Summary

The Committee on a Strategy to Renew Federal Facilities started its work by reviewing a substantial body of knowledge from the National Academies of Sciences, Engineering, and Medicine; federal oversight agencies; and industry associations that address the need to secure funding for the maintenance, repair, and renewal of aging federal buildings. The key issue is renewal: during meetings with senior agency officials, congressional staffers, and external experts from the public and private sectors, the committee realized that federal real property facility and financial managers believe they know what to do but are challenged on how to establish compelling strategies for facility renewal. To be successful, such strategies must inform senior officials and policy makers on how to make investments in federal facilities that improve an agency’s overall mission performance. The committee recognized this is a chronic problem that has challenged federal facility managers since the Property and Administrative Services Act of 1949 became law.

This committee addresses this chronic problem in a new way, with strategies on how to make investments that continually renew federal facilities in response to evolving and dynamic mission needs. The report’s five recommendations detail actions to fix age-old federal facility renewal challenges, built on the recognition that this is a facility asset management problem that requires a facility asset management solution. The recommendations introduce new facility asset management capabilities to develop strategies to ensure and assure that agencies will achieve their objectives and priorities efficiently and effectively.

STATEMENT OF TASK

The Federal Facilities Council (FFC)¹ formed this committee to identify broad-based, practical, and compelling strategies for securing continuing investment in the renewal of federal real properties and portfolios. Following its statement of task, the committee focused its work on the how—not the what—for adapting, repurposing, restoring, recapitalizing, and replacing real property assets. The committee considered multiple stakeholder perspectives, critical requirements, and expectations for providing long-term, cost-effective stewardship of the federal real property portfolio.

DEFINING RENEWAL

The committee’s first task was to define renewal for the federal real property portfolio, distilling how ongoing, annual maintenance, repair, and operations costs relate systematically to long-term capital investment. Following advice from the FFC, the committee defines renewal of a single asset as “the extension of functionality beyond its expected service life.” In this context, asset renewal includes renovation, replacement, and repurposing. This report extends this concept to “continual renewal” of an agency’s real property portfolio that can be calculated as the sum of sustainment and renewal requirements for each asset in the real property portfolio over long investment horizons.

When implemented, continual renewal of a real property portfolio, which is referred to as “renewal” in this report, has to respond to changes in agency missions, operational requirements, and stakeholder preferences. In practice, given operating constraints, federal agencies typically focus on sustainment funding and sum of underfunded sustainment, which is also referred to as the “real property deferred maintenance backlog.” The problem with this perspective is that it is a lagging performance indicator that does not fully account for an agency’s real property renewal requirements. As a result, few agencies have systematically renewed their real property portfolios over time, which has resulted in poor facility performance, and, in turn, suboptimal mission achievement.

This ongoing problem led to the committee’s view that a federal facility renewal strategy needs to be a policy, not simply a vision, that embraces a plan of action for an agency’s real property portfolio, with actionable procedures and processes for achieving its mission objectives and obligations. The committee identifies constraints that are embedded in executive branch policies and statutes or that result from a lack of information. The purpose of federal facility renewal strategies is to ensure and assure that federal facilities are being used to achieve the agency’s mission efficiently and effectively. The committee notes that

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¹ The FFC is a cooperative association of more than two dozen federal agencies that operates under the Board on Infrastructure and the Constructed Environment in the Division on Engineering and Physical Sciences of the National Academies of Sciences, Engineering, and Medicine.

effective facility portfolio management should systematically integrate expenses for annual maintenance and repair with the capital investments periodically needed to renew federal facilities over the lifetime of the agency.

The committee’s 25 findings and five recommendations are directed to the White House and federal agencies to implement a strategy for the renewal of federal facilities.

ESTABLISHING A FOUNDATION

The committee first turned to the international asset management standards, particularly the International Organization for Standardization’s (ISO’s) 55000 series, which it believes will improve federal agencies’ facility asset management capabilities and, if used as a template, could help to enable efficient and effective federal facility renewal strategies.

The committee then turned to well-established concepts and common-sense principles that underpin strategic management system thinking: the federal government has an asset management problem that needs an asset management solution. This key concept is imperative to the committee’s findings. Several key principles of asset management are precepts of the ISO 55000 series standards:

• Facility portfolio management: Federal facility renewal strategies must support an agency’s whole facility portfolio covering whole life cycles and stakeholder requirements across whole agency mission sets.
• Mission alignment: Mission alignment of resource prioritization requires the use of verifiable, repeatable metrics to link the relative importance of individual facility assets to stakeholder needs and performance expectations.
• Facility performance: Knowledge of each facility asset’s condition, functionality, availability, and utilization is required to understand a facility portfolio’s true capabilities and performance.
• Operational readiness: Investment decisions must demonstrate the cause and effect between what stakeholders value in terms of operational readiness and facility asset performance measures across a range of investment horizons and resourcing strategies.

FACTORS IN DEVELOPING STRATEGIES FOR FEDERAL FACILITIES RENEWAL

The committee notes that facility renewal costs are complex and have been viewed as a set of largely unrelated restoration and modernization requirements while often ignoring regular maintenance interdependencies. The committee examined two approaches to estimating current and future renewal costs: the

Builder Sustainment Management System (Builder)² from the U.S. Army Corps of Engineers and the economic depreciation³ model used by the Bureau of Economic Analysis (BEA) of the Department of Commerce. The Builder system is a condition assessment tool used across the lifetime of an asset; economic depreciation models are best used to assess the expected condition of a new asset as it ages.

The committee found the Builder system to be unsuitable for estimating renewal costs because of its limited scope and issues with its inspection and forecasting methods necessary to report anticipated annual maintenance and repair needs. However, the inventory data collected for use by Builder is valuable as an independent asset and would be useful if available for research purposes and for use by other models.

In contrast, the committee found the economic depreciation model to be consistent with the scope of renewal costs, and it benefits from a long history of academic research and application to policy. The committee encourages federal agencies to experiment with the depreciation model, modifying it to suit their particular facility portfolio.

The committee notes that the estimates of renewal costs using the depreciation model depend on building-specific measures of depreciation and service-life assumptions from BEA. These are aging data that are for the most part at least 20 years old. Revisions incorporating recent research and new sources would improve renewal cost estimates and also serve other types of economic analysis.

Because the cost of facilities renewal must be balanced with the benefits and risks to the agency mission based in its value, the concept of value and its role implementing federal facility renewal strategies is critical. Value generation, retention, and benefits always entail some levels of risk. From an enterprise risk management perspective, a strategic view of risk management seeks to add value and to focus executive management on execution risks in the following ways:

• Recognizing strategic risks as primarily compensated by their potential benefits to be retained and managed while avoiding or eliminating uncompensated risks,
• Integrating risk management within the agency’s strategy for its robustness and effectiveness, and
• Establishing an early warning system linked to critical assumptions underlying the strategy.

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² The Builder system is a web-based software application developed by the Engineering Research and Development Center’s Construction Engineering Research Laboratory. It provides civil engineers, technicians, and managers information needed to decide when, where, and how to best maintain building infrastructure.

³ Economic depreciation refers to how an asset (e.g., structures) declines in efficiency over time. It is contrasted with tax depreciation, which is whatever the tax authorities allow you to use when filing income taxes.

Value generation requires a multidimensional analysis that reflects input from appropriate stakeholders, considering agency values and mission needs. Furthermore, such analysis needs to attempt to measure the marginal increase in functionality achieving the agency’s mission.

A federal facility renewal strategy must reconcile operating budgets with capital budgets. Expenses are costs with immediate effects and relatively short-term benefits. Investments are costs that provide long-term benefits or returns that often are greater than the investment. To distinguish expenses from investments, businesses and government agencies have both operating and capital budgets. But the federal budget process is a cash-based budget and does not differentiate operating expenses from capital or investment costs. The operating budget includes expenses of operating a business or program in the near term, and it matches expenses with expected revenues to ensure the business or program can pay its bills and generate the expected desired outcomes on time. The capital budget has a longer-term focus; it calculates the plant and equipment investments necessary to replace the current inventory of assets when they reach the end of their useable lives and grow (or reduce) the inventory of assets needed to support or grow the business. Businesses and governments often finance investments by borrowing. In a capital budget, projects compete for investments based on the long-term benefits they produce. Once a capital investment is approved, the operating budget typically funds the annual cost to repay the principal and debt service and to provide for the facilities’ maintenance and repair. New strategies are needed to resolve this key issue that federal agency budgets have been facing since the Budget Control Act of 2011.

There is a compelling need for a persuasive message and effective communications with stakeholders, within and external to each agency, to renew real property assets for mission capability and service delivery. This need can be met by highlighting strategic communication principles for facility managers who wish to implement their asset management strategy and seek capital or other resources to renew real property assets for mission capability and service delivery. An agency’s real property capital plan, which guides its facilities renewal strategy, can be a powerful communications tool in assuring stakeholders that asset management is proceeding in an efficient and effective manner. The committee argues that agencies should consolidate individual facility needs into a portfolio of like facilities and then consolidate these portfolio needs into a real property capital plan.

Such communication must occur throughout all agency policies and processes and reflect the following features:

• Engaging appropriate federal and, potentially, private-sector stakeholders;
• Targeting appropriate communication channels; and
• Being clear, complete, comprehensive, appropriately nuanced, fact-based, and rich with quality data.

RECOMMENDATIONS

Federal facility managers and budget officers need to articulate a compelling message to identify and fund facility renewal needs. Senior real property officials also need to instill a portfolio approach, including a rigorous adoption of an asset management system based on ISO 55000 principles and requirements to enable agencies to identify, prioritize, and ultimately incorporate their most urgent facility needs and funding requirements into the President’s budget submission to Congress. Ensuring close collaboration between facility and budget management requires agencies to implement facility capital planning through their strategic planning processes, with senior leaders, to reconcile agency performance goals with available budgets and capabilities.

The committee suggests that agency strategies for renewing federal facilities incorporate four elements:

• Use an asset management systems approach to real property portfolio management that ensures and assures alignment with mission objectives and priorities; integrates annual operating costs with planned, periodic investment in (capital) construction and rehabilitation; and mandates its use in statutory, policy, and agency directives.
• Employ capital planning and risk management tools that meet science-based, professional standards for accuracy, rigor, transparency, and credibility, as well as risk management methods with common standards of integrity.
• Ensure budgeting structures with sufficient resources for implementing facility renewal strategies, including user charges for the full cost of operating, maintaining, renewing, and disposing of facilities; aggregating funds in revolving or working capital funds to prioritize investments across the portfolio and avoid funding “spikes”; establishing capital acquisition financing funds, such as a Federal Capital Revolving Fund, discussed in Chapter 6, to provide agencies with a source of capital they can repay over time; and privatizing or using public–private partnerships to devolve those public facilities and related services that are not inherently federal government responsibilities.
• Follow a strategic communication strategy that ensures and assures that stakeholders and decision makers understand the short- and long-term costs, benefits, and risks of federal facility renewal strategies and their relationships to achieving agency mission objectives.

To better enable a strategic approach for facility renewal, the committee offers the following five recommendations for an effective strategy. These recommendations are underpinned by 25 findings listed in the chapters. (Appendix H lists all of the findings and recommendations.)

(See Findings 2.1, 2.2, 2.3, 2.4, 3.1, 3.3, 3.4, 3.5, 3.6, 3.7, 5.1, 5.2, and 6.1.)

(See Findings 2.4, 3.1, 3.2, 3.3, 3.4, 3.5, 3.6, 3.7, 6.1, 6.2, 6.3, and 6.8.)

(See Findings 2.2, 2.3, 2.4, 3.2, 3.3, 3.5, 3.6, 3.7, 4.4, 4.5, 5.1, 5.2, 6.5, 6.7, and 6.8.)

(See Findings 3.5, 4.1, 4.2, 4.3, 4.4, 4.5, and 6.3.)

(See Findings 3.1, 3.2, 3.4, 3.5, 3.6, 3.7, 4.4, 5.1, 6.1, 6.2, 6.3, 6.4, 6.5, 6.6, 6.7, and 6.8.)

The committee offers these recommendations as a starting point for a bold, new approach to managing facility assets. They introduce perspectives that will lead to transformational change, starting with how value is determined in a federal facility renewal strategy. This includes changing the basis of value from managing asset life-cycle activities supporting an agency’s mission to managing mission value generated by facility assets. This approach fundamentally changes how supporting resource-and-investment decision making is viewed and will require changes to policy and practice. The greatest return on investment will come from initiatives that support implementation of disciplined facility asset management capabilities.