Slide 1

Are your Buildings Managing You?

2007 IASBO Conference May 16, 2007

Mike Steffens, AmerescoJerry Brendel, Superintendent, Woodridge SD #68

Wendy Flaherty, First Trust Portfolios, L.P.

Slide 2

Agenda

IntroductionQuestionsTraditional ProcurementPerformance ContractingCase Study - Woodridge

68The cost of waitingA look at the numbersFinancing options

Slide 3

Questions?????

• Have you been deferring work on your buildings?

• How much?• Have you ever been surprised

with price increases or change orders in the middle of a renovation project?

• If difficulties have arisen during a renovation project, who ultimately bore the risk?

Slide 4

The Age Profile

1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000

Construction Year

Currently affectingDeferred Maintenance

& Renewal Budgets

Unplanned futureRisk affecting

Capital Renewal& Operational Budgets

Basis for

funding practices

Area

Slide 5

Traditional Procurement

• Process– Owner hires an architect– Project is put out to bid– Lowest responsible bidder

is awarded

Slide 6

Performance Contracting an Alternate Approach

Enabling Legislation Article 19B of the School Code

• Provides School Districts with an alternative method of procurement

• Establishes Financial and Performance Guarantees (savings must pay for the project over the contract term)

• Allows you to choose someone who meets District qualifications

Slide 7

The Performance Contracting Process

1. Agree to Procurement Method Investigation

2. Establish Timeline

3. Identify Technical and Financial Requirements

4. Verify Direction

5. Request For Proposal

6. Contract

Slide 8

Performance Contracting Benefits Quality

Strategic versus tactical (solutions vs. specification based)

Complete a lot of items at one time

Usage of local vendors with known track records

Single point of accountability/responsibility

Cost Guaranteed price Negotiated procurement No change orders Financing flexibility

Timeliness Compressed time frame Guaranteed project completion

date

*Traditiona

lThis

Approach

Unit Cost per square foot

$120 $80

Schedule Growth %

4.4% 0%

Construction Speed (square feet per month)

5,135 9,091

*From a study by Pennsylvania state University on 351 building projects using Alternate Project Delivery Methods – published in ASBO Intl. School Business Affairs

Slide 9

Case Study, Woodridge 68

• My favorite quote• Why my District chose the

Performance Contract approach– Turn key

• Ease of contracting work

– Guarantee– Risk assumption

• Questions?

Slide 10

The cost of waiting

• Just as a business would look at whether the investment in new machinery and equipment is worth it versus ongoing repair and maintenance on old machines, you too need to analyze the cost of waiting.

Slide 11

Woodridge SD #68

• 7 roof systems need replacing– Initial plan, replace one roof a

year over 7 years

• Restroom renovations– Initial plan, renovate bathrooms

annual over 7 years

• Other– All other project to be paid for

with operational funds over a period of time (5-7 years)

Slide 12

Assumptions• All 7 roof projects, all restroom

renovation projects and various life safety project were done at one time

• Annual energy savings for the work done is $5,213.

• Annual repair and maintenance savings for the work done is $47,518.

• Construction costs escalate at 8% annually

• Labor costs escalate at 3% annually• Cost of financing the project over 10

years is 5%

Slide 13

The Cost of Completing Work over 7 years

Cost of Project 6,372,790.00$

D/SEnergy Savings

Repair & Maint Savings

True Cash Flow Cost of Project Total Cash Flow

2007 825,305 (5,213) (47,518) 772,574 910,400 910,4002008 825,305 (5,213) (47,518) 772,574 1,010,544 1,010,5442009 825,305 (5,213) (47,518) 772,574 1,121,704 1,121,7042010 825,305 (5,213) (47,518) 772,574 1,245,091 1,245,0912011 825,305 (5,213) (47,518) 772,574 1,382,051 1,382,0512012 825,305 (5,213) (47,518) 772,574 1,534,077 1,534,0772013 825,305 (5,213) (47,518) 772,574 1,702,825 1,702,8252014 825,305 (5,213) (47,518) 772,574 2015 825,305 (5,213) (47,518) 772,574 2016 825,305 (5,213) (47,518) 772,574

- Total 8,906,693

Option A: Completing the Work up FrontCash Flow 7,725,743.80$

Option B: Completing Work over 7 yearsCash Flow 8,906,692.76$

1,180,948.96$

Option A: Completing the Work at One Time Option B: Completing Work over Time

Woodridge School District 68

SAVINGS Completing the Work at One Time!

Slide 14

Waiting 10 years!!!

Cost of Project 6,372,790.00$

D/SEnergy Savings

Repair & Maint Savings

True Cash Flow Cost of Project Total Cash Flow

2007 825,305 (5,213) (47,518) 772,574 6,372,790 6,372,7902008 825,305 (5,213) (47,518) 772,574 7,073,797 7,073,7972009 825,305 (5,213) (47,518) 772,574 7,851,915 7,851,9152010 825,305 (5,213) (47,518) 772,574 8,715,625 8,715,6252011 825,305 (5,213) (47,518) 772,574 9,674,344 9,674,3442012 825,305 (5,213) (47,518) 772,574 10,738,522 10,738,5222013 825,305 (5,213) (47,518) 772,574 11,919,759 11,919,7592014 825,305 (5,213) (47,518) 772,574 13,230,933 13,230,9332015 825,305 (5,213) (47,518) 772,574 14,686,335 14,686,3352016 825,305 (5,213) (47,518) 772,574 16,301,832 16,301,832

Option A: Completing work Today!Cash Flow 7,725,743.80$

Option B: Cost of WaitingCash Flow 16,301,832.13$

8,576,088.33$

Option A: Completing All the Work Today Option B: Compounded Cost of Waiting

Woodridge School District 68

SAVINGS by Completing all the work Today!

Slide 15

Other considerations

• This analysis looked at the “hard dollar savings”

• Did not look at additional costs such as:– Change orders– Cost overruns

• Costs associated with delays in the project completion

• Soft dollar savings such as personal time in not having to completely oversee project

Slide 16

Financing the solution

• Questions– Revenue Sources

• O & M• Lease Levy• Education

– Levy opportunities• Debt Service Extension Base• Not tax capped county

Slide 17

Financing Options• Operating Funds

– Debt Certificates– Alternate Revenue Source Bonds– Lease Levy

• Non-Referendum Levy– Limited Tax Bonds

• Life Safety Bonds– Need amendment process

• Working Cash Bonds– Requires 30 day petition period

• Funding Bonds– Debt Certificates– Requires 30 day petition period

• Referendum– Unlimited General Obligation Bonds

Slide 18

Conclusion

• Consider performance contracting solutions as an alternative strategy to meet your construction needs

• Review the costs and benefits

• Make an informed decision