiencies in property and plant that are required to conform with building and safety codes or those regulations associated with hazardous condition correction; or correction of deficiencies in fire protection, energy conservation, and handicapped access. Examples include replacing a roof or heating system that has a useful life of 20 years in a building with a useful life of 40 years. Continuous Maintenance is the preserving of facilities and their components from failure or deterioration, which is necessary to realize its originally anticipated useful life. These activities include preventive maintenance; cyclic maintenance; repairs; painting; resurfacing; periodic inspection, adjustment lubrication, and cleaning (non-janitorial) of equipment; special safety inspections; periodic condition assessments; and other actions to assure continuing service and to prevent breakdown. Examples include changing belts, inspecting roofs, and replacing filters. Deferred Maintenance occurs when the 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. The cost of the deterioration, including capital costs, operating costs, and productivity losses, is expected to increase if the activity continues to be deferred. Deferred Maintenance Backlog is the total dollar amount of deferred maintenance deficiencies identified by a comprehensive facilities condition assessment of facilities and their integral systems and equipment. Emergency Maintenance is the repair or replacement of property requiring immediate attention because the functioning of a critical system is impaired, or because health, safety, security of life or property is endangered. Facility Condition Assessments (FCA) are physical periodic inspections by qualified personnel to fully determine and document the condition of a facility or item of equipment and to identify repair, rehabilitation, and replacement needs and costs. Facility Condition Index (FCI) is a ratio comparing the deferred maintenance deficiencies to the current replacement value of the facility or equipment item to measure the condition of the facility or equipment item at a specific time. The higher the ratio, the worse the condition of the building is.
8
Life Cycle Analysis is a structured approach or methodology to establish life cycle costs. This involves an evaluation of funding options, programmatic needs, economic impact, and space availability. This approach includes options to buy, lease, build, sell, renovate, or demolish. Life Cycle Assessments (LCA) are physical inspections of a facility by qualified personnel to inventory and collect information about the building’s capital components, size of the building, and age of the building and equipment. This type of assessment allows the personnel to quantitatively adjust the lifespan of the components to reflect its real condition. The entered assessment information creates a cost model to estimate the existing deferred maintenance and future renewal requirements for the capital components. Life Cycle Costs are the anticipated expenses for each stage in the life of a facility and its components. Life cycle costs include capital investment costs, financing, operations and maintenance, repair and replacement, salvage costs, facility alterations and improvements, and functional use costs. Preventive Maintenance is the periodic scheduling and planning of maintenance activities that extends and controls deterioration of permanent equipment and plant facilities. This includes repetitive and anticipated work planned to perform inspections, provide adjustments, continuous cleaning, and minor repairs of building systems and equipment.
NASFA sees Deferred Maintenance as a critical issue. Failure to maintain buildings and their systems creates a large unfunded liability for state governments. It is imperative to recognize the challenge, determine the need, and set aside an ongoing funding mechanism to address it. Ironically, the result will actually be significant savings for state budgets. Experts estimate that between 2% and 6% of an annual operating budget should be spent on maintenance in order to ensure a facility reaches its projected lifespan. Of course, every state’s financial situation is different, and circumstances can create budget challenges. Still, NASFA recommends budgeting for building maintenance within the following range, based on a state’s fiscal situation, to ensure that its taxpayers’ substantial investment is preserved:
Good -- at least 2% of a building’s replacement cost Better – at least 4% of a building’s replacement cost Best – at least 6% of a building’s replacement cost
9
The Nebraska Department of Administrative Services has compiled a list of actions it has taken to deal with Deferred Maintenance. NASFA recommends that states take similar steps to remain ahead of the curve on this issue.
Establish a State Division (e.g. Task Force) for Deferred Building Renewal The Deferred Building Renewal Task Force Division should be under the direction of the State Department of Administrative Services with co-oversight by the legislative branch of state government. The Division should provide financial and building renewal assistance to any state agency that owns and operates state buildings. Renewal work means any (a) deferred or preventive maintenance projects that will restore facilities and utility systems as closely as practical to their originally constructed condition, (b) projects that will bring facilities into compliance with current fire safety, life safety, and building codes, (c) projects that will bring facilities into compliance with the federal Americans with Disabilities Act, and (d) correct a waste of energy and/or improve energy conservation in state buildings. The Task Force should not supplant or take the place of the agency’s day-to-day operational maintenance of state buildings. State Agency Building Inspections Each state agency operating or managing state-owned buildings and/or utilities to buildings shall make a detailed inspection of facilities under its care to determine accurately what renewal work items exist and the probable cost required for doing the work. A detailed report of the findings and a prioritization of the work items shall be made to the Governor and Task Force for Building Renewal Division listing each building and deferred building renewal needs. Deferred Building Renewal Task Force Duties The Task Force shall (a) review the state agency building inspection reports and conduct site visits to assist in the prioritization of projects, (b) provide recommendations to the Governor for deferred building renewal allocations, (c) review design and construction contracts for allocated projects, (d) review plans, specifications, and other contract documents for construction, (e) conduct inspections of each funded project, (f) review and process payment applications, (g) review project final reports and closeout documents, (h) review plans and specifications for new capital construction projects and provide recommendations to reduce potential future deferred repairs for new buildings, (i) review gifts of property to state agencies and document potential deferred maintenance issues as a requirement for acceptance of the property by the state, (j) provide recommendations to dispose of dilapidated buildings and utilities, (k) administer a statewide training program directly relating to facility maintenance and repair duties for state employees involved in the design, construction, maintenance and facility operations of state buildings, and (l) develop guidelines of ‘best practices’ for recommended aspects of design and building systems that contribute to successful projects and help to reduce future building maintenance problems and issues.
10
Task Force for Building Renewal Division Staffing Minimally, the Task Force staffing should include an administrator, state architect, business manager, and training officer. In addition, the Task Force should retain the services of part time consultants to assist in the administration of the Task Force’s duties. The part time consultants should have knowledge and expertise in engineering and construction science disciplines such as mechanical, electrical, structural, architecture, roofing, and other building systems. Establish Deferred Building Renewal Allocation Funding Funding for deferred building renewal projects should be separate from state general funds (since state general funds can easily be diverted from deferred building renewal projects). These funds shall be kept separate and distinct from program continuation funds and capital construction funds. Potential deferred building renewal funding sources include revenue from special privilege taxes (i.e., cigarette tax, alcohol tax, gaming taxes), from state building renewal assessment funds such as ‘rent surcharge’ funds, or from the state general fund. These funding streams should be dedicated to only deferred building renewal projects and allowed to carry over from fiscal year to fiscal year.
There are other resources available that address Deferred Maintenance in greater detail. Some of these include:
Stanford University’s Guidelines for Life Cycle Cost Analysis
Facilitiesnet.com’s The Real Cost of Deferred Maintenance
SchoolConstructionNews Deferred School Maintenance: Pay Now or Pay More Later
The Center for Green Schools’ report 2016 State of Our Schools
Peter L. Heimbach, Jr., a Director at the Tennessee Department of General Services, has this concluding word of advice to state decision-makers:
“Buildings are like employees. If you hire (own) a building, you need to be prepared for all of the costs associated with it, just like you do with an employee. And just like with pension programs, if you don’t fund them, eventually they will bury you in deferment costs. The lack of providing these costs is what produces Deferred Maintenance, which can cost 15 to 30 times what should have been appropriated in the first place. If you cannot commit to providing these costs, please just lease buildings.”
National Association of State Facilities Administrators (NASFA) 1776 Avenue of the States ▪ Lexington, KY 40511 ▪ 859-244-8181 ▪ [email protected] ▪ www.nasfa.net
11
